Creating Value – When Digital Meets Physical Digital Transformation of Supply Chains

Digitization has touched upon all aspects of businesses, including supply chains and operating models. Today, technologies such as RFID, GPS, and sensors have enabled organizations to transform their existing hybrid (combination of paper-based and IT-supported processes) supply chain structures into more flexible, open, agile, and collaborative digital models. Unlike hybrid supply chain models, which have resulted in rigid organizational structures, inaccessible data, and fragmented relationships with partners, digital supply chains enable business process automation, organizational flexibility, and digital management of corporate assets. In order to reap maximum benefits from digital supply chain models, it is important that companies internalize it as an integral part of the overall business model and organizational structure. Localized disconnected initiatives, and silo based operations pose a serious threat to competitiveness in an increasingly digital world. We believe a holistic approach to digital transformation of supply chain, starting with a digital strategy and a digital operating model will set the direction for integrated execution. This will not only enable organizations to realize the untapped potential of existing capabilities, but also to achieve higher performance and ultimately create greater value. 3 Digital Transformation of Supply Chains Technology is rapidly changing the landscape of most consumer oriented businesses in a fundamental way. Consumer buying behaviors and demand patterns are being significantly affected by high Internet penetration, ubiquitous information availability, and rapidly growing social networks. This has a significant impact on consumer oriented industries such as music, publishing, consumer electronics, retail and financial services. But will this technology adoption by consumers have any major impact on the supply chains in traditional industries which continue to produce physical goods? Will the application of emerging technologies in supply chains, across industries, help organizations better fulfill the needs of their customers? The answer is an unequivocal yes. As there is a fundamental performance difference between traditional and digital supply chains. Traditional supply chains rely on a mix of electronic and paper-based processes and documentation. The organizational structure is often characterized by functional and geographic silos which do not share information openly, thereby leading to sub-optimal performance. Digital supply chains, on the other hand, have the capability for extensive information availability, and enable superior collaboration and communication across digital platforms resulting in improved reliability, agility and effectiveness. For instance, the U.S.-based land transportation company J.B. Hunt started using sensor based technology and Global Positioning Systems (GPS) to improve visibility of shipments and improve fill-rates. Advanced planning, scheduling and communication with truckers and customers alike helped J.B. Hunt to increase EBIT margin from 3% to over 11% within 4 years resulting in a quintupling of its share price. We don’t believe that specific technologies are required for achieving higher performance. However, we do strongly believe that the potential for value creation lies in digitizing the operating model to a complete Digital Operating Model; a model that enables organizations to reap significant benefits through smart and consistent application of currently available standard digital technologies. In this paper, we focus on how digitization will change the value delivery process, eliminate deficits of existing hybrid supply chains, and create unique opportunities. We conclude by presenting a holistic approach to the digital transformation of supply chains. Operations in the New Digital World Digital supply chains have the capability for extensive information availability and superior collaboration that result in improved reliability, agility and effectiveness