From the April 2022 print edition
Some aspects of supply chain management stay constant. Disruption, uncertainty and the need for agility all remain among the top priorities of those in the field. The COVID-19 pandemic and, more recently, war in Ukraine, are examples of how events beyond our control affect those supply chains. What has evolved is the ability to deal with these challenges. Technology and digitization playing a key role in that evolution.
Supply chain leaders realize this. In the most recent Key Issues Study from The Hackett Group, enterprise digital transformation jumped to the top priority for 2021 among supply chain executives who responded to the study. Over half (53 per cent) of respondents reported having a major digital transformation initiative on the enterprise agenda. As well, 65 per cent of these companies have accelerated their digital programs since the pandemic began in 2020.
“You look at these issues over time, there have always been disruptions – there has definitely been more, but there have always been disruptions,” says Richard Lebovitz, CEO of LeanDNA. That said, the need for digitization wasn’t as strong previously. “People were very happy working in the war room with spreadsheets.”
The remote working that sprang from the pandemic has shifted organizations to operating much more online, Lebovitz says. While many organizations initially resisted digitization, many have been forced to adapt. The pandemic has influenced this shift towards the digital. So too has growing product customization and configuration, he says. For example, two decades ago, an aircraft mainly had to
be safe, efficient and good quality. Now, onboard electronics, seat configuration and other factors also play a role in design.
“The other trend is just the globalization of supply chain, where you went from a factory making everything from beginning to end, to where now there’s a lot of tiers and global suppliers all over the world,” Lebovitz notes.
Both the fourth industrial revolution, or Industry 4.0, and the pandemic have catapulted business further into digitization, says Maria Greaves-Cacevski, senior category sourcing lead at Chemtrade Logistics. Organizations are looking to reduce complexity while optimizing everyday tasks through technology. IT projects that were previously viewed as an expense are now seen as essential.
Complexity arises from trying to break down silos within an organization so that processes run seamlessly from start to finish, she says. Understanding the challenges that team members and stakeholders face helps to avoid putting undue pressure on them and minimizes the creation of new, smaller problems. Digitization can also help to optimize other areas like supplier risk analysis, Greaves-Cacevski says.
“We’re able to put information in real time and disseminate it to our key stakeholders so that they can make the best decisions on where to source or where there is alternative sourcing,” she says.
Several areas of technology investment have accelerated in the past two years, due to the pandemic and, more recently, the crisis in Ukraine, says Josh Nelson, associate principle at The Hackett Group. Those events created a combination of demand shocks and supply disruptions – airport closures, manufacturing facilities and transportation systems shutting down while consumers bought more household supplies.
“What companies were looking for at that point was, ‘how do I do business processes quicker? How do I become more agile?’ That’s where a lot of the digital investment came in,” Nelson says. “If you have the right tools to do the planning and for visibility, you can really turn plans around much quicker.”
Changing supply chains mean companies need better visibility to make data-driven decisions, says Michael van Keulen, chief procurement officer at Coupa Software. And while those supply chains have had a long-standing need for digitization, that need has only accelerated in the past few years due to supply chain disruptions.
“It’s just magnified the importance of digitization, and companies that didn’t have a good strategy around digitization found themselves in trouble because they just didn’t have the right visibility nor the ability to very quickly pivot between speed over quality, over continuity, over lead time,” van Keulen says.
While cost historically has been a major factor for supply chains, business continuity has gained in importance, he notes. Having a digital twin of your supply chain provides an easy way to run ‘what-if’ scenarios, allowing organizations to pivot quickly between suppliers while grasping potential downstream ramifications.
Data is key
A first step towards digitization is getting connected with accurate data, says Lebovitz of LeanDNA. The best software is useless if the data it uses is bad. Yet, ensuring good data isn’t a one-time event. Data quality must be an ongoing part of a digital transformation.
The next step involves working to ensure visibility and identifying priorities. That process requires analytics, while priorities must then be clear across each element of the supply chain. The next step in digitizing is ensuring proper workflow. That can help shine a light on a problem’s cause while providing a framework to collaborate on solutions. The next stages involve adding a layer for the dashboard and the executive management and control towers, followed by automating the process through robotics process automation (RPA).
“If you don’t do all these other steps and you try to go direct to automation using AI, you could have a lot of issues because people don’t really believe it and they don’t trust it,” Lebovitz says. “It’s important for building trust in the information, trust in the prioritized action, that it’s the right thing to do. If you do that well, you can get to full automation.”
Planning is essential to digitization, says Greaves-Cacevski. Although the data behind technology is black and white, the process involves people. Remaining flexible is important, she says. Consulting stakeholders, analyzing industry metrics and trends, learning from past successes and failures all count when mapping out how to implement a strategy.
“Everything is a journey right now, and with journeys there are ups and downs,” she says. “Being able to react and to change as you need to; adaptability is critical in implementing any kind of software system.”
The Hackett Group’s Nelson agrees on the importance of assessing the state of supply chain processes when beginning a digitization process. The technology, how the organization is performing, and so on can all be assessed. Look at the organization’s performance compared to peer companies, whether the cycle time is longer, and how the service level compares. Such assessments show where opportunities lie.
Poorly performing processes can be illuminated, making it more likely that a given technology will improve them.
“It becomes less of, ‘just digitizing for the sake of digitizing,’” Nelson says. “You’re actually trying to solve a problem and improve business performance.”
Something for all
Digitization doesn’t just help the procurement department, says van Keulen. While procurement benefits through, for example, better spend compliance, visibility and structure, digitization offers something for every cross-functional department in a company. Finance gains through improved governance, enhanced controls and accuracy in financial reporting. For the IT department, a cloud-based environment needs fewer resources to maintain their infrastructure. The business benefits through reduced administrative burden and a more seamless experience between managing their budget versus forecasting and actuals. It’s about extracting more value from business spending, which helps to accelerate achieving strategic objectives, he says.
“The key to success for digital transformation is, don’t do change to the people, do it with them,” van Keulen says. “Demonstrate there’s something in it for every single person in the company. This is not an administrative procurement tool, for finance or IT. It’s also not just for legal or the business. It’s for all of us together.”
A clear business case helps to get stakeholder buy in for digitization, says The Hackett Group’s Nelson. That involves more than just savings – doing things quicker, increasing working capital and providing better service are additional selling points.
“If you can really start focusing on the opportunities and have an embedded business case, that goes a long way,” he says.
It’s important not to blindside end users when introducing digital tools, cautions Greaves-Cacevski. While it’s not ultimately their decision, the success of digitization depends on their buy in. As for the C-suite, gain their approval by presenting the case using a familiar term: return on investment.
“There will be intangible benefits that we may not be able to quantify,” she says. “But bring it back to the values and the deliverables of your respective organization. Show them how the software is going to meet and overachieve those deliverables.”
Finally, it’s important to keep change management in mind, Greaves-Cacevski adds, as there’s often apprehension around new technology. People worry that technology will change their jobs, and there can be concern about what changes may look like. While these shifts come with a learning curve, emphasize the value they will bring, she advises.
“Digitization is critical, and with the pandemic, we’ve gone into reactive mode,” Greaves-Cacevski says. “A lot of people aren’t comfortable using technology. We have to look at the softer side of change and how quickly it’s happening.”