Digitisation Of Supply Chain

The digitisation of the supply chain is one of the major value and growth opportunities for businesses today, with the potential to make a significant difference to their performance and future prospects. Capgemini surveyed supply chain executives at more

The aim of this study was to understand the digital initiatives they are adopting, the benefits they are deriving, and the ways in which they are transforming their supply

chains.

Business leaders recognise the importance of supply chain digitisation. Digital supply chain and logistics automation is the top funding priority for businesses worldwide, with investments in transformation reaching $93 billion in 2018. The worldwide revenue of supply chain management software organizations crossed $12 billion in 2017, with growth running at 13.9 % for 2016–17.2

But, are organisations able to turn this significant opportunity into reality and deliver a return on this significant investment? We have found that, while organisations realise the importance of investing in supply chain digitisation, they are lacking one crucial ingredient – strategic focus. This absence of focus is preventing most organisations from scaling up their digital initiatives. This study focuses on the following areas: 1. The strategic importance of supply chain digitisation

2. How successful organisations focus only on strategic initiatives and deploy them at scale

nascent stage of implementation. There is increasing consumer awareness on sustainability particularly for food items. A London based NGO utilised blockchain to develop a “catch-to- consumer” tracking platform to ensure transparency and accountability throughout the supply chain. Fishing crew attach an RFID to the fish, and the information is then added to a blockchain ledger creating a tamper-proof trail. This can track the fish throughout the value chain from catch to canner and on to the consumer.

AI and advanced analytics can play a significant role in supply chains and can deliver a substantial payoff. As Figure 4 shows, organizations are testing a combination of these at great levels (63%), next only to blockchain. This is driven in particular by the manufacturing and consumer product industries, with use cases such as demand/supply planning and predictive maintenance. Cisco, which has a highly diverse global supply chain with more than 300 product families, uses AI that draws on geographic information systems to optimise its customer service delivery operations, such as customerto-service-depot, around the world. The system along with predictive analytics enables them to deliver technical services and distribute spare part inventory more effectively.

A US-based pharma manufacturer is using predictive analytics to enhance the customer experience during order fulfilment without exceeding its inventory target levels. The solution helped improve demand planning accuracy by introducing exception-based forecasting. Improving the quality of master data, and increased collaboration in key markets, provided a more accurate view of customer needs and resulted in a more precise forecast. This has resulted in a significant increase in forecast accuracy (up to 15%) across product lines.

“We say no to great ideas in order to keep the amount of things we focus on very small in number, so that we can put enormous energy behind the ones we do choose. It’s not just saying yes to the right products, it’s saying no to many products that are good ideas, but just not nearly as good as other ones.” —Tim Cook, CEO, Apple 87%Organisations that scale their supply chain initiatives have a clear procedure for evaluating a pilot use case compared to 24% of others

Enthusiasm for digital technologies is resulting in organizations embarking on multiple initiatives simultaneously. Our study shows that, on average, organizations have 10 digital supply chain projects in ideation, 11 in proof of concept and eight at pilot level. This totals 29 projects at the pre- deployment stage and illustrates how organizations are unable to trim the number of initiatives as they move forward.

This approach is not ideal. The organisations that are successful start with a large number of ideas and eventually choose a handful that best address their strategic requirements and funnel out the rest. A tier- one European automotive supplier followed this approach while transforming its production and supply chain.

While experimenting with new technologies is necessary, an unfocused approach creates risk and diverts investment and resources from what is strategically important. Apple’s CEO, Tim Cook, who was previously the tech giant’s chief procurement officer, and led the initiative to make Apple’s supply chain lean and agile, believes in the power of saying no. He believes that this is necessary to remain focused on key strategic initiatives.

In order to strike a balance between experimentation and focus, organizations need to follow a systematic approach. They need to explore use cases and define each business case. The selected use cases will need to be tested to corroborate their feasibility and benefits, allowing the organisation to identify the most compelling cases and scale those up.

Organisations that have been successful in digitising their supply chains focus only on those initiatives that are of pressing strategic importance. They do this by involving their top management and allocating significant investment capital to drive progress.

Some Case Examples

Inditex: As the owner of fast fashion brands Zara and Massimo Dutti, Inditex must be able to forecast demand for fashion trends and cater to that

demand by quickly introducing new lines. Its CEO, Pablo Isla, instructed his engineers to find a low- cost mechanism to track every garment from warehouse to point of sales.14 Inditex’s engineers came up with a solution to tag every garment with an RFID microchip that enabled the company to track the products’ movements from warehouses to points of sales and monitor inventory and sales data at stores. Inditex invested more than one billion euros over a period of four years to scale up the deployment of the solution. Leveraging the data gathered by RFID technologies, Inditex supplies orders to stores within two to 48 hours and their inventory management is now 80% faster. Moreover, real-time tracking of sales data and customer feedback optimizes the production and fine tunes the designing of clothes.

Colgate-Palmolive: The American CPG giant’s strategic goals were profitable growth and operational excellence. In order to achieve these goals, Colgate-Palmolive focused on leveraging technologies to incorporate advanced analytics and automation in its supply chain. “Technology is what can arm supply chain decision makers with the advanced analytical capabilities that today’s supply chain complexity necessitates,” Linda Topping, former chief procurement officer at Colgate- Palmolive remarked at the Gartner Supply Chain Executive conference in 2014 highlighting the importance of technology and advanced analytics in ColgatePalmolive’s supply chain vision. Colgate-Palmolive’s board approved the reinvestment of funds from the sale of a business unit into supply chain innovation and oversaw the implementation plan. For analytics, the company implemented a SAP HANA database for deep analysis and decision making. This analytics infrastructure is already supporting factories in KPI analysis and problem solving, from managers and continuous improvement engineers to shop floor technicians and operators. Colgate-Palmolive has been leveraging collaborative robots, auto palletisers, and RFID technologies to track pallets to address the requirement of automation. The improved supply

chain has reduced operating costs and enhanced the asset utilization rate in its factories by 10%.

