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Supply Chain Digitisation: Logistics Revolution

vijay

Vijay Kumar

Senior Specialist - Marketing @ Shiprocket

January 4, 2024

9 min read

In an era of fast technological advancements, a transformation in logistics has long been under the radar. As global trade and eCommerce grow, the importance of efficient logistics and supply chain management has never been greater. The conventional supply chain follows a series of isolated steps that frequently need more integration. A digital supply chain (DSC) can seamlessly integrate and interconnect the various components of a traditional supply chain. 

Supply Chain Digitisation

The digital revolution has brought about a new era in logistics, where every moment counts and precision is paramount. In this era, supply chain digitisation emerges as the beacon of innovation, promising to reshape the foundations of how goods move across the globe. A report by IBM’s Chief Supply Chain Officer research suggests that transforming supply chain operations is the top priority for 48% of supply chain leaders. 

What Is Supply Chain Digitisation?

Today’s supply chain comprises separate, isolated stages, including marketing, product development, manufacturing, distribution, and delivery to the customer. A DSC, or digital supply chain, is a supply chain that applies technology to integrate all factors comprising the supply chain management process. It also creates transparency for all those involved in the chain. This includes synchronising methods such as warehouse and transportation systems to utilise web-enabled capabilities. This includes raw materials, component and part suppliers, logistics providers, and customers.  

Many companies in various industries are investing heavily in digitising their business operations. These initiatives include logistics operators such as DHL, FedEx, and UPS. Moreover, big eCommerce players like Amazon and Alibaba have invested in digitising every operation in their supply chain. 

Another example is HUL’s digital transformation journey. Implementing next-gen technologies in the factory has amplified their speed and agility while reducing the environmental impact. It has resulted in cost per ton in production going down by 40%, quality improvement by 30%, and lead time reduction by 50%. The sustainability KPIs have also improved in line with Unilever’s goals.

Advantages of Supply Chain Digitisation

In this digital age, modernisation has come upon us. We’ve come a long way from retrieving performance data to collecting demand history. Aloof concepts of singularity have no place in today’s time. Our ability to digitise the supply chain empowers us to integrate individual processes and create an efficient supply chain management system.

The accessibility to Supply Chain 4.0—Internet of Things provides traceability and follow-up to all the information, resulting in improved and shared communication protocols in the cloud. Various studies conducted by experts reveal that supply Chain 4.0 has the potential to bring about a significant impact in the next two to three years. It may result in up to 30% lower operational costs and a reduction of 75% in lost sales while also decreasing inventories by up to 75%. It may also significantly increase the agility of the supply chains.

On an individual level, it has increased the chances of error-free work in daily tasks, leading to many other benefits along the way:

1. Enhanced Visibility and Real-time Decision Making:

To begin with, we have enhanced visibility into the supply chain’s moving parts through digitisation. This marks the end of traditional glitches. It allows the organisation to identify gaps and disruptions in real time. Consequently, the firm can take compelling and quicker corrective actions through the transparency supply chain digitisation brings.  

2. Higher Efficiency in Business Processes

A digitised supply chain system curtails production and transaction costs and improves the firm’s inventory turnover with proficient order management. Electronic systems, such as ERP and EDI, used in digital supply chain management also automate manufacturing, streamline logistics steps, and enable faster billing and payment settlement.

3. Automation of Supply Chain Operations

Hopping onto the automation wagon, this process of transforming traditional supply chains into smart ones eliminates the need to manually interfere with most of the operations involved in managing the supply chain. The outdated paper-based processes are replaced with high-powered automation tools. This provides easy access to stakeholders looking for information to improve their operations and collaborate.

4. Boosting Performance and Productivity

Diving deeper into the digitised system, firms have real-time performance metrics. The system provides holistic and up-to-date performance status and requirements information. The performance data retrieved from the digital supply chain system helps the organisation manage and optimise many aspects of their supply chain, from raw material flows to resource planning and more. Such analysis is possible through integration, an integral part of supply chain digitisation. This integration also propels the teams to move forward in unison and work collaboratively, resulting in superior performance.

5. Improved Planning and Management

Using data-driven technologies in a digitised supply chain makes it easy to identify indeficiencies. This allows for better quality control to boost product quality and enhance customer experience and satisfaction. Furthermore, digital technologies like big data, machine learning, IoT, and predictive analysis make it more convenient to anticipate issues and respond quickly to them before they escalate. This approach improves the supply chain planning and management for a range of workflows in the supply chain.

