This blog was originally published on https://optilon.com/optilon-academy/transforming-to-a-customer-driven-digital-supply-chain/.
Building a customer-focused, digitally enabled supply chain comes with its challenges, but the benefits make the effort worthwhile. According to a survey from the Digital Supply Chain Institute (DSCI), the design of and transformation to a digital supply chain with the customer in mind, can reduce procurement costs for all purchases of goods and services by 20% and reduce supply chain process costs by 50%. In addition to decreased costs, digital supply chain transformation can increase revenue 10% by creating a better customer experience and new routes to market.
In this post we will provide you with some inspiration on how you can design and transform to a customer-driven digital supply chain, and the role of the supply chain manager in enabling this transformation.
What does supply chain digitization mean?
Before we dive into the how, let’s have a look at what transforming to a digital supply chain means. Real digital transformation is not about getting your company to use a specific set of new technologies. It is about your company’s ability to react and successfully utilize new technologies and processes. In a supply chain context, the approach to digitization could happen at three different levels:
- The first level is strategic focus on digitization as part of the supply chain strategy. This level is at the overall business level and is concerned with how digital strategies can improve existing business models or develop new business models.
- The second level is about identifying which business processes are influenced the most by digitization and what projects are needed to be implemented. Business processes and technologies must go hand-in-hand.
- The third level is the enabling level, focusing on the concrete technologies and systems to be implemented in supporting the requirements of business process outcomes.
The human factor is of course of vital importance and is too big a subject to cover here.
Regardless of the size of your company or the sector it is involved in, real digital transformation includes using new devices, platforms, systems, and networks to create:
- More profitable business models
- More efficient operating processes
- Greater access to markets
- Enhanced offerings to users
- New sources of revenue
Challenges of customer-focused supply chain digitization
Transformation in any part of a business has always been difficult. It requires organizations to juggle multiple moving parts, including people, processes, and organizational infrastructure. And it requires them to overcome all the usual technical, organizational, and cultural obstacles to change.
Digitally-enabled transformations add two extra challenges into the mix. First, there is the extra technology component, which must be handled alongside changes to processes, organizational infrastructure, and mind-sets and behaviors. The second, and more significant, challenge is the lack of a single, clear destination.
Digital technologies are evolving so rapidly that there hasn’t been time for many of them to prove themselves at scale. Supply chains are so specific to each company’s product range, operating footprint, and customer needs that there is no archetype.
All that extra complexity and uncertainty means that companies can no longer follow the traditional linear transformation path: they need an iterative approach. New digital technologies must integrate with people, processes, and organizational infrastructure—but those technologies will also influence how each of the other elements should be redesigned.
It’s all about market responsiveness
Most supply chain executives used to be expected to deal with working capital, operating costs, and customer service. In many companies, the supply chain worked in the background, trying to keep operations smooth and all the stakeholders happy.
Supply chains are still the central nervous system of the economy. We see the supply chain in action every day, as we see transportation on our roads, rail, sea and in the air. Most consumers do not even realize to what extent they depend on supply chains in sustaining their everyday way of life.
Also, as more and more sales happen through digital channels, the supply chain is now a key player in the definition of the go-to-market model. Customers going online have become increasingly demanding and the operating environment has become more complex.
The continued, and quick, growth of e-commerce is giving air to the idea that consumers can interact with retailers and brands through multiple devices, order products through these devices, choose from multiple delivery options and expect a seamless experience throughout is now coming to the forefront even more rapidly.
This also means that the traditional “inside out” approach does not work any more and many companies are on the road to become more agile and market responsive. Digitization plays a key role in this transformation.
Supply chain managers must become more business-facing
With the above in mind, supply chain professionals must take on more business-facing activities, particularly in the areas of planning and customer relations. Also, companies have begun thinking about end-to-end planning, become serious about demand planning, and aligning different actors in the company such as sales and finance.
From a supply chain digitization perspective this is putting pressure on traditional supply chains to improve their master data management, develop new data models and manage a magnitude of orders and product availability complexities.
