BCG: Transforming Digital Supply Chain
Stefan Gstettner, Partner & Associate Director in the Frankfurt office of Boston Consulting Group (BCG), discusses the impact of digitalisation in the supply chain
Leveraging innovative technology is essential in any modern supply chain. Indeed, to succeed in the modern industry, supply chain digitalisation is a key ingredient. Due to the way customer demands change, companies must use digital technology to be lean and agile or run the risk of being left behind by competitors.
Stefan Gstettner, Partner & Associate Director in the Frankfurt office of BCG, is an experienced supply chain professional. As part of his role, he exclusively focuses on advising clients in end-to-end supply chain management. Supply Chain Digital speaks with Gstettner to uncover more about the affect supply chain digitalisation is having on the industry.
How would you describe Boston Consulting Group? What differentiates it?
We have a fascinating and to a large extent, unique blend of people, capabilities and insights. This becomes evident while working on large and complex transformations. Beyond the table stakes that every consulting company provides, we deploy an exceptionally diverse and strong set of people with unique capabilities (e.g. data scientists, change management experts, deep topic experts, IT architecture experts). For me, the biggest differentiator is that we are able to collaborate and form powerful teams with these diverse individuals. That’s how real impact can be unfolded – individual excellence in a complex, connected situation does not bring as much value as a well-formed team. And finally, I feel it’s always inspiring and fun for our clients to work with us.
With digital transformation having such a major impact on the supply chain industry, how vital has AI and machine learning become to businesses?
The most surprising aspect of SCM is that the word “digital supply chain management” is still around. It could have become the “new normal” already and we should achieve a consensus that no supply chain is “non-digital” anymore. This means AI and ML as enabling technologies are an integral part of operating supply chains. I cannot imagine any supply chain without these capabilities anymore. Practically, of course, there are still several hurdles. Not only are the capabilities to run AI and ML in supply chains difficult to acquire and to retain in the organisation, but the areas where they are applied (take demand sensing as an example) also need to be carefully embedded in the overall processes and connected to the other elements in the supply chain.
Although technology is often considered a vital tool industry-wide, do you envisage any potential problems arising from the application of new technology? What needs to be considered?
A technology-focused view is the biggest hurdle to unfold the full potential of supply chains. Although the technologies are demanding, in essence, it is comparably easy to develop them. We keep experiencing that it takes 10% of overall effort to develop an algorithm, 20% effort to implement it in the technological infrastructure but 70% to change and enable the organisation to work with them. This is not only because specific capabilities are needed to run modern technologies, but the scepticism that people have towards these technologies. These hurdles are indeed the true ones when it comes to implementing digital technologies in the supply chain.
Can you talk me through BCG’s approach to risk management? In what ways can risks be minimised?
In supply chain management, risk management is not a “parallel concept” next to managing the supply chain, it is truly embedded into it. Let me take a large chemical client we are working with as an example. We have helped them establish a supply chain control tower. This concept is, besides other objectives, used to manage the day to day “risks” in the supply chain, e.g. yield variations in the assets or transport capacity shortages in outbound transportation. This concept of managing and balancing the end-to-end supply chain day-to-day can also be applied in a major risk environment of today’s COVID-19. It’s all about being able to quickly balance and re-balance the supply chain when something is changing. Be it small changes or be it drastic scenarios as today.
What do you feel are the biggest challenges companies in the supply chain space face and how is risk monitored and overcome?
From my experience, companies struggle to find the best balance between true end-to-end, real-time supply chain monitoring and management on one side, and the right level of granularity to do so. What I mean with this is, that in many companies concepts like end-to-end risk scenario simulation are not applied, because they try to do so on the most granular level of the supply chain, which makes the simulations too complex. Their take-away often is: it’s not possible. However, not every scenario needs to be modelled on the most granular level. Two quick examples: the impact of a force majeure in an API (active pharma ingredient) asset in a global pharma supply chain does not need to be modelled on an SKU basis. More importantly, strategic decoupling stocks need to be dimensioned on a higher aggregation level. On the other side, the break-down of a WMS software in a pharma country warehouse directly affects customer deliveries of maybe life-saving drugs and needs to be modelled on an SKU/customer basis to inform downstream customers in due course.
As a consultancy, there is a high value placed on empowering companies to make better decisions, how important is keeping up with the latest trends to ensure you are delivering exactly what your customers need?
It goes without saying that our clients expect us to be at the forefront of market developments – I would even argue, that’s not enough. We aspire to shape trends in the supply chain space. For this reason, innovation is key. Next to the two propositions “keeping up with trends” and “shaping trends”, we also deliver value in “translating trends.” I would argue making sense of the huge amount of technology promises to be the biggest bottleneck for our clients. They are approached by so many vendors and news about the latest trends that it continues to be difficult to understand how these developments are important for them. Therefore, we are constantly having a dialogue with our clients to be their independent advisor in the trend jungle.
What do you envision for the future of the supply chain industry to look like?
At BCG, we are convinced that the future of SCM requires the concept of a “Bionic Supply Chain”. After the phase of “digital supply chain management”, the focus of every activity in the supply chain will come down to new collaboration mechanisms – between machines, between machines and humans and between humans. Therefore, new operating models will need to be developed in order to facilitate these new collaborations. In essence what we say is: it’s not enough that a human uses digital technology in the supply chain. All humans, all technologies and all “traditional” supply chain concepts need to be connected in the new “Bionic Supply Chain” operating model.