Developing a Supply Chain Digitization Path

In our last post we discussed what is a supply chain engineer. With this post, we start to explore what an SCE does beginning with developing a strategy and roadmap for supply chain digitization

Overview

Digital technologies provide a competitive edge by improving the speed and quality of the supply chain while reducing risk and enhancing innovation. Companies that wait too long to launch their supply chain digitization projects risk being outmaneuvered by more agile competitors. Yet, many companies have been slow to embrace the usage of digital technologies within their supply chains for two main reasons. Many have had a bad first experience implementing digital solutions. For others, the return on investment (ROI) isn’t clear, or the executive team doesn’t understand why the supply chain should be a strategic priority for information technology investments.

But the economic and strategic benefits of digitizing the supply chain are real.[1] For example, International Data Corporation (IDC), a leading market intelligence firm, reports digitally-mature companies will achieve $430 billion in productivity gains over their less connected peers.[2] Along with reinforcing the market need for digitization in the procurement space, research highlights the five most important digital solutions, according to the businesses surveyed:[3]

1. Inventory management systems. Hardware and software systems that record, track, and manage inventory levels through the procurement value chain
2. Cross-domain master data management. The collection, cleaning, and management of data from across a company’s businesses and functions within a “single source of truth” repository
3. Contract life cycle solutions. Solutions standardizing and automating contract initiation, creation, negotiation, and execution
4. Supplier quality management. Software allowing buyers to engage and collaborate with suppliers to manage product quality, delivery, and other aspects of supply
5. Spend analysis. Collecting, cleaning, and analyzing organizations’ expenditure data to drive internal strategy, decision-making, and compliance

Digital supply chain solutions not only create opportunities to improve efficiency but also pave the way for supply chain teams to play a strategic role in accelerating innovation.

These benefits can be divided into two broad categories–identifying and creating value and preventing value leakage–which, in turn, can be broken down into more detailed elements.

Identify and create value

• Collaborative and advanced sourcing
  • Supplier qualification and selection: Supplier x-ray – Tier-N supplier insight monitoring for qualification, selection, risk management, and negotiation
  • eCatalogs and eProcurement tools to facilitate sourcing and reduce transactional costs
  • Supplier collaboration platforms such as eSupplier Connection to foster supplier collaboration and innovation
• Spend Analysis
• Network or market data intelligence

Prevent value leakage

• P2P process workflows: Procure-to-Pay workflow and approval support
• Electronic Invoicing
• Demand Forecasting
• Inventory Optimization
• AP Recovery Audits
• Performance Management
  • Supplier performance scorecards: Automated scorecards and supplier performance management tools
  • Procurement organizational performance scorecards: Automated scorecards and performance management tools for the procurement organization

Getting Started

The abundance of competing technologies has made it difficult for companies to determine where to begin transforming their supply chain. Plus, the stakes are high to deploy a digital solution that adds value from the start, because a failed deployment can dissuade leadership teams from further investments. A disciplined, user-focused approach to transformation is critical to the overall success of the enterprise’s digitization journey. To achieve the best outcomes, procurement executives can begin building a sound strategy by choosing two to four digital tools that have a proven track record in the market. This process should be preceded by crafting the enterprise’s digitization vision, analyzing its current digitization status and maturity, and developing a transformation design and roadmap. From this process, a series of deployment sprints can bring about a successful transformation.

Supply chain executives facing the task of digitizing their procurement function can benefit from the helpful practice of creating a digital procurement roadmap, which will ultimately reduce costs and free capacity for more strategic activities. We recommend a five-step approach to supply chain digitization projects:

1. Gather data. Collect information on digital trends from the company’s leadership, the industry, the market, and procurement executives. What are the company’s digital goals and strategies? What vendors and solutions are other companies in the industry utilizing?
    
2. Create a vision. Focus on three to five years from now. What processes should be digital? What solutions does the company want to implement? Define how procurement will work with business unit leaders and vendors to accelerate innovation and results.
3. Digital maturity analysis. Assess which elements of supply chain digitization are already implemented or have been purchased but not installed (shelfware). What processes have already been developed and deployed to accommodate digitization.
4. Design a roadmap to get there. Supply chain executives should set detailed priorities, including near-term goals, to achieve the organization’s digital vision. They should also prioritize clean data, an agile operating model and a digitally skilled workforce when implementing new solutions.
5. Implement in a series of rapid “sprints.”  Instead of trying to coordinate all the anticipated changes into a single, integrated project—where errors or miscommunication can mean months of rework—make constant, small improvements in quick “sprints” of activity. 

While each organization’s journey will be unique, there is a general progression of tools and applications that, if deployed in broad phases, can result in a “rolling thunder” of momentum toward full digitization.  A recent survey of 243 procurement professionals rated 22 digital solutions.[4] The tools that scored high on customer satisfaction have shown a higher likelihood of successful deployment and can help build momentum for digitizing procurement.

Phase 1: Start with solutions that rank high in user satisfaction.  Successful deployments build momentum for digitized procurement.

• Accounts payable recovery audits
• Collaborative data platform (e.g., eSupplier Connection)
• Supplier quality management
• Electronic invoicing (eSettlements, Transcepta)

The next logical step is choosing tools that rank high in importance for the organization and relatively high in satisfaction. They

 include inventory optimization (IO), supply chain resilience, and cross-domain master data management. These solutions also are likely to be successful and deliver a meaningful ROI, demonstrating the value of digitizing procurement.

Phase 2: Deploy solutions that users rate as most important and high on satisfaction.  These tools are likely to deliver on ROI.

• Procure-to-pay suite
• Performance management system
• Inventory optimization
• Resilience & risk management
• Cross-domain master data management

The third cluster of tools includes those ranked high in importance but lower in satisfaction, largely because they are less mature or highly complex. That group includes contract life-cycle management, demand forecasting, and network or market data intelligence. These solutions are riskier to deploy and manage but still important for an organization–so proceed with caution and do proper due diligence to ensure you’re selecting the right solution.

Phase 3: Proceed with caution on solutions with lower satisfaction ratings and ensure that they are a good match for your needs.

• Demand forecasting
• Spend analysis
• Network or market data intelligence
• Contract life-cycle management

There are genuine benefits to digitizing the supply chain. For example, according to the online business and finance magazine PYMNTS.com[5],

• 94% of successful supply chain digitization projects directly led to an increase in revenue.
• Return on investment (ROI) of supply chain digitization initiatives is a top motivator with 77% citing cost savings as their top driver for a project.
• Other motivating factors include increased revenues (56%) and the emergence of new business models (53%).

However, those who are reluctant to digitize risk being displaced by those who are not. Armed with knowledge and a solid roadmap, an organization can sift through the plethora of options to avoid a poorly selected starting point or a failed deployment that can destroy momentum and discourage leadership from further investments.

For more information, contact Carl@TheSupplyChainEngineer or Sierra-Cedar.com.

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[1] See for example, Paul Myerson, Management and Decision Sciences, Monmouth University, Supply Chains Need to Turn to the Digital Frontside, Industry Week, November 1, 2017

[2] “The Value of Real-Time Visibility and Predictive Intelligence for Supply Chains,” IDC, October 2016

[3] Paul Myerson, Management and Decision Sciences, Monmouth University, Supply Chains Need to Turn to the Digital Frontside, Industry Week, November 1, 2017

[4] Source: Bain Digital Procurement Survey, 2018

[5] PYMNTS.com, “Corporations Stuck In The Planning Phase Of Supply Chain Digitization”, Dec. 12, 2018