The Key Use Cases to Help Organisations

As organisations experiment with a wide variety of digital supply chain projects but struggle to scale them up, we have shortlisted a widely used set of use cases that can become key strategic wins. Taking a long list of 25 use cases, we have assessed them against two criteria – ease of implementation and the benefits derived – to draw up the shortlist.

Research and Development

Rapid prototyping with 3D printing Ford Motors has made significant use of 3D printing to develop prototypes. Building prototypes through

the traditional die casting requires six to eight weeks and an entire prototype takes several months and up to hundreds of thousands of dollars. This process is based on Ford Freeform Fabrication Technology (F3T), a patented manufacturing process developed at the Ford Research and Innovation Centre.

Planning

Digital sales and operations planning (S&OP) platform

A global consumer product manufacturer and a well-known leader in the supply chain, has been an early adopter of digital technology. It has deployed its highly-automated S&OP platform to incorporate systemic environment monitoring and response planning functions. This has brought considerable dividends in its logistic functions. For its European supply chain, it has reduced 20% of its trucking transportation, and achieved €1.1 billion in savings and a 40% reduction in capital expenditure.

Procurement/Sourcing

Order processing using RPA

Coca- Cola Philippines, which has to process 24,000 invoices from its 2,000 active partners nationwide in a month, has automated this massive task. Using RPA, invoices now are automatically captured and sorted according to pre-specified rules. Relevant information is extracted and matched to purchase order and goods receipt. The verified invoice is now automatically posted for payment and exceptions are routed to a workflow where assigned personnel are alerted to take actions on flagged entries. The initial phase has improved goods receipts on time to 99% in less than 18 months. RPA as seen in Figure 10 is one of the suggested use cases

even for the other parts of value chain, not just in procurement.

Production

Automation of assembly using the machine-tomachine technologies

Siemens, one of the leading manufacturers of Programmable Logic Controllers (PLC), automated its semiconductor fabrication factory in Amberg, Germany via machine to machine technologies. This factory has 75% of its value chain automated and maintains a production quality of 99.99885% while producing 12 million units a year. The factory is an example of a digital enterprise platform where product codes tell production machines what requirements they have and what production steps or processes must be undertaken.

Distribution and Logistics

Smart sensors in containers to monitor product conditions

Smart containers are transportation containers equipped with sensors and transmission technologies. This basic IoT solution transmits data from the sensors to a blockchain. The combination of real-time data about container conditions and tamper-proof storage of that data on a blockchain is delivering higher levels of transparency within the supply chain processes involved.

Maintenance and Equipment Servicing

Updating and maintaining connected products

Predictive maintenance and OTA (over-theair) updates can greatly improve the consumer experience. Tesla Motors’ OTA update system ensures consumers have the latest features and upgrades without the need to visit dealerships or service centres. After Consumer Reports, an American magazine that publishes research on product testing and consumer research, announced that it would not recommend Tesla’s Model 3 based on its braking performance, Tesla responded with an OTA update. It improved braking performance within days – in stark contrast to the traditional method of vehicle recalls, which is time- consuming and costly.

Direct-to-Consumer Platforms

Nike is a good example of an organization that has used digital transformation to develop a unique customer- centric approach for developing products. Nike’s program – “Consumer Direct Offense” – is designed to deliver more speed, innovation, and

“The data analytics, the supply chain analytics and the inventory and order visibility capabilities, the IT systems is a place where we are investing today and more tomorrow to make sure we’ve got those capabilities built up to serve those markets most efficiently.” —Brian Kesseler, Co-CEO,Tenneco

personalization to its product line. Its stated aim is to “Triple Double” (i.e., 2X Innovation, 2X Speed and 2X Direct).

The end goal was to build a closer relationship with its customers. To achieve this, Nike had to bypass its traditional retail partners and start selling products directly through its own retail stores, e- commerce website and app (“Nike Direct”). Nike’s financial reporting shows its sales are now split between Nike Direct and wholesalers, showcasing the success of its transformation program.

Establish a Data-Driven Organisation

In our research, 83% of organisations pointed to a lack of end-to- end visibility in their organization as a challenge to reaching scale. Clear visibility is critical in removing supply chain redundancies and can also improve the customer experience. For example, Brian Kesseler, co- CEO of Tenneco, a US-based automotive company, highlights the importance of data in on-time delivery, “So the data analytics, the supply chain analytics, and the inventory and order visibility capabilities, the IT systems is a place where we are investing today and more tomorrow to make sure we’ve got those capabilities built up to serve those markets most efficiently.”

Organisations often struggle without a single version of truth. Availability of accurate data, at the right granularity, lies at the heart of effective data- driven decision making. To accomplish this, organizations should focus on creating and developing a data ecosystem – the infrastructure for capturing data, an understanding of data flow across processes and systems, applications to analyze captured data, policies to govern the access, and security measures to protect this data. For example, supply chain control towers – which are central hubs with the required technology, and processes