Digital Supply Chains

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Author: Alex Behrens

E-commerce and the rapidly growing digital supply chain capabilities of brick-and-mortar and online retailers have made a massive impact on customer preferences and expectations while shopping, according to the Deloitte report “The Customer-Driven Supply Chain.”

Gone are the days where customers could discover unstocked items on a shopping trip or wait a week or more for deliver without an impact to a given brand.

Today, customers expect integrated systems that allow them to check stock across multiple retail outlets, that guarantee curbside pickup or two-day delivery, with customization options in person or online — all with complete accuracy and available in real time.

Digital transformation drives these changes in consumer preferences while providing the means to accommodate a customer-centric shopping experience at the supply chain level, but with just 8% of supply chain executives responding that their organizations are prepared for such a comprehensive system, are these customer dreams a supply chain nightmare for retailers and manufacturers alike?

Deloitte also examines emerging trends and opportunities in the report “The Rise of the Digital Supply Network”. One of the largest changes attributable to digital transformation is the shift from traditional or legacy supply chains consisting of “Plan-Source-Make-Deliver” to digital supply networks (DSN) that integrate each component in the supply chain within an interconnected web of support and information transfer, enhancing capabilities across the organization while providing simultaneous opportunities to delight the customer and improve the bottom line.

The “Customer-Driven” report states that businesses that endeavor to deliver this “whatever, whenever, wherever” customer experience, especially those coming from a retail, pallet shipping-focused supply chain, will face serious challenges. Customers armed with smartphones are able to shift channels on the fly, checking prices on their phone one minute, then examining a product in store the next, finally having it shipped to their home a few days later.

Not only does this present substantial inventory management challenges, maintain highly accurate stock levels and locations at retailers and online, but requires a reimagining of shipping policies as well: Does it make sense to prepare an individual shipment from a warehouse in California when the ordered product is ready three blocks away from the customer at a department store in Manhattan?

A DSN is an interconnected, centrally linked information system that collects and provides data all across the supply chain to increase the efficiency of the business and eliminate pain points for customers using tools like the internet of things (IoT) integration, blockchain and machine learning. A DSN allows decisions to be made dynamically, shifting inventory and fulfillment routing on the fly in response to changes in demand caused by natural disasters or spikes in popularity for a consumer product in a particular region.

As data is standardized and legacy systems are updated, improved forecasting and predictive suggestions for customers will become increasingly common and eventually allow significant automation throughout the entire DSN, selecting optimal inventory levels and shipping amounts among distribution centers and retailers and procuring many raw materials and other essential components with exceptional lead times based on downstream activity and even inputs from other business functions, like marketing department budgets or other measurable factors.

The foundation of an effective DSN system is the data core, providing a single source of truth for the business to rely on to sync the many moving parts inherent in such a system.

Blockchains serve this function well and allow businesses to grant limited, permissioned access to counterparties that further reduce wait times and otherwise increase efficiency.

A strong data foundation makes real-time, end-to-end analytics feasible, providing visibility to inventory levels, demand forecasts, customer feedback, and other valuable insights that can be derived from the millions of data points an effective DSN will capture.

Such a foundation leads to higher order capabilities, like the capacity to ensure stock levels both online and in-store, or highly effective routing for customer returns to reduce inspection and restocking time. The latter in particular requires a high level of sophistication, as more online shopping drives greater customer returns, compounded by the desire for options to return in store or via postal package.

A DSN also greatly increases continuous-flow orders within many supply chains, vastly reducing the inputs that businesses must buy in bulk and allowing for much tighter working capital management.

Stefan Schrauf and Philipp Berttram of PwC offer additional perspective on digital supply chains in “Industry 4.0: How digitization makes the supply chain more efficient, agile and customer-focused.” They commented, “Once built, the digital supply ‘network’ will offer a new degree of resiliency and responsiveness enabling companies that get there first to beat the competition in the effort to provide customers with the most efficient and transparent service delivery.”

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