ASCM Insights
Digital Transformation in Supply Chain Planning: Barrier or Enabler?
By George Fowler
Has your company initiated a digital transformation initiative? Digital transformation marks a radical rethinking of how an organization uses technology, people and processes to improve business performance. When the latest technology is implemented correctly, it has the potential to optimize processes, reduce costs and boost earnings. In fact, McKinsey & Co. estimates that companies that aggressively digitize their supply chains can boost their annual earnings before interest and taxes by 3.2% and their annual revenue by 2.3%.
However, if your company has not yet embarked on its digitization journey, you certainly are not alone. A 2019 digital transformation study by ToolsGroup and Spinnaker found that only 7% of participants are reaping the benefits of digital transformation of supply chain planning. More than half of respondents still are exploring and evaluating their options, another 8% are working on gaining broad organizational support, and about a third are in the process of implementing and deploying the technology.
At the same time, about 90% of the nearly 200 surveyed supply chain professionals noted that volatile demand and unpredictable customers are at least a moderate supply chain planning challenge. This requires faster, more agile supply chains enabled by digitization.
So, what’s holding everyone back?
Fear of change was the number-one barrier mentioned by respondents. Change management is difficult to begin with, and some executives may resist investing in technologies that do not have a proven track record of success. In addition, employees may resist the influx of technologies, worrying that their jobs will significantly change or be eliminated. McKinsey & Co. advises that these fears can be assuaged by explaining to stakeholders what the digital transformation actually means and highlighting its benefits, such as an improved customer experience, greater service levels and higher productivity.
Along with fear of change comes some of the practical aspects of change, such as whether workers have the skills to work with the new technology. Planners and other supply chain practitioners in the new digital world need skills in communication, decision making and change management on top of the standard technical skills. In line with this, about one-third of companies reported that they are investing in staff training to help fill knowledge gaps and further increase the success of digital transformations.
About 25% also say they are risk averse and therefore have not pursued digital transformation with gusto. This is logical, because many types of technology are still new, and use cases are yet to be substantially proven. Furthermore, with so many different technology options — even for a specific type of technology — on the market, it is difficult to know which types of technology and brands deserve investment.
The bigger picture
In reviewing the results of the “Digital Transformation in Supply Chain Planning: On Pace or at Risk?” study, two big points stand out to me. First, digital transformation is not a singular activity. It is a set of interrelated activities that span across people, processes, technology, policies and metrics. Organizations are actively working to strike a balance across all those dimensions. They need innovative planning technologies that support operational business goals, skilled personnel to apply the technology profitably and change management to effectively embed these capabilities into corporate culture.
Second, although progress might seem slow, the fact that 27% of respondents are in the executing phase shows that efforts to realize the benefits of digital transformation actually are moving forward at a fast and furious pace as companies identify use cases, build roadmaps, and select and deploy technology. Indeed, 21% of respondents are working on projects related to the internet of things; 18% robotics; 16% artificial intelligence; 14% machine learning; and 12% augmented and virtual reality, blockchain and drones.
But, as with any other technology project, there is not a one-size-fits-all approach to digital transformation. Company leaders need to seriously consider the business cases of the various technologies and evaluate how different technologies can benefit their organization’s goals. From there, they need to set a roadmap that plans out the steps in their digital transformation, which is not just a one-and-done activity but rather a set of projects that add up to a huge competitive advantage.
In addition, organizations should consider what is holding them back from digital transformation. How can these roadblocks be overcome? And what do you stand to gain?
George Fowler is a group vice president in Spinnaker’s supply chain business unit. He has led more than 75 supply planning initiatives that have generated billions in realized business value for companies across various industry verticals.