ToolsGroup: The digital supply chain tipping point

Unlike other areas of business that are digitally transforming, supply chains operate in the realm of physical objects. While this makes digital transformation impossible to fake in supply chain, it also means real successes are tangible and visible. At the recent Gartner EMEA Supply Chain Executive Conference I attended in Barcelona, companies and analysts shared their views, success stories and challenges in merging digital and physical supply chains. Their testimonies add to my growing sense that a tipping point is near. These five takeaways from the conference summarise why:

1. You don’t have to choose between cost or service. Conventional wisdom says that in order to improve service levels, your costs need to go up - and vice versa. We strenuously disagree with that having worked with hundreds of companies to raise service levels while lowering their costs. Modern technology that supports advanced, predictive methods like probability forecasting enables planners to hedge their inventory bets and find that optimal ‘sweet spot’ of cost and service. So I was delighted to hear Gartner analyst Paul Lord challenge the conventional wisdom. He shares our view that an aligned, holistic approach to inventory planning, beyond individual sites and functions, can lead to genuine cost optimisation. 

2. Winners are thriving on supply chain complexity. A perfect example of a customer of ours finding that sweet spot is MANN+HUMMEL, a leading air filtration products manufacturer, which presented at the conference. It had a tough mandate to maintain a high parts fill rate while reducing inventory levels. Sergio Bellacicco, Vice President Global Logistics, Automotive Aftermarket shared his company’s journey to satisfy both sales and finance amid the complexity of multi-echelon spare parts logistics. It used advanced supply chain planning software to optimise planning for its slow moving items and reduce the complexity of its multi-echelon supply chain. The result was inventory levels slashed by 12 percent in less than four months and end-to-end network visibility for a more efficient operation. In his talk, Sergio credited automation with being a critical ingredient for success. He makes sure his team understands their roles are changing and that it’s critical for planners to “lean on the machines” for better outcomes and greater productivity.

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3. As trust in AI-powered automation grows, so does its application. Today, demand forecasting, supply planning and demand sensing and are the top three use cases where machine learning is being applied successfully. This is only the tip of the iceberg as Gartner predicts that, “by 2020, 95% of SCP vendors will be utilising supervised and unsupervised machine learning somewhere in their SCP solutions.” 

Several speakers at the conference emphasised the importance of delegating more tasks to the machines in order to make better decisions, faster. Without question automation will replace some tasks and roles, however the ones that remain will be far more desirable and successful. This is confirmed in a report by the Gartner community SCM World called Anticipating the Future of Supply Chain Work, which said: “High value-adding tasks requiring creativity and problem-solving will replace those that are low value, routine and mundane.”

4. One-sized fulfilment strategies don’t fit all customers. Despite all the hype around drones and same-day, or even same-hour delivery, not all customers care mainly about speed. In a particularly interesting session, Gartner analyst Tom Enright posed the question “Is fulfilment speed a ‘race to the bottom’?” It revealed that customers care about other factors including cost and environmental concerns like the use of recyclable packaging and air miles. As a result, fulfilment is changing, including direct to consumer, dark stores, and city hubs. The key, explained Tom, is having the analytical capability to position inventory across the network to fulfil changing demand. You need a richer, more credible demand signal to make it happen. It all comes back to understanding your customer demand, and delighting them by providing the items they want when they want them.

5. Digital transformation requires *serious* change management. Though this may sound obvious, the significant level of aversion people have to change often goes underestimated. We are currently running a research project to measure progress in digital supply chain transformation. Early findings reveal that two of the biggest obstacles are fear of change and the skills gap. This matches Gartner’s revelations at the conference of a huge industry talent gap and the urgent need for planners and other supply chain practitioners to develop strong communications, decision making and change management skills. Gartner also said that more than 50 percent of CSCOs said that having no roadmap is the biggest roadblock to supply chain digitalisation. Fear of change is therefore compounded by having to travel an uncertain path to an unclear destination. The bottom line: businesses must start now to build phased digital visions and roadmaps that take culture, talent, and customer desires as well as technology enablers, into consideration.