Charting the Path to Digital Maturity in the Supply Chain
Supply chain executives must ready their supply chains to fully support digital business. This research presents the supply chain path to digital maturity across demand, supply and product offerings, as well as the requisite foundational capabilities.
- With the creation of new business designs that blur the lines between the digital and the physical world, digital business will have a profound impact on supply chains.
- To support the digital business, supply and demand, the product management capabilities will evolve, leveraging digital enablers such as mobile, Internet of Things and analytics.
- Digital maturity is a natural extension of demand-driven value network maturity and the ability of supply chain to leverage digital enablers such as the Internet of Things, mobility and analytics.
- To reach digital maturity, the supply chain requires foundational capabilities such as cyber-risk management, embracing advanced analytics and creating a digital organization.
- Continue on your DDVN journey and determine where there is business value in digitizing supply chain functions and the ability to digitally orchestrate both internally and with trading partners. Build the digital leadership in your supply chain that can shepherd the fundamental changes in the demand, supply and product management required for digital maturity, and can determine the digital enablers required to support these changes.
- Educate partner business organizations on the critical role that supply chain will play in the digital transformation, and the enablers required to ensure its success.
Understand the Five Stages to Digital Maturity
The digital business is the creation of new business designs through blurring the lines between the physical and digital worlds. The digital business will have profound impacts on the supply chain. In the digital business, the supply chain organization will be capable of managing various processes faster and better, thanks to enablers like the Internet of Things (IoT) and advanced analytics. The supply chain will also be required to support new business models, ranging from offering complete solutions of physical and digital products and services or monetizing data and analytics-based insights.
The supply chain must orchestrate an extensive network of suppliers and trading partners to take advantage of transient business moments (see “Business Moment: How a Celebrity Tweet Can Place New Demands on Your Supply Chain” ) . 1
The digital maturity of the supply chain maps directly to the maturity path in the demand-driven maturity model. The digital focus of the supply chain evolves from simply improving functional performance to managing extensive trading partner ecosystems, required to support complex digital business models. Demand is sensed, shaped and created, taking advantage of digital marketing and customer reach through evolving digital technologies, including mobile and IoT. The supply chain’s role in the development and design of physical and digital products and services also evolves as the offerings become more complex, dynamic and asynchronous (see Figure 1).
Source: Gartner (March 2016)
There are five distinct stages through which the supply chain will progress to reach the digital maturity required to support the digital business:
- Predigital: In this stage, with the possible exception of Excel, the supply chain has no digital capabilities to improve functional and end-to-end performance.
- Digital Supply Chain Functions: In this stage, the supply digital enablers support functional improvements. In the absence of a common end-to-end supply chain focus, the supply chain organization seeks to satisfy demand in a fragmented manner, using siloed digital capabilities. For example, a high-tech manufacturer can deploy advanced IoT capabilities, with the primary focus maximizing asset utilization.
- Digital Supply Chain: Here, the supply chain focuses on leveraging digital capabilities to capture and shape demand and capture supply signals. The digital capabilities are used to share demand signals across the end-to-end supply chain, and more rapidly synchronize the fulfillment of physical and digital products and services. In this scenario, a consumer products (CP) manufacturer can collect demand signals from consumer mobile devices to sense demand, sharing this data throughout its integrated supply chain to profitably respond to or shape demand.
- Digital Value Network: In this stage, the supply chain is integral to development of new offerings, like smart products with embedded digital content or analytics insights, based on captured performance data. It invests in building digital capabilities to support an extended supply chain to synchronize the fulfillment of various offerings. Relying on digital capabilities, the supply chain collaborates with customers and suppliers to sense, shape and respond to demand for digital and physical products and services. For example, an apparel manufacturer partners with a wearable technology manufacturer to embed sensors in its sneakers. Utilizing wearable technology, the manufacturer collects data to track usage and predict demand for new sneakers, ensuring product availability and profitable response to demand.
- Digital Ecosystem: Here the supply chain evolves into a digital ecosystem that takes advantage of advanced enablers and focuses on creating value through the connections afforded by the IoT. The digital ecosystem can support new digital business models and profitably respond to transient business moments. In a digital ecosystem, the same apparel manufacturer can now orchestrate a network of trading partners, including an online retailer. The manufacturer can then send those demand signals collected through the wearable technologies to the online retailer that can push targeted promotions to consumers, creating and shaping demand.
