Industry 4.0 has brought new challenges and new realities to businesses, such as the digital supply chain. If you’re struggling to understand what it encompasses, this article will explain what it is and the strategies you cannot miss.
Definition of Digital Supply Chain
Defining a digital supply chain can be challenging. This happens because we can have two definitions:
This first definition considers the digital features of a physical supply chain. Being so, as stated in an article by Bit Sight, the “digital supply chain is typically used when discussing how the development and implementation of advanced digital technologies (IoT, blockchain, machine learning, artificial intelligence, predictive analytics, etc.) can drive improvements to traditional supply chains”.
According to this, the main goal is to improve efficiency by using technologies such as artificial intelligence, robotics, and predictive analysis.
The other definition, also mentioned in the previous article, is related to the technologies involved in the delivery of digital products. It was first described in 2001, by stating that it encompassed “the supply chains of digital products that initially existed in physical form, such as ebooks and mp3s”. Nowadays, it has evolved to include any party that assists in the delivery of digital products, like software or a website.
This definition has widened the number of participants in the digital supply chain. It has done so by taking into consideration the role each member has in the functioning of the chain.
The truth is that the digital supply chain became a reality thanks to the Internet of Things (IoT) and the evolution of artificial intelligence and machine learning.
Traditional Supply Chain vs Digital Supply Chain
A supply chain operates according to the following steps:
- Plan: assess all the resources available and understand what customers want and need.
- Source: find suppliers that meet the demand for quality, price, and service. This is a crucial stage to avoid stock shortages and increases in the final price.
- Manufacture: this is the conception of the items and is strictly related to the compliance with delivery dates. Planning production correctly is important, especially to understand when goods will be ready for the market.
- Delivery and logistics: one of the most important steps in the supply chain, since it is at this stage that the customer receives the item. Reducing the carbon footprint and shortening the costs of deliveries is a challenge everyone is facing.
- Return: at this stage, returns of products should be studied to understand what went wrong. Some companies are encouraging the return of old products to be recycled and reused, reducing the environmental impact.
Contrary to a traditional supply chain, where information and the product travel linearly, the focus is on the process as a whole in a digital supply chain. Thus, it is more flexible and takes the customer into consideration.
Furthermore, in a traditional supply chain, failures or errors in processes are communicated or discovered a long time after they happen. As a result, production or services will be delayed, and the customer won’t be informed. Disappointment with the service and/or even the client loss are two of the possible consequences, among others.
Digital Supply Chain integrates all the phases of the process and monitors all activities in almost “real” time. A supply chain control tower monitors all phases from supplier, production, and distribution to the customer. Thanks to the use of technologies, suppliers are constantly sharing information on production, raw materials, or breakdowns. Consequently, all data is analyzed and they make predictions to avoid delays. The ultimate goal is to avoid non-compliance with the customer’s request.
Digital allies and strategies
Success in the digital supply chain is only possible if the features of a traditional supply chain are understood and put into action.
With new generations expecting products to be more complex and innovative, pressure is constantly on companies. In order to overcome the challenges, there are some strategies and trends to lend a hand in times of need.
As mentioned, technology is a powerful ally in digitalisation. One tool that emerged thanks to it was the digital twin. With it, it is possible to simulate the product or the process’ supply chain and create what-if scenarios. These scenarios facilitate decision making in case of problems. Let’s think of an example: we have four suppliers making the same shoes for our brand. One of them suddenly increases the price and we cannot accept paying more. If we stop buying shoes from them, can we still deliver all the orders on time with only three suppliers producing? This model will present the options and facilitate decision making.
Automation and Algorithms
Automation is being used in warehousing to reduce the costs of handling products and make faster deliveries. Together with automation, algorithms help simplify the planning of safety stocks. They simulate several situations and predict outcomes based on inputs they receive from third parties.
Micro-segmentation and predictive analysis
Customers are becoming aware of the strategies companies use to apply to get their attention and close a deal. In a world with even more competitors fighting for customers, standing out from them is a challenge.
Micro-segmentation is a precious help to reach people that are more likely to buy from us. Thanks to predictive analytics, it is possible to forecast what customers will need and in which quantities it should be produced.
In 2014, Amazon patented the “anticipatory shipping” as a new model that would ship products to the client even before the order was placed. But, how is it possible? By using customer data, analyzing searches, clicks, and others, Amazon will get these predictive analytics and combine them with transportation and warehousing. The ultimate stage is the forecasting of orders with minimal errors. Despite the risks involved, this is likely to change the way business is done.
Global markets increase the risks of failure for many industries. Monitoring a supply chain when part of it is far away, is a big challenge and is highly costly. Recently, some players have decided to move suppliers to their home countries to lower costs and increase the detection of errors.
Reducing supplier dependence is also excellent advice. In case of a problem, if one fails, others will be able to substitute with minimal impact on the chain. For example, Toyota buys 60% of one component from one supplier, but the remaining comes from two others (20% each).
Digital Supply Chain: how to stay safe
Digital Supply Chains are complex and well distributed. The numerous third parties participating in it compromise its security. Once one of them is affected, others will follow due to the amount of data that is shared among them.
When thinking about security, it is imperative to consider all aspects and all intervenients. To do so, mapping all the connections is one of the best practices. Despite implying a great investment, businesses will benefit from this, as all stages are better controlled and better prepared for unexpected situations.
Digital Supply Chain Management: getting to the front line
Digital Supply Chain is more than a trend. Starting one, demands considerable planning and analysis, particularly in terms of partners. In order to predict and react faster, the definition of metrics cannot be ignored. They will show how a failure will impact the delivery, as well as facilitate logistics and customer service.
The ultimate goal of a digital supply chain is to deliver the product rapidly with maximum efficiency. Here, the customer is once again the central figure of the process. Everything is thought about and developed in order to meet their needs.
Getting to the front line of the management of a digital chain might not be a piece of cake, but the results will certainly be worth the effort.