Back to Basics: Fundamentals for Supply Chain Digitization

Only by first digitizing fundamental supply chain processes with proven, scalable systems will businesses then be able to build digital competencies and explore how more advanced technologies can support their operations.

Stock Blockchain
Getty Images

In recent years, the supply chain technology landscape has been abuzz with nascent technologies being touted as the next big thing before they’ve quite come of age. One such technology is blockchain. Its use in the supply chain has been hyped up by some as a saving grace for its ability to decentralize complex supplier networks, with tech titans leading the charge in evangelizing this technology.

Maybe blockchain will someday revolutionize supply chain management. However, in its current chapter, it does little to address challenges at the individual manufacturer level and has yet to prove it can be scalable or even readily accessible by anyone but the big players.

From a supply chain perspective, should a business really focus on implementing early-stage technologies, like blockchain, Internet of Things (IoT) and drones, when it is still facing challenges in moving past manual pen and paper data entry or relying on excel spreadsheets?

As global consumer goods supply chains were disrupted by the pandemic, many brands and retailers found out the hard way they had limited visibility and lacked the actionable insights needed to confront the crisis and adapt strategies, with core processes still relying on antique, disparate and siloed systems. Historically, manufacturers in China have been about three times as fast as those in other regions to deploy industrial robots, but that momentum actually tapered off by 20% in the first quarter of 2020 when compared to the same period in 2019, according to a report from McKinsey, indicating an adoption gap at a critical moment when technology should have been helping factories in the world’s manufacturing leader offset disruptions.

For effective technology implementation, you must learn to walk before trying to run. For example, while blockchain is an interesting concept, there are more scalable solutions that can connect brands with their suppliers in dispersed supply networks, such as collaborative cloud-based platforms. While more established technologies may not generate the glitz and glamor that starry-eyed venture capitalists look for, they are more likely to generate short-term returns and value creation for the digital ecosystem.

Only by first digitizing fundamental supply chain processes with proven, scalable systems will businesses then be able to build digital competencies and explore how more advanced technologies can support their operations. The following steps will help businesses lay the framework needed for a successful, malleable digital supply chain ecosystem and long-term digital strategy.

Map your supply chain

In an increasingly volatile supply chain landscape, businesses must put risk management at the top of the agenda. But, the majority of businesses are struggling to gauge their risk exposures beyond the primary suppliers they are directly contracted with. A survey by Jigsaw Business Group found that 57% of businesses have poor visibility across their supply chains.

This unsettling statistic suggests that most businesses are “in the dark” when it comes to managing on-the-ground supplier relations. With no actionable data or real-time visibility into what’s happening across their supply chains, the door is left wide open for business operations to be disrupted. And, it doesn’t take a global catastrophe to wreak havoc. For example, a provider of a key product part could be bought out by a foreign company or another supplier’s supplier could modify production in a way that erodes quality or delays a shipment. When something down the supply chain goes wrong, the business won’t likely know about it until it’s already happening and already costing them.

The very first step to digitization should therefore be understanding the current situation of your supply chain, identifying the risks that each supplier brings. Once potential risks are attributed to suppliers (and their suppliers), the digital transformation journey can then begin by identifying the best solutions for bridging gaps and preventing complications.

Prioritize sourcing diversification

If a business with a global manufacturing footprint or supplier network was not already uprooted by increasing labor and logistics costs in Asia or the battling tariffs of the U.S.-China trade war, they have almost certainly been impacted by the unparalleled disruptions and widespread shockwaves of uncertainty sparked by the Coronavirus disease (COVID-19) pandemic.

In a manufacturing and supply chain landscape mired with geopolitical tensions and shifting consumer demand patterns, a nomadic sourcing model is increasingly important for global businesses. By having access to suppliers across different geographies, businesses can boost their ability to shift production and sourcing to the lowest cost and highest value suppliers at any given time – with more speed, agility and efficiency.

Inevitably, supplier diversification across geographies enables businesses to circumvent calamity and continue production uninterrupted, whether facing travel restrictions due to a global pandemic or factory shutdowns after a weather catastrophe. However, shifting to suppliers in new sourcing regions should never be done without due diligence, especially in a manufacturing landscape that is rife with rising compliance hurdles and grave risks for quality and ethical standards.  

Before entering into a relationship with a new supplier, especially those in unfamiliar geographies, businesses must again consider the full scope of risks. Otherwise, the pivot could prove disastrous. For example, according to data from QIMA, demand for inspections and audits in Southeast Asia rose 19% year-over-year across the board in 2020, a figure that was twice the year-over-year growth rate tracked from 2018 to 2019. However, the ethical audit data collected by QIMA at factories in 2020 paints a disturbing picture, with the percentage of factories ranked "red" for critical non-compliances increasing by more than 100% in the second half of 2020 compared to the first half of the year.

Invest in new capabilities incrementally

Based on the growing need to diversify sourcing and achieve end-to-end supplier transparency, all supply chain digitization must be fundamentally centered around supporting a nomadic sourcing model that strengthens the framework for supplier relations. But, technology alone won’t work, with effective digital transformation requiring an optimal mix of technology and talent. Only with the right expertise on board can a supply chain be properly mapped and risks identified. Once a proper balance of people and machines is achieved, a business can continuously invest in more advanced solutions and talent to expand its digital ecosystem.

For example, with a digital inspection platform, inspectors armed with just a tablet or other mobile device can upload data directly and immediately, increasing the pace, accuracy and convenience. Furthermore, cloud-enabled features make it easier to work with inspectors remotely, a key feature amid travel restrictions and quarantines. Some digital solutions also function multilingually, allowing users to work in their native language and others facilitate compliance with government regulations and testing standards, such as CPSIA and Prop 65, built directly into the system.

Other recommendations for digitization include widening scope of data collection, improving workflow configuration and ensuring that any platform implemented offers API integration with the existing systems and processes already in place. To amplify supplier onboarding and support talent development, some digital platforms offer training courses on operational workflows and best practices.

Take a long-term, sustainable approach

Businesses can cut through the noise of new technologies and nurture their digital ecosystem by achieving digitization of basic processes, such as supplier inspection and auditing. Starting the digital transformation journey on the factory floor allows businesses to incrementally build digital competencies and expand the digital ecosystem sustainably.  

By fully mapping supply chains and achieving end-to-end transparency with suppliers, businesses will have a digital ecosystem in place that can accommodate new digital solutions without disrupting established processes. As part of a long-term digital strategy, they’ll be able to confidently and continuously embrace new technology as it becomes available and makes the most sense for them to implement.