There aren’t many supply chains that have reached Stage 4 and Stage 5 digital maturity. However, there are a few early examples. Under Armour orchestrates collaborative relationships with Fitbit and Zappos. Under Armour uses Fitbit to collect demand signals and predict future footwear demand. This information is then sent to Zappos, which can then fulfill and shape that demand. John Deere acquired Precision Planting from Monsanto’s Climate Corporation to enable near-real-time data connectivity between certain John Deere farm equipment and the Climate FieldView platform through an in-cab wireless connection.
Align Supply Chain Digital Maturity to Three Foundational Capabilities
Foundational digital capabilities in the supply chain extend the three primary functions of DDVN; demand, supply and product (see Figure 1):
- Manage demand to grow revenue: This spans the need to prepare for the volatility created by digital marketing to target more-granular market segments. Demand management will take advantage of customer analytics, and the ability to sense and shape demand through the use of the IoT and other digital devices close to the customer.
- Execute reliable profitable supply: This includes managing digitally connected partner networks to fulfill demand. Supply management will leverage digital enablers like IoT, automation and advanced analytics to better manage response in a multitier supply chain. In higher stages, this includes orchestrating an ecosystem of suppliers to respond to sudden digital business moments.
- Develop physical and digital offerings: The supply chain will participate in and possibly manage the design and development of digital and physical products along with the services enabled through a digital supply chain.
Let’s discuss the path to maturity across each of these functional capabilities.
Manage Demand Signals
Market demand will become much more dynamic in the digital business. Using digital enablers like mobility and IoT, companies will be able to create customer intimacy, which will provide organizations with further opportunities to sense and shape demand. Yet, this intimacy can also introduce additional volatility that the supply chain has to contend with. Demand also is not only that for physical products, but also for digital assets ranging from digital content to data-driven insights.
In the Predigital phase, with the possible exception of Excel, there are no digitally enabled methods to capturing, anticipating or shaping demand. Demand signals come through nondigital mediums, such as phone or fax, unable to support cohesive supply chain common goals.
In the Digital Supply Chain Functions phase, the demand signals are captured digitally by customer-facing functions, through customer portals or electronic data interchange (EDI) connections. But the supply chain organization is still siloed, which means digital demand signals are not shared across the supply chain to create an integrated supply response. Other digital capabilities can include applications, like demand forecasting or supplier performance management, which improve functional performance. The supply chain might even utilize more-advanced technologies to communicate demand signals within a siloed function. For example, the company might utilize IoT to communicate machine-to-machine demand within manufacturing.
In Stage 3, Digital Supply Chain , the digital demand signals are sensed, shared and shaped across an integrated supply chain. While demand signals are shared among the different functions in the supply chain, digital and traditional fulfillment channels might still be separate, offering an inconsistent customer experience. Digital fulfillment operations capture and make decisions on digital orders directly from customers. The supply chain leverages technologies, like inventory optimization or available-to-promise (ATP) logic, to fulfill customer demand, taking into account cost-service trade-offs across the supply chain.
When the digital supply chain evolves into a Digital Value Network , demand signals are sensed, synchronized and shaped directly with customers in an automated fashion. A digitally enabled extended supply chain across trading partners supports demand fulfilment across multiple channels. The supply chain leverages digital connections to provide a consistent customer experience across channels.
In the Digital Ecosystem stage, the highest maturity level, the supply chain is utilizing advanced digital capabilities to sense, shape and create demand for physical and digital products and services. Demand signals include those from transient business moments, captured across dynamic, rapidly changing channels and connectors. Signals are shared across an ecosystem of trading partners and response is orchestrated (see Figure 2).
Source: Gartner (March 2016)
Execute Supply Response
The Predigital phase lacks a digitally enabled approach to capture supply signals. Supplier communications are ad hoc, using methods like EDI, phones or fax, resulting in inconsistent and limited supplier visibility.
In Digital Supply Chain Functions , the supply organizations are embracing digital capabilities to offer visibility of supply internally within the enterprise. Supply-side input variables are captured and communicated digitally within the functional supply chain area. The supply organizations leverage some digital capabilities for ad hoc collaboration with suppliers, but these captured supply signals are not fully shared consistently with other supply chain functions.
In the third stage, Digital Supply Chain , supply signals and information are shared across functions in the integrated supply chain and incorporated in end-to-end supply chain response to demand. The supply chain organization coordinates the internal supply response to the demand of physical and digital products and services.