Supply chain managers should look for enabling technologies
Hearing and thinking about supply chain digitization also means hearing about many technologies and buzzwords; many of which as yet have very few proven use cases. For supply chain managers balancing the “day to day” imperatives of service, cost and working capital management, as well as navigating internal stakeholders, it can be difficult to know how to approach the topic.
The supply chain manager can look at the Gartner Supply Chain Strategy Hype Cycle, which represents the maturity, adoption, and social application of specific technologies. Though, when reviewing those it is equally important to separate the hype from reality and identify those that have a best fit for the organization. This could mean engaging critically with new revolutions, benchmarking against others, understanding the right fit and developing the internal business case.
Supply chain managers must look for game-changers
New technologies are not the only thing that supply chain managers should look for. Running a competitive supply chain in a volatile world demands a constant outlook for game-changers. The impact of political instability around the world is impeding the efforts of global companies to efficiently drive cross border trade. It will also disrupt global sourcing strategies designed to make in-bound supply chains leaner through accessibility to a greater diversity of sources.
Adding to that, we have “Uberization” and climate change which challenges the designs of the supply chain. With Uberization we mean asset sharing, pushing utilization rates up and accompanying transactions down. We are just at the bottom of the learning curve, so there is a long way to go.
In other words, because the likelihood is that centre-of-gravity of a supply chain is going to change frequently in the future, given the volatility of the business environment, the need for flexibility in the supply/demand network increases. Resilience comes with a cost so a conscious decision about what level of flexibility the company should provide is key. In other words, all this uncertainty is the enemy of efficient supply chains.
The vulnerabilities of the changing supply chain were also visible long before the crisis hit. Developments were driven by a need to make the supply chain more sustainable, become more digital, adapt to new business models and become more efficient. Simultaneously, the capabilities to respond and adapt to rapid and big changes in volumes and customer behavior. The crisis has just highlighted these vulnerabilities.
Creating an “outside in” approach
The only way you can claim to be truly “people/customer-centric” is to find a way to interpret customers’ expectations, organize these into a small number of groupings or segments, and then directly link these back to the organization’s challenges. In other words, mapping the market in this way becomes a frame-of-reference for re-engineering inside the organization.
Designing a supply chain that will function for five to 10 years is a big investment. Doing this successfully means understanding the individual values that shape buying behaviors. The first thing to understand is buying behaviors. According to John Gattorna, author of the book, Transforming Supply Chains, you should expect to uncover four or five dominant buying behaviors for any given product/service category in each target market—and that, combined, these will give you about an 80 percent fit to a given market.
Once you’ve done the research to understand the buying behaviors, associated with a particular industry and company and products, it’s a fairly straightforward task to work backward to engineer an equivalent number of suitably structured supply chains. In other words, once you understand the structure of your market, you can replicate that structure inside your business and within the supply chains that are hard-wired into your business.
Buying behaviors will change. The changes, however, tend to involve short-term shifts between the behaviors already identified. This is a process, however, that demands the ability to understand, observe, and connect with customers.
What Gattorna is arguing for is an “outside-in” approach. It’s consistent with the Design Thinking that Roger Martin introduced about 10 years ago— the idea of looking back at your own company through the eyes of your customers, and trying to understand what’s in the customer’s mind.
The digital supply chain must be designed
High performance supply chains do not just evolve over time; they must be consciously designed to fit specific product-market combinations. The design or redesign process must work from “outside in”, supported by design thinking. It is necessary to see the patterns in the market and the demand data and respond with precision.
John Gattorna’s framework Dynamic AlignmentTM is a worthwhile tool to look into. Tailored supply chains will help you create the market responsiveness you are looking for, as it provides flexibility. Without flexibility and the right technologies, it is difficult to claim that you have the customer in mind. So first you must understand your business landscape and then you should design the supply chain of the future.
Here are the main points to remember:
- Look for game-changers
- Assess the technologies
- Segment the customers
- Understand buying behaviors
- Build the transformation plan
Alis Sindbjerg Hinrichsen is Commercial Business Development Lead for Optilon, a ToolsGroup partner.
By Alis Sindbjerg Hinrichsen