6. Forecasting Demand and Added Value for Customers

Regarding planning and management, supply chain digitisation also allows micro-segmentation that can help with mass customisation. Micro-segmentation is essential today because the demand for personalised products is rising as customers seek more individualised experiences. So, dividing the customers into clusters enables companies to offer a broader range of products catering to specific customer needs. As a result, customers can choose from various tailored options and have a more satisfying experience overall.

7. Practical Financial Management

With everything in place, from planning management to performance analysis, supply chain digitisation leads to better financial management. For example, a digitised system can alert the organisation when it’s low on inventory and save it from stockouts. Similarly, installing an inventory tracking system can also prevent overflows and strike a balance between the two. This balance will allow an organisation to reach optimal stock levels to meet consumer demand without wasting resources on excess inventory. This becomes possible as the system tracks every product in each warehouse, mainly if multiple fulfillment centers exist. 

Implementing a Digital Supply Chain Strategy

The advantages of supply chain digitisation are evident. According to experts, the economy is already witnessing a drastic increase in the cost of goods sold, and the industry is struggling with growing inflation. We cannot pass on the increased cost to the consumer, but the power of digital and data can help tackle it.

How can an organisation achieve this? Well, there are two ways to go about it. The organisation can either build an in-house digital supply chain system or tie up with a third-party provider to outsource this requirement. However, making the system in-house involves higher expenditure and extensive work, whereas outsourcing dramatically reduces the burden and costs.

Let’s look at the steps an organisation must follow to implement an effective digital supply chain strategy:

1. Analyse the Existing Supply Chain Processes

Assessing the strengths and weaknesses of the current system will determine the opportunities and threats involved in transforming the entire process. This method will allow the firm to map a framework for setting realistic and actionable goals. 

2. Prepare a Collaborative Digital Supply Chain Strategy

The next step involves creating a digital strategy with cooperative efforts from the business and its supply chain partners. Digitising the supply chain can be a complex transition from the traditional system, so it’s important to identify the digital supply chain’s goals and determine the stakeholders’ expectations.

3. Assess Supplier’s Readiness

Once the digital strategy is defined, it’s imperative to check that the supplier is on the same page as the organisation because a one-sided effort will not reap the expected benefits. The supplier may need to understand the potential risks involved fully and may be able to set and communicate their expectations clearly. Hence, the organisation must gauge if the supplier is ready for digitisation and ensure clarity at each step.

4. Purchase Relevant Digital Software

After thoroughly analysing the working, benefits, and potential risks of supply chain digitisation, the organisation must research to find the best software or digital tools.  

5. Train the Employees

After installing the new digital tools, an organisation requires people who can efficiently operate and manage these systems. The employees are used to the traditional supply chain systems and need an upgrade in their skills to deliver good results. Some companies with digitised supply chains already have a Chief Supply Chain Officer. You may hire new people or train the existing ones to sail this new digital ship.

6. Review Performance Regularly

Lastly, organisations must analyse the performance of their digital supply chain system frequently. The constant analysis creates a scope for improvement and sustained gains.

Conclusion

There is a dire need to switch to digital supply chain systems from conventional or obsolete ones in this era where customers expect quick delivery. The eCommerce industry has amplified the intolerance for wait times, increasing the demand for faster operations in supply chain management. Hence, organisations are rapidly moving towards digitising the supply chain to reduce lead times, improve transparency and quality control, enhance production and distribution, and elevate the customer experience.

1. How does supply chain digitisation affect operations in logistics?

A. Integrating the individual supply chain operations can positively impact logistics. It improves the accuracy in tracking shipments, reduces manual errors, and enhances the speed of operations. Digitising the system also allows better inventory management and demand forecasting.

2. Is supply chain digitisation only suitable for large companies?

A. All kinds of firms can adopt supply chain digitisation as it can benefit companies of all sizes. Although larger companies may have more resources for an elaborative digitisation, smaller businesses can still use digital tools to enhance specific areas of their supply chain.

3. What technologies are used in supply chain digitisation?

A. Supply chain digitisation uses various technologies to create a connected and efficient supply chain management system. Some of these technologies include Internet of Things (IoT), blockchain, artificial intelligence (AI), data analytics, cloud computing, and automation. 

4. How much does it cost to implement supply chain digitisation in-house?

A. Companies may bear heavy or reasonable costs, while digitising their supply chain, depending on factors such as the company size and complexity. Potentially, supply chain digitisation involves initial investments in technology and ongoing expenses for maintenance and cybersecurity measures.

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