The digital supply chain revolution: A mountain worth climbing?
By: World Economic Forum
Tags: Internet, Supply Chain, Bitcoin, Blockchain, Innovation

If I had a bitcoin for every prediction about the transformative effect of new technologies on supply chains that has so far failed to materialise, I would be a very rich man. Much has been promised yet we remain at the foothills of this endeavour. Looking ahead, we should anticipate an alluring possibility of a world in which the end-to-end supply chain is utterly transformed — highly connected, flexible, efficient, resilient and truly responsive to customer needs. However, if large global companies are to reach this summit they will need to reinvent themselves. And for many of them — with their organisational siloes and complicated, multi-tiered supply chains — is that just too big a mountain to climb?

While no-one underestimates the scale of change required, particularly if a firm was to try to exploit multiple technologies at the same time, doing nothing is not an option. Too slow to embrace change and a firm you’ve never heard of could severely disrupt your market. Put all your eggs in the wrong technology basket and the consequences could be catastrophic. Fail to experiment and opportunities will undoubtedly be lost.

To make matters worse, firms are having to decide how to proceed amidst a significant skills shortage. Many lack the home-grown talent they need to bring about a digital transformation and the competition to recruit new talent from a relatively small pool is increasingly fierce.

Finding a way forward

As a result, many organisations have started the ascent to digitalisation, but tentatively. In this context of almost overwhelming digital opportunity, the most important question for firms is how do they decide where to start? At Cambridge, we are researching the design of manufacturing supply networks and, in particular, how can you bring together different layers of analysis into a single framework that can drive effective decision-making in a hugely complex ecosystem. To help firms think about their digital options, we have extended our thinking to develop a series of digital scenarios across the supply chain which show firms what could be done. These range from the automated e-sourcing of parts, to digitally-enabled production processes (3D printing, for example), through smart factory design and automation to direct-to-the customer e-commerce, with real-time monitoring and perpetual self-optimisation embedded throughout the supply chain. (The full set of scenarios is illustrated below.)

By breaking down the digital supply chain into these distinct but connected scenarios, we have created a framework against which firms can measure their current performance and aspirations. It helps them identify the most promising opportunities and develop a more strategic approach to digitalisation.

It’s an approach we are already using with a number of firms from different sectors and this is throwing up some interesting results in terms of organisational focus. Firms that deal directly with end-users are, as you might expect, focused on getting products to customers, whereas firms that use complex materials and parts in their manufacturing are concentrating on collaborative e-sourcing and procurement. For firms that rely on costly and complex equipment (in sectors such as oil and gas, mining and aerospace) prioritising investment in smart factories, automation and digital production processes are key. Firms with many production sites, on the other hand, that need to optimise how they work with their suppliers are prioritising network design and collaborative e-sourcing.

What we see from all this is the emergence of ‘hot spots’ — combinations of activities that will lead to competitive advantage. And, the other — but equally important — side of the same coin, a way of identifying which digital possibilities firms should leave to one side.

Breaking the problem down into manageable chunks is already helping firms to navigate the complexity. And, consonant with our findings, we see that some sectors are more successfully embracing aspects of digitalisation than others. Platforms that deliver services direct to the consumer — whether it’s online banking, calling a cab, or listening to music — are already commonplace. But harnessing the potential of, for example, continuous production processes or ‘watch towers’ to monitor a whole supply chain is still in its relative infancy. And that’s where another sort of platform comes in.

The importance of platforms

The pharmaceutical sector is an example of an industry facing a perfect digital storm. The big pharma companies are contending with the emergence of new production processes and packaging technologies at the same time as they are trying to apply digital technologies to address the problems that have long bedevilled their supply chains. While breaking down the problem and focusing on the priority areas helps to a certain extent, in a sector that is this technically complex and highly regulated, another approach is also needed.

And it’s important to make progress in this sector. These new technologies have the potential to deliver much better quality, highly bespoke care to individual patients, much more efficiently. Everyone — the patient, the clinician, the healthcare provider and the pharma companies themselves — will benefit. But, even if it were organisationally possible, no single manufacturer can take the risk of a wholesale implementation of innovative technologies at the same time as redesigning its supply chain, and potentially, its whole business model. So while many have been experimenting with new technologies, they are doing so either ‘at the edge’, isolated from the main business or in ways which provide incremental improvements to their current activities.

Clearly, that only gets you so far. If these firms are going to take full advantage of their technological opportunities — and move from experimentation to total reinvention — they need to find another way of clearing the foothills of implementation. One of these ways is through platforms — pre-competitive collaborations, co-funded by industry and government — that bring together manufacturers and suppliers, regulators and universities. We have been involved in a number of these collaborations in recent years and they are now gaining significant momentum, helping the sector as a whole find its way through the complexity while reducing the risk for individual firms. There may be useful lessons here for policy makers thinking about how best to develop their national innovation strategies.

Are we doing the right thing?

As we scale the foothills, we start to get a clearer view of the hazards that lie ahead. The potential benefits of transformation may be compelling but what about the costs? Some recent analysis by WEF suggests that the rise of these new technologies will result in a net loss of jobs across all sectors and in developed and developing countries alike. Is this a price we want to pay, or indeed can afford to pay, when inequality is rising within countries and is so persistent between countries? Will this inexorable march to a new technological future just make things worse for the already disadvantaged?

There is no question that manufacturing will change — eventually. The days of the large monolithic factory, churning out standardised products and shipping them all round the world seems increasingly at odds with the drive towards environmental sustainability, customisation, shorter lead times and greater scrutiny on the provenance of the product. New technologies mean we can now envisage different ways of doing things. Distributed manufacturing (using new production processes) could mean that goods are produced close to the customer, in small factories with shorter supply chains, delivering more personalised products and services with a lower cost to the environment. This sounds like an attractive model but the scale of change needed to get there is enormous — and we need to better understand its likely impact on employment and the economic and societal consequences for all of us.

Further reading

Srai J.S., Christodoulou P., and Settanni E., Next generation supply chains: making the right decisions about digitalisation. University of Cambridge Institute for Manufacturing, Cambridge, UK. Available at: https://www.ifm.eng.cam.ac.uk/insights/global-supply-chains/nextgensc/