Digital Transformation - is your Supply Chain ready to compete?
Artificial Intelligence, IOT, robots, drones, self-driving vehicles, the answer is most probably “No.” Several studies claim that 95% of companies are not ready to compete digitally and are hindered by their traditional supply chain approach. This fundamental change in supply chain strategy of shifting from vertical and horizontal integration towards a digital value network, doesn’t happen overnight. Figure 1 compares the configuration of a traditional supply chain, which implements enabling technologies separately in a series of steps, with that of a digital value network.
What transforms a traditional supply chain into a digital value network?
A digital value network has full management of real-time data flow and integrates completely with a smart factory. There are two major challenges for organisations here: companies use only 4% of the data they already have and in the last two years, more data has been created than in the entire history of humanity. The shift from a traditional supply chain to a digital value network is significant and requires more than incremental automation. Adding sensors in a production line for preventive maintenance will improve efficiency and productivity, but if this data is not integrated into the supply-chain information flow, it will not achieve the main competitive advantage of flexibility.
This represents a quantum leap forward from traditional supply chain automation towards a fully connected, business ecosystem where continuous, self-adapting optimisation occurs across the value network within an environment of increasing complexity and speed.
Driving Digital Transformation: Culture is key
As the threat of industry disruption increases, the long-term goal of an organisation should be achieving business model transformation. In such radical change, people are key to managing the future. The first two questions should be: “is our organisation capable of implementing transformation at all levels?” and “who will our customers be in 10 years’ time?”
This was confirmed by Roland Brusch, COO-CTO and Member of the Managing Board at Siemens AG, in his comment about Industry 4.0: “Currently, three developments are happening in parallel. New jobs are being created, outdated jobs are fading, and many of the remaining jobs are changing. At Siemens, we spend more than half a billion euros on training each year, and digital skills are part of all our training programmes.”
Boston Consulting Group in a recent research study titled “How to Drive Digital Transformation: Culture Is Key” concluded that 90% of companies focused on digital culture achieve breakthrough performance. Conversely, only 17% of companies that neglected digital culture attain this breakthrough performance. A high-performance, digital culture is therefore essential to achieve successful digital transformation.
Our longitudinal research in Japan “Envisioning SCM 4.0: The view from Japan”, analysing how Japanese industrial companies are implementing Industry 4.0, evidenced that three key factors must be met:
Top down leadership, with long-term strategic vision
A high-performance culture, which is adaptive and inclusive
Bottom up alignment for short-term strategic realisation
These requirements are applicable to other countries and companies of every size. It could even be said that the bigger the company, the greater the difficulties. Take as an example the evolution of shares of three Industry 4.0 giants.
These three corporate giants have great technological skill and a high performance culture that has enabled them to compete during several industrial revolutions. Paradoxically, their ambitious and well-designed transformation strategies in Industry 4.0 have recently been inhibited by their strong corporate cultures. As Mark Twain said: “We like progress, but we hate change.” So what’s happened? Well, two radical changes have occurred simultaneously. The first has been the globalisation of markets and these three companies have remained in their comfort zones, namely the US, Europe and Japan. The second has been the tearing down of barriers to entry for agile digital competitors, including Google, Amazon and IBM. Traditional companies haven’t been able to manage the speed of change and have had to resort to massive overhauls, merges and acquisitions to accelerate the transformation of their corporate culture and digitise their mindsets.
8 steps towards supply chain transformation
The companies that are most successful in their journey towards Industry 4.0 have begun by taking steps to refine and utilise the 96% of previously unused data into real information. Using AI and cloud platforms, they then consolidate and distribute this information across the entire organisation: in planning, preventive maintenance, transactions and any other function which may find it valuable. Here is a list of actions that companies could carry out in moving towards digital supply chain transformation:
Train all the people involved in the supply chain.
Collect all data available in the company and provide useful and meaningful digital information of the current situation through AI-Cloud platforms.
Allow people to carry out incremental automation and digital by experiments through learning-by-doing in the 4Ds of robotics business innovation, the tasks that are currently Dull, Dirty, Dangerous and Dear.
Involve clients in co-creation projects in order to know their current and future “pain-points.”
Acquire the necessary talent to support the transformation.
Sensor the supply chain to create new, digital information flows which are transparent in real-time.
Choose the right partners to complement the company strengths.
Keep training, experimenting and digitising. It is a continuous journey, not a destination.
Under the new paradigm of constant change, supply chains are never going to be 100% prepared. Instead, they are in a state of continuous preparation. Amazon, which recently reached a value of US $1 trillion in market capitalisation continues to experiment, renew itself and accumulate data from its entire business ecosystem to offer a supreme customer service. In a televised interview Jeff Bezoz, founder & CEO of Amazon, shared his philosophy: “What we need to do is always lean into the future; when the world changes around you and when it changes against you - what used to be a tail wind is now a head wind – you have to lean into that and figure out what to do because complaining isn’t a strategy!”
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About the Author
Dr. Jorge Calvo is Deputy Dean and Professor at Globis University.