Supply Chain Digital Transformation: Improving Performance

At almost every kind of business worldwide, the people responsible for managing the supply chain have stepped into the spotlight amid product shortages, economic uncertainty, shifting customer demands, and new government regulations concerning supply chain sustainability and human rights. It’s no longer enough for companies to have visibility into what their suppliers and customers are doing. They need an extended, real-time view into their suppliers’ suppliers and customers’ customers.

As CIOs look to upgrade, even overhaul, their companies’ supply chain management (SCM) systems in this dynamic environment, their top priorities are to increase access to data, use data analytics to improve the planning process, increase supply chain capacity, and speed the delivery of goods, according to a survey from analyst firms IDG and GEP.

Research from the MIT Center for Transportation and Logistics found that such supply chain digital transformation can cut process costs in half and increase revenue by 20%.

What Is Digital Transformation?

Digital transformation entails integrating digital technologies into every aspect of a business to improve how it operates and delivers value to customers. It includes adopting applications that automate hiring, accounting, and supply chain processes, advanced data analytics that uncover customer and supplier behaviors and trends, and cutting-edge technologies such as the Internet of Things (IoT), artificial intelligence, and robotics.

For example, a manufacturing company undergoing a digital transformation might start by moving away from Excel spreadsheets and manual data entry to a cloud-based finance system. Then they might begin to explore analytics systems that derive insights from data collected on the factory floor and throughout the supply chain to improve processes.

However, digital transformation isn’t just about acquiring and integrating new technologies. It also involves a cultural change that requires corporate leaders to assess every aspect of their business, including the people they hire, the markets they sell into, and their relationships with vendors and customers. 93% of organizations surveyed in 2023 by IDG’s Foundry unit said they had adopted or planned to adopt a “digital-first” strategy.

What Is Supply Chain Digital Transformation?

Supply chain digital transformation is the process of deploying digital tools, technologies, and strategies to enhance efficiency and optimize the entire supply chain ecosystem. The goal of supply chain management (SCM) is to manage the flow of assets, from the sourcing of raw materials all the way to the distribution of final products to customers, in the most efficient way possible. To digitally transform a supply chain, companies need to move away from the concept of a linear chain and adopt a networked approach.

Digital transformation allows manufacturers to collect, share, and analyze supply chain data at every stage—including demand planning, asset management, warehouse management, transportation and logistics management, procurement, and order fulfillment—to get real-time visibility. However, to reap the full benefits of their new technology, manufacturers must make sure their employees are comfortable with deploying and using the latest supply chain systems, which could mean both recruiting new talent and upskilling less digitally savvy team members.

Key Takeaways

• Organizational leaders need to enthusiastically support the rollout of new supply chain technologies, setting clear goals that span departments and roles.
• Supply chain digital transformation goes beyond technology updates to include underlying process changes.
• Early supply chain transformation efforts aimed to connect finance data to data from planning, warehouse management, and decision-support systems. The goal now is to combine cross-functional data, such as inventory, order, and shipment data, to not only uncover the causes of problems but also predict issues that could disrupt the supply chain.

Supply Chain Digital Transformation Explained

While conventional supply chains allow logistics managers to plan and react, digitally transformed supply chains make it easier to forecast demand, identify supply chain issues, reduce lead times, and take actions to avert slowdowns. The goal is to ensure on-time delivery, improve customer service, and reduce costs through better efficiency, visibility, and collaboration. Manufacturers that commit to supply chain digital transformation need to take a three-pronged approach: assessing and, if necessary, reorganizing the planning team; centralizing analytics capabilities; and hiring or reskilling talent for the new jobs created by the move to a digital supply chain.

The first priority for any digital transformation plan is increasing supply chain visibility. Doing so will reveal the elements of the existing supply chain that will benefit most from technology and process improvements. For example, implementation of real-time tracking and monitoring systems provides visibility into the movement of goods, while IoT devices collect data on inventory levels, temperature, and other relevant parameters. With demand forecasting and planning applications, planners can analyze historical and real-time sales data and align it with data on market trends, customer preferences, and other factors. Route optimization software helps shippers reduce transportation costs and improve delivery times.

