Creating a digital supply chain twin - operating at the speed of thought
Build a digital twin of your value chain.
Do you know the situation? The opportunities that reveal themselves whilst on a business trip to suppliers or production facilities? These epiphanies arise from observing the production process, noticing inventory piling up on the shop floor, observing a significant amount of re-work in the quality areas, or witnessing antique trucks and forklifts mishandling products. These revelations wouldn't surface in your data since they aren't collected. Anyone with some oversight and knowledge can uncover these prospects by conversing with people and scrutinizing processes from one end of the production facility to the other. Although discovering these gems in an 'analogue' context feels satisfying, it is highly ineffective in today's digital era.
For many companies, the idea of internal digital transformation, the Internet of Things (IoT), blockchains and smart contracts, and advanced generative AI like OpenAI’s ChatGPT and Google’s Bard is daunting. And due to a lack of awareness, scepticism, disbelief, or insufficient internal expertise regarding new technologies and their potential impact on traditional business models, many tend to adhere to established patterns and adopt a wait-and-see approach, hoping that the situation will resolve itself in due course.
While many put their heads in the proverbial sand, others just get on with it:
Zara, the Spanish clothing and accessories retailer, has revolutionized the fast-fashion industry by leveraging digitalization in its supply chain. It uses data analytics to track customer demand and make real-time decisions on production and inventory management. Its supply chain is highly responsive and flexible, allowing it to adapt to changing trends and customer preferences quickly.
BMW uses advanced analytics and real-time data to optimize its production processes, improve inventory management, and streamline logistics operations.
Unilever has implemented a digital platform to monitor and manage its suppliers more effectively, track product quality and safety, and optimize its production and logistics operations.
Siemens provides digitalization for industrial applications and software solutions for the automation, monitoring, and optimization of production processes. Its software tools enable the digitization of entire value chains, from design and engineering to production and logistics.
Finally, IKEA, the well-known Swedish furniture retailer, implemented a digital platform to monitor and optimize its production processes, improve inventory management, and track sustainability metrics throughout its supply chain. It has also implemented a circular supply chain model that enables it to reuse and recycle materials to minimize waste and reduce its environmental footprint.
On other continents, companies like Amazon, Alibaba, Uber, and Tesla have redefined via digital re-design of their supply chains their whole industry. This is not Harry Potter magic or exceptionalism, but the relentless will of the company’s leadership and board to embrace digitalization to the advantage of their brand.
Now, what exactly does a transparent digital supply chain look like in this digital age?
Imagine shining a bright light across your entire production process, from the customer to all suppliers and sub-suppliers. This light would allow everyone in the supply chain to understand their actions in relation to the entire process, as well as the ultimate customer who pays the bills. This increased transparency and understanding would lead to a laser-like focus on the end customer, resulting in more intelligent, efficient operations and faster end-to-end supply chain performance.
This "bright light" can now be achieved through real-time information processing, data & process mining, and digital twin technology. By capturing and making accessible the digital footprint of physical activities in our supply chain, we can create a digital equivalent of that bright light and provide clarity and transparency to all participants. This increased visibility and cooperation will lead to a supply chain constantly gaining momentum and accelerating like a flywheel, resulting in faster fulfilment & order-to-cash cycles. Higher cash flow, revenue, and profitability follow automatically.
Creating transparency in the supply chain through digitalization offers significant benefits for companies in terms of cost reduction, faster fulfilment and order-to-cash cycles, and increased cash flow, revenue, and profitability. The technology is available and affordable (no need for massive ERP systems any more). The time to act is now, as the customer base is becoming increasingly impatient with companies that are slow to deliver material and services while not adapting to digitalization. It is essential for companies to assess their current gap in terms of digitalization and IoT and to make a clear decision towards digitalization from customer to suppliers. A conservative assessment of the opportunity, the "size of the prize," and an overview of a potential project set-up below can help companies to plan and execute a successful digital transformation.
But let’s first reflect on the below nine statements to understand where we are on the journey towards digitally enabled transparent value chains operating at high velocity. How many of the below statements can you agree to with a resounding, fact-based "yes"?
Why focus on a transparent supply chain from customer to supplier?
