Digital Supply Chain Dilemma: Define the Right Capabilities

By September 17, 2019Power of the Profession
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Ask five different supply chain leaders their digital goals and you’ll get five different answers. For some, it’s a focused effort like automating a warehouse or making the factory smart. For others, it’s a broader initiative such as a systemic change to their fulfillment strategy or supply chain planning process. All are important, but how do you decide what’s right for your organization and where to start?

First, consider why digital matters to the business as a whole — beyond supply chain. There is no doubt that digital is disrupting all industries. Just read the headlines:

  • Caterpillar is transforming the customer experience through connected services. Finning, Cat’s largest dealer, plans to have 80% of the machinery it has sold across Canada, the United Kingdom and South America connected to Cat’s cloud services by year end (See “Caterpillar Digs for New Services Revenue,”The Wall Street Journal).
  • E-commerce is changing retail and the expectations of consumers. Flower-delivery provider FTD Cos. filed for Chapter 11 bankruptcy protection in June. According to Chief Executive Scott Levin, the company’s issues are partly due to not investing in technology to compete online with on-demand startups like The Bouqs Co. and UrbanStems Inc. (See “FTD Files for Bankruptcy Protection, Puts Businesses Up for Sale,” The Wall Street Journal).

The so-called digital natives have led this disruption in their industries. Now they are wrestling with critical digital supply chain investments to support these digital business models. Just look at Amazon whose worldwide shipping costs jumped 36% in the second quarter as it spent more than expected transitioning warehouses and moving inventory closer to customers. (See “Amazon’s Streak of Record Profit Ends,”  The Wall Street Journal.

So why the differences in defining a digital supply chain path? Why the struggle to communicate digital supply chain goals? In a nutshell, it comes down to varying stakeholder expectations and personal priorities. If I run a warehouse, I’m looking to run it as efficiently as possible — ideally, that means bulk shipments with minimal variability. If I’m responsible for fulfilling direct-to-consumer e-commerce orders or shipping a spare part for a suddenly disabled machine, I need a logistics operation that’s agile and can ship a single-piece order the same day.

Align capabilities that connect supply chains to business models

Digital supply chain leaders differ on how they define and prioritize the capabilities they wish to build.

A recent Gartner digital supply transformation survey found two different approaches to how organizations describe their digital supply chain strategic planning process (Figure 1). This, in turn, defines the digital supply chain capabilities they prioritize.

Two approaches to the digital supply chain strategic planning process:

  1. Guided by executive-level business process planning — 49% of respondents define those capabilities based upon executive direction related to business strategy. The executive team then governs the progress of developing the required operating capabilities needed to achieve near- and long-term business goals.
  2. A gap assessment of the current cross-functional performance of the supply chain — 44% are assessing gaps in the current process, which leads to the critical capabilities they define for improvement. The supply chain organization prioritizes digital improvements to execute the current business model and key performance indicators.

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This same survey found that alignment to executive strategy matters. Those that aligned capabilities to executive business governance were four times more likely to describe their digital supply chain program as successful. Basically, this means you should not pursue digital in a silo, but instead make certain it’s driving toward a strategic purpose. However, don’t forget the stakeholders running the business on a daily basis. If you can’t show them how digital will help improve their environment then good luck getting them to adopt more long-term initiatives.

Define a digital supply chain strategy that satisfies multiple stakeholders

The landscape is littered with projects that die on the vine despite great intentions. Digital supply chain initiatives run the risk of a similar fate if various stakeholders are confused about the capabilities being built and the value delivered. The digital roadmap must show long-term vision but also deliver value near-term or risk losing funding.

Satisfy at least two stakeholder communities when communicating digital supply chain goals:

  • Executive management team — Demonstrate a digital supply chain ambition aligned to the executive business strategy. This addresses both near- and long-term business goals. For example, this might show how digital supply chain capabilities will help a retailer compete in e-commerce with same-day home delivery. In an industrial business, it might demonstrate how an equipment manufacturer will be able to guarantee customers that their assets in the field will stay operational by predicting a failure.
  • Supply chain operations team — Improve the operation of each supply chain function toward achieving the desired business outcome. Those managing the day-to-day operation of factories and warehouses invariably have immediate needs that must be addressed. If they are running their processes manually or on Excel then it’s hard for them to get excited about how artificial intelligence or blockchain will transform their industry. They need to see how their gaps will be addressed, even as the digital roadmap leads to more ambitious goals.

Regardless of the stakeholder, take a balanced approach to your digital improvement portfolio to solve the digital supply chain dilemma and define the right capabilities.

Mike Burkett, Research VP, Gartner Supply Chain

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