As a Digital Value Chain , supply signals are captured from external trading partners through digital means and incorporated in end-to-end supply chain response to demand. There is emphasis on leveraging digital supply signals to build multitier visibility across materials, manufacturing and logistics suppliers. The supply chain now leverages digital capabilities to satisfy differentiated customer requirements. Supply chain coordinates with suppliers of physical and digital products and services, typically in one to one fashion, for demand response.
In Stage 5, Digital Ecosystem , the supply chain harnesses the power of digital technologies to orchestrate a network of suppliers of physical and digital products and services, in order to satisfy demand, collaborate on product and supply chain design or manage risks. The supply chain orchestrates suppliers to synchronously generate a product or a service. Alternatively, the supply chain provides an ecosystem in which other suppliers can offer products and services asynchronously. 2There is a heavy reliance on advanced analytics to capture and share joint value among suppliers (see Figure 3).
Source: Gartner (March 2016)
Offer Digital and Physical Products and Services
In the Predigital stage, the supply chain does not have the reach nor the capability to provide input in the design and development of physical products and services.
In the Digital Supply Chain Functions stage, the supply chain has very limited involvement in the development, launch and life cycle management of physical or digital products and services offerings. Participation is typically in a traditional functional and reactive role, such as validating where to source or how to manufacture.
As a Digital Supply Chain , the role of the supply chain in physical product development and launch increases, but remains limited in the development of digital products. Supply chain increases its involvement in the development and launch of bundled physical and digital product and service offerings.
As a Digital Value Chain , supply chain synchronizes and supports the agile product development and launch of physical and digital products and services offerings across the extended supply chain. Digital offering spans embedded digital products as well as the monetization of extended supply chain data. The supply chain is heavily involved in physical and digital product co-development with customers or suppliers.
As a Digital Ecosystem , supply chain orchestrates the development and launch of the physical and digital products and services. Some of these product and service bundles are created dynamically in the ecosystem. Supply chain supports the creation of data/information asset monetization from partners in the ecosystem. The supply chain also supports innovation partner networks to offer products synchronously and asynchronously. Digital technologies enhance the feedback loop that enables supply chains to improve product performance and contribute to a circular economy. 3
Source: Gartner (March 2016)
Build the Foundational Capabilities for the Supply Chain to Support the Digital Business
Beyond these three functional capabilities, four foundational requirements are necessary:
- Create the digital organization. Organization must develop new talent to support supply chain needs in a digital business. Internally, this includes participating on cross-functional agile product development teams or managing digital innovation centers of excellence (COEs). In the network, new talent will be required to source digital services or orchestrate digital ecosystems.
- Chart the roadmap for digital technology. It is essential that supply chain organizations create technical expertise on the rapidly emerging world of digital technology that includes the IoT, smart machines, 3D printing and more. The supply chain organization must outline a roadmap based on the current technology maturity and vision for future supply chain capabilities.
- Adopt advanced analytics. For digital maturity, advanced analytics is a key enabler. It will allow supply chain organizations to harness the explosion of data from connected devices across the extended supply chain. Whether it’s a prerequisite for smart machines or for the orchestration of a digital ecosystem, building an analytics technology and talent foundation is required.
- Mitigate risk. Supply chain executives have identified cyber risk as the top concern for operating a digital business. There is a need to understand the impact of cyber risk on the digital maturity in the supply chain. Supply chain organizations must also understand how to incorporate both cyber and physical attributes into a robust supply chain risk management strategy (see Figure 5).
Source: Gartner (March 2016)
Digital business is fast approaching, and the supply chain must evolve to support this growth initiative. Just like the overall enterprise, the supply chain will progress through a digital maturity journey to support its goals in each of the five stages of the DDVN. The evolution will span the functional capabilities to manage demand, supply and offerings. To reach maturity, the supply chain organization must also build foundational organizational, cyber-risk, technology and analytics capabilities to support this journey.
1 Gartner defines a business moment as a transient opportunity that can be exploited dramatically, setting in motion events involving people, business and things that span multiple industries and multiple ecosystems.
2 Synchronous offering in a Digital Ecosystem is one where the company has orchestrated an innovation partner network to create that offering. Asynchronous offering is when the company provides the ecosystem in which innovation partners can develop and offer products and services, independently of the orchestrating company.