Most companies are still only at an early stage on their journey towards a true digital supply chain transformation. That’s partly due to history, because companies have traditionally sold products and services through linear value chains as well as an antiquated IT infrastructure making even relatively simple digital initiatives a big challenge.
However, as digital ecosystems consisting of market networks enable hybrid forms of cooperation and competition with shared data in the cloud, it is no longer an option to not be digital. One important challenge is identifying the right supply chain use cases that will provide a competitive advantage and can be addressed utilizing a digital-based solution. There are three key digital supply chain trends having significant positive impacts on clients: lights-out planning, blockchain and 3D printing.
To keep customer service levels high, it is important to develop a proper demand plan and the associated supply plan. The biggest challenge companies often face in getting a proper demand plan is the forecast bias by the employees that provide inputs into the demand plan. Bias is defined as consistent over or under forecasting. Bias usually occurs because planners are forecasting extra units to make sure their market gets enough product, or they are being conservative to make sure that their business doesn’t miss the goals. Three or more months of consistent under or over forecast would indicate a forecast bias in a normal business environment.
A new trend referred to as “lights-out planning” greatly reduces the reliance on human input into the planning process and replaces it with machine learning. To provide good input into the forecasting process requires analyzing large amounts of data and detecting correlations that impact customer behavior (the relationship between drinks sales and the weather, for example). The use of machine learning is ideal for the planning process, since it takes human emotions out of forecasting and provides an objective view. Even a small improvement in the accuracy of the demand plan can increase customer service levels, decrease inventory and reduce supply chain cost by producing what the end customer needs.
Blockchain is another enabling technology revolutionizing the supply chain, because it does not just produce one source of truth for a company, but can provide the source of truth for a value chain that includes many suppliers, manufacturers and customers. This transparency enables a company to truly understand their pricing and associated costs throughout their entire value chain.
For example, consumer products companies often wrestle with the elements of complex pricing as discounts are usually based on volume thresholds, commodity indexes and a variety of other factors. It literally takes armies of people to ensure that all the discounting and pricing are being applied appropriately. Blockchain enables the use of smart contracts, which provide transparency to the pricing of a product or service since it puts the consumer products company, contract manufacturers and suppliers on one platform. This helps reduce financial leakage and offers greater visibility into invoicing for all stakeholders.
The unfolding trade disputes involving the US, China and the European Union, together with Brexit, could end up as the perfect use case for blockchain. These trade barriers provide a complex web of tariffs that are hard to consistently navigate using today’s technology. Beyond its role in keeping track of and resolving transactions, blockchain can play a role as a central role to smoothing global trade disruptions by providing better insights into end-to-end supply chain costs, provide visibility into the real-time status of goods in the process of shipping, and the monitoring and tracking of changing costs associated with moving goods across borders. This, in turn, can enable a company to adapt its approach to tax and its overall business strategy much faster.
A final emerging technology, 3D printing (also known as additive manufacturing) may be the technological tool most likely to revolutionize the infrastructure of future supply chains. Companies started using 3D printers to provide increasing levels of customization and the ability to make goods much closer to their actual end customer. A current example of this is in the energy industry. Historically, if a part on an oil rig broke there was an extensive network of emergency suppliers that could supply the part. But this approach was costly and had long turnaround times. With 3D printing, the oil rig mechanic can just print the required part on the spot, and in any size.
In this fast-changing environment, organizations cannot afford to be slow-footed when it comes to incorporating some of the leading digital trends into their supply chain. Whereas, the supply chain was once regarded as simply a cost of doing business, now it is seen as a strategic differentiator that is used to powerful effect by some of the world’s most successful companies. Companies that do not disrupt their own supply chains could find that their supply chains, and their business models, might end up being disrupted for them.
Glenn Steinberg is EY Global and EY Americas Supply Chain Leader.