Company leaders need to define their overall objectives for the transformation and prioritize the technologies and processes most relevant to those objectives. Starting with pilot projects reduces risk and provides opportunities for small-scale change management initiatives, letting employees learn and experience the new technologies that will eventually become a major part of their work lives.

Supply Chain Digital Transformation Goals

Manufacturers looking to digitally transform their supply chains need to establish several goals at the start, then prioritize them based on which ones can be most easily met and which may need to wait until technology advances make achieving them more feasible. Cloud-based supply chain applications are constantly improving, so process changes that seem out of reach today may be achievable in a year or two. The following are the four most important goals:

• Enhance visibility so stakeholders can track products, assets, inventories, and resources across the entire supply chain and gain accurate, real-time data on customer demand.

• Improve efficiency by automating or eliminating manual processes and consolidating others.

• Reduce lead times by increasing production throughput.

• Enhance collaboration to reduce errors and increase the responsiveness of various stakeholders, including suppliers, distributors, manufacturers, and retailers.

How to Plan a Supply Chain Digital Transformation

As companies start their supply chain digital transformations, they’ll need a multiyear roadmap that encompasses physical infrastructure (warehouses, factories, means of transportation, and the like), technologies (SCM applications, the Internet of Things, data management and analytics, and so on), processes, and talent. Start with the following steps.

1. Create a plan based on business goals

Any digital transformation plan needs to lay out a clear vision tied to organizational goals. At a more tactical level, such a plan should also include an inventory of existing resources, including employees, real estate, and machinery, as well as applications and devices, an assessment of how data is collected and analyzed, and an evaluation of whether the organization has the right talent.

The plan should take into account external circumstances, including market trends, global economic predictions (such as increases in fuel prices and trade embargoes), and changes in the competitive landscape and brand reputation. Identify quick wins to show progress and build executive support.

For example, a company may want to improve its demand planning by enabling real-time responses to disruptions. One such disruption was the backlog at the Port of Los Angeles and Long Beach from October 2020 to November 2022, which affected both incoming orders from suppliers and outgoing orders to customers. For large organizations with thousands of products and complex bills of materials, getting visibility into the impact of each individual shipment delay was a huge challenge. The companies that were best able to weather this particular storm were the ones that could analyze massive amounts of logistics data in real time, including information about inventory levels, production capacity, lead times, and procurement processes, and act on notifications about alternative options.

2. Evaluate existing systems

Don’t build on a broken foundation. If there are deficiencies in your current supply chain, identify which stages or processes can be improved. Cloud-based SCM applications come with their own process best practices, honed and augmented every quarter based in part on feedback from customers. Consider adopting those best practices rather than trying to customize your own legacy—sometimes broken—ones. Also evaluate the supply chain data you’ve collected in the past, prior to the start of your digital transformation project. Does it need to be prepped and further cleaned before you can add new types of data and use new analytics methods?

3. Get stakeholder buy-in

Key stakeholders in a supply chain digital transformation include supply chain and warehouse managers, logistics planners, IT managers, finance pros, procurement managers, and executive leaders, all of whom need to be involved from the beginning of the initiative so it can benefit from their expertise and buy-in. Executive support is the most important, starting with the CEO. Employees need to understand the goals of the transformation program and feel comfortable taking risks and recovering from failure.

4. Unify data for supply chain visibility

Disconnected, siloed applications and data sets make it almost impossible for organizations to see across their supply chains from end to end. It’s why integrated, cloud-based suites of supply chain services running on the latest cloud infrastructure are so critical—they give organizations real-time visibility across their inventory management, warehouse management, demand forecasting, logistics, and other processes. Ideally, each partner across the supply chain regularly feeds systems with data on inventory levels, costs, timing, and other variables, factoring in information on weather, labor strikes, crop failures, and other events that can influence supply and demand.

5. Automate routine processes

The basic definition of supply chain automation is the use of technology to perform supply chain processes with minimal or no human intervention. Processes that can be automated include paying invoices, route planning, generating certain reports for management, and triggering reorders when inventory falls below set thresholds. More-advanced automation comes from data analytics software that lets supply chain managers identify patterns that suggest a coming shortage of key materials or shipping delays.

