Tuesday, February 12, 2013
Digital transformation can improve supply chains
When speakingabout inventory management, there are two important factors: demand forecastingand responsiveness in the case of variation from the forecasting. In both case,digital transformation[i] will have a good impact on inventorymanagement.
Digital supplychains have the capability for extensive information availability and superiorcollaboration that result in improved reliability, agility and effectiveness.[ii] When making demandforecasting, we are normally looking at the historical data for trendmovements. Using digital supply chain, we can easily deal with numerous pastdata. In addition, the data transparency across partner suppliers and internal departmentswill enable better prediction. Particularly, sourcing business function may connectwith marketing and sales people for better demand forecasting. The bullwhipeffect may also be controlled by digital information sharing among partners.
With digitalizeddata, employees can see the information straight forward and easily processthem. While making mathematical model for order batching, a digitalized supplychain system is also helpful for automation. With the updated informationprovided by the digital system, adjusting order batching (replenishment plan)is also easier to be realized. This may empower the firm with highresponsiveness compared to its peers.
In addition, theforecasting normally divides the inventory into three major categoriesIncreased visibility of all these categories, especially the excess andobsolete stock, will be able to alert the manager level to determine the reasoncaused this ineffective forecasting and thus improve the forecastingmethodology.
Another advantageof digital supply chain may be to help the inventory management to put moreattention on the inventory of raw material, works in process, and spare parts insteadof just finished goods inventory.
As no accurateprediction is possible with random activity happening, the inventory level needto be adjusted accordingly based on the real time demand. With the help ofdigital system, the firm may make fast decisions across functions to adept changes.With a dashboard, managers will be able to make quick decisions for marketchange on purchasing, production, orders, and deliveries. The digitalized notonly give companies information but also give the flexibility to deal withchanging conditions.
Successfuldigital supply chain will improve cost structure, accelerate time to market andincrease transparency.[i] For example,Cisco anticipated exponential growth and realized the need for a scalablebusiness model. They