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Analyzing the Positive Impact of Supply Chain Digitalization

Digitization – the process of converting text, images or sound into digital form – is not a recent phenomenon as many believe, but is as old as computers, which made their appearance in the 1950s as the mainframe with magnetic storage in a very small way. Since then it has been growing in tandem with computerization, getting popular with the PCs and laptops, but really becoming mainstream with the internet and mobile devices. Though often confused with digitalization, which is revolutionizing businesses, digitization is just the first step to digitalization, and then culminates into digital transformation. The process of digitalization received an impetus with the advent of Industry 4.0 and has laterally spread to everything connected with the industry, including logistics and supply chains.

Supply Chain Digitalization

The process of sourcing and procurement of goods and materials to manufacture a product and then distribute it further to the final buyer is what forms the supply chain. At each stage it is marked by elaborate paperwork from raising the requisition, to identifying sources, procurement, transportation, receipt, storage and then dispatch as finished product, to establish a proper trace and trail, which is both time consuming and labor intensive, adding to costs, besides causing procedural delays. The cost of manually entering all this information into the ERP/MES or backend system as well as processing all invoices is also quite substantial. Digitizing this paper work and invoices and making them digital with a master data and integrating it with rest of the company’s processes as well as the authorized external sources, will go a long way in eliminating the bottlenecks. This digitization can be easily achieved with appropriate software – standard or customized – in the larger process of business automation.

 

Traditional Vs Digital Supply Chain

Looking at the supply chain digitalization explained above one can understand the difference between a traditional and a digital supply chain.

In the traditional supply chain, the process of acquiring or buying the raw materials and components is done manually with physical documentation which remains in departmental silos. This includes sourcing and procurement, designing and manufacturing, testing and quality control, marketing and sales, etc., a long chain of procedures before the customer gets the product, with little or no visibility into the process.

On the other hand, a digital supply chain is transparent, with all the data and transactions available at a glance from sourcing and procurement to inventory management, stock positions and asset tracking to data of manufactured goods and dispatch to end users, with full tracking and traceability at every stage. This makes planning much easier and execution simpler.

While traditional supply chains function in a linear pattern on slow moving paperwork and coordination, digital supply chains function as a network in real-time with all the information centrally available at a glance.

The digital supply chains are integrated into the IT and OT systems and function smoothly, whereas the traditional supply chains are silos or standalone systems needing a lot of effort to coordinate everything into a cohesive system.

More importantly, the opacity of the traditional supply chains slows down decision making as the information is decentralized and hence decision making is slow. In contrast, digitization and central data bases provide better insights into the inefficiencies of the system and help reduce costs by better planning and execution.

Importance of Digital Supply Chain to Maintain Competitiveness

Reducing costs is one of the most effective ways of improving profitability of the enterprise. A supply chain is basically a network of relationships between a company and its various suppliers or customers, where goods and services (raw materials) are received and finished products delivered. It involves transportation and storage and a paper trail of all the documentation for records between scores of suppliers, which run into hundreds for large enterprises. A digital supply chain brings a lot of efficiency by digitizing the manual paperwork of all these suppliers and making it accessible online, cutting a lot of costs, and also saving much time and resources.

A digital supply chain also offers the much needed transparency which can be used to optimize the system, especially in terms of saving on transportation and warehousing, implementing the Just-in-Time (JIT) concept and further rationalizing the costs involved. Initiated by the Japanese auto giant Toyota decades ago, JIT works best with digitalization.

But the most competitive advantage brought by digitalization of the supply chain was brought home by the Covid pandemic when the normal routine was disrupted by the lockdown. The businesses that were digitized could manage to run their operations without much trouble, compared to those following a traditional approach.

Advantages of Supply Chain Digitalization

Saving on costs and speeding up deliveries are just two of the advantages of supply chain digitalization and these are enough to justify the effort as it impacts the bottom line. Looking at this from the other end, not digitizing the supply chain adds to costs and delays. But there are other advantages of digitization as well. These include:

  • Automating processes – Digitization of the supply chain fits into the overall trend of office automation to streamline administrative functions and reduce unnecessary manpower engaged in doing things manually. It speeds up processes and reduces delays, especially in payments.
  • Better coordination – Doing things manually often leads to interdepartmental disconnect whether unintentional or deliberate. It also leaves room for human errors. Digitization reduces human errors and improves coordination between different departments, facilitating communication across the organization, with all departments getting access to the same data, without having to search the physical files.
  • Faster decision-making – Supply chain involves transportation and storage of materials where time is money, mostly wasted in the absence of efficiency. Digitization improves decision making and helps in planning for alternate scenarios. In the process it also helps customer satisfaction as well as improved sales.
  • The Impact and Future Scope of Digital Supply Chain – As more and more enterprises embark on their digital transformation journey, the piecemeal attempts at digitalization, which are not paying significant dividends, will start showing better results with integration into the larger organization goals. The digitalization of the supply chain has just begun, and companies are now discovering how customer expectations are rising, which means there is a lot to do going forward.

 The supply chain will become fully transparent with end-to-end visibility, the flow of goods monitored via IoT devices and data shared in real time. Further deployment of technologies like Artificial Intelligence and Machine Learning would reduce human errors by providing actionable insights.

The delivery times will reduce from weeks to days and later to hours as more digital tools are applied like predictive analytics of demand and supply trends and more accurate forecasts. Suppliers in turn would be ready to ship, based on these predictions, for fast moving items.

As mass production makes way for mass customization and individual preferences shaping customer requirements, agile supply chains would cater to such requirements without adding to costs. This is something that cannot be achieved without digitalization.

Supply chains will evolve into outsourced service models bringing further cost benefits by deploying highly professional experts with better skills than in-house capabilities. Organizations will benefit from economies of scale and better logistics and transport management.

Conclusion

Digital transformation is a journey, not a destination. As such, the supply chain digitalization is a work in progress, and for many organizations, it has just begun. They would do well to shun the temptation to adopt a few digitization measures and try to improve the traditional supply chain with piecemeal remedies. What is required is a complete change of mindset in adopting total digitalization of the entire supply chain and integration of it into the organizational transformation. This is not something that could be achieved with in-house talent and resources. It calls for expert help, which is available.

If you are looking for a reliable supplier for your engineering organization, do reach out to us at rfq@essnps.com and our team shall connect with you soon!