6. Take advantage of AI- and ML-powered analytics

Manufacturers are increasingly using artificial intelligence and machine learning to improve forecasting and identify patterns that make it possible to predict supply chain disruptions. In fact, 73% of 200 supply chain executives surveyed by consultancy EY said they were piloting or planning to use machine learning in 2022, and research from IDC indicates AI capabilities will be embedded into 90% of enterprise applications, including supply chain apps, by 2025—for good reason. AI-based demand forecasting tools, for example, help organizations adjust their inventory levels and prevent stockouts. Logistics managers can use AI-powered software to chart the best shipment routes, factoring in weather, traffic, construction, and other data as well as historical data.

7. Train teams on new technology

Effective supply chain management requires not only the latest technologies but also people with the latest technology skills. Those skills run the gamut and include expertise in manufacturing, order management, logistics, product lifecycle management, warehouse management, and project management applications as well as facility with the Internet of Things, data analytics, and augmented and virtual reality technologies. One benefit of the latest cloud-based services is that they’re generally easier to set up, learn, and use than legacy on-premises applications. Regardless, organizations need to make ongoing supply chain technology training a priority and offer it in a variety of formats—for example, in-person or via video or digital interactive media—to accommodate different learning styles.

The Evolution of Supply Chain Technology

All but the smallest manufacturers use technology for supply chain planning and execution, but in a surprising number of cases, logistics managers are still manually performing tasks, such as emailing spreadsheets and calling a vendor for delivery information. Early efforts to digitalize supply chain operations focused on connecting finance application data to data in planning, warehouse management, and decision-support systems, with the goal of just-in-time product delivery at the lowest possible cost. What those technologies lacked, though, was the ability to combine other cross-functional data, such as inventory, order, and shipment data, and the ability to uncover the causes of problems and predict supply chain disruptions. The supply chain management systems of the future will integrate data from across the entire extended enterprise, including finance, inventory, third-party suppliers, and customers, and use that data to make the supply chain more efficient and lower costs.

Supply Chain Digital Transformation Example

Mazda Motor Logistics, which distributes Mazda cars and parts in Europe, lacked real-time visibility into those shipments, making it difficult to ensure on-time deliveries. Their solution was to bring together two Oracle applications: Oracle Fusion Cloud Warehouse Management for the unloading, staging, and loading of goods and Oracle Fusion Cloud Transportation Management for transport management and container load planning.

Mazda Motor Logistics now has visibility from the ordering of cars and parts to their delivery, and export staff can see carrier bookings, invoicing, and billing in one place. They also eliminated spreadsheets from their processes. And by adding Oracle Product Hub, they’re able to centrally manage all their master product data, with an approval flow across departments. Ultimately, by automating parts of the ordering and delivery process, the company was able to move people to customer service roles.

Oracle: Digital Transformation Made Easier

Supply chain digital transformation starts with aligning all processes and data on one platform, automating key processes, and using technologies such as artificial intelligence, machine learning, and IoT to collect and analyze massive amounts of data to identify, predict, and prevent problems. Oracle Fusion Cloud Supply Chain & Manufacturing offers modules that address every stage of the supply chain lifecycle, including planning, manufacturing, inventory management, order fulfillment, and delivery. And because those modules are part of Oracle Cloud, they’re integrated, easy to learn, and simple to use. One interesting new capability is the addition of machine learning models to Oracle Transportation Management, which can use a manufacturer’s historical transportation data and real-time information about current risk factors—for example, if a major port is backed up or a canal is blocked—to provide alternative options for product delivery. Manufacturers can gain an order-by-order view of the impact of a slowdown and shift delivery plans.

Supply Chain Digital Transformation FAQs

Why does digital transformation matter in supply chain management?
Supply chain management digital transformation is important because it lets manufacturers take advantage of AI, robotics, the Internet of Things, and other technology advances, helping them enhance their operations, reduce costs, and gain better visibility.

What is the biggest challenge in supply chain digital transformation?
In a survey by Peerless Research Group, supply chain leaders identified their three biggest challenges as achieving excellent customer service, containing costs, and improving logistics to boost efficiency and productivity.

Who typically leads digital transformation in an organization?
Successful digital transformation efforts are typically led by senior leadership teams, including the CEO, CFO, CTO, and CIO. Some organizations have enterprise wide digital transformation teams, including employees whose jobs will change as a result of these programs.