IoT & digitalization are not just buzzwords in marketing brochures; they are internally seen as non-negotiable realities.
Our ERP, sales & operation planning, MES, and finance systems are connected into a singular, cloud-based data stack/lake (broadly a modern data warehouse).
Data extractions from our source systems happen on a least daily basis.
We hired data architects & scientists to work with our departments (not just our IT) along the value chain to create suitable algorithms to interpret the data across the entire value chain.
Our Chief Digital Officer (otherwise Chief Information Officer) works on product and supply chain digitalization solutions.
Our progress on digitalization is the subject of every board meeting. The subject is owned by the CEO, who reports progress to the supervisory committee regularly.
We re-evaluated our competency framework concerning digitalization and made necessary updates.
We regularly have skip-level meetings with our digital native employees (Gen-Z, Gen-A) to understand what gaps they see.
Bonus: We stopped using PowerPoints to report on business performance and instead use display tools like Power-BI etc., directly linked to our data lake(s)
If you answered „yes“ to most questions, great: you have your digitalization strategy under control.
Do not read any further; better to focus on other topics.
Size of the prize
If you do not know or answered several questions with a "no", the potential benefits of closing the gap by embracing supply chain digitalization are genuinely staggering. By leveraging the latest technologies, such as IoT, blockchain, and AI, companies can achieve a significant competitive advantage, leading to higher revenues, a stronger balance sheet, and revolutionary results in their operations.
Consider the benchmark examples of companies that have embraced supply chain digitalization in recent years. Imagine the impact that reducing delivery time by 50% could have on your company's growth. Think about the additional cash flow generated by this improvement and the potential for paying suppliers simultaneously as receiving payment from customers or even later.
Think about the environmental impact of cutting production time by half and optimizing all shipments for delivery and speed. Imagine the benefits of being able to instantly see your entire value chain, product portfolio, customer mix, and order base in a digital twin of your company, all from your desk. And imagine the stability that could be achieved by calibrating your digital twin based on macro and micro-economic data relevant to your business.
The market capitalization of companies that achieve growth rates three or more times the GDP speaks for themselves. Each of the above questions has been answered with exceptional results in other companies embracing complete digitalization, leaving their competition in the dust.
While the potential benefits of supply chain digitalization are clear, it is up to each company to assess the true value for themselves. Like in the first and second industrial revolutions, those true entrepreneurs who grasp the new realities can think the unthinkable and reap the rewards.
How to set up a digital supply chain twin that switches on the ‘bright light’?
Time plan: 18-24 months (6 months current state & blueprinting, 12-18 months relentless execution)
Board Sponsor: CEO (no one else can pull this off)
Lead: COO or equivalent (supported by the CIO and Head of Supply Chain and/or procurement)
Project set-up:
Board "field trips" to companies working on the digital frontier,
establish a target state, develop a blueprint,
Set up an x-functional full-time task force (daily takt rate) with clear objectives,
Monthly reporting on board level by COO with clear output KPIs.
CEO reports quarterly to the supervisory board.
Sustain success: Guardrails around data transparency and the need for digital capturing, operationalized via automated performance metrics.
Digitalisation/Automation opportunity: High (details in project discussions)
Risk: High - but what is the alternative?
Cost: Funding for competency build-up for the whole organization, the change management team and process, hiring additional personnel with digitalization expertise, market testing & investment in a cloud solution, interface building to all systems along the value chain, and developing 21st-century data analytics and reporting tools. It does not mean buying a new ERP; these days are long gone.
Watch out for
Solution proposals from potential providers without references;
data strongholds inside the company arguing confidentiality as the killer argument not to join the digital twin solution. Transparency is only welcomed by solid and confident teams that welcome the opportunity to improve.
Missing willingness to input data to create transparency across the full supply chain. Most companies run their MES, S&OP, ERP etc. systems on just the bare minimum of data - it’s like driving a Porsche on fumes rather than the fuel.
Conclusion
Shining a bright light from the customer to the last supplier involved in our value chains gives us the needed transparency to find gaps and change. With full digital supply chain twins, every miss, every wait, and every quality issue, but also every opportunity, can be identified clearly. You can run your supply chain at the speed of your thought since change can be triggered instantaneously.
Stay safe. Be bold.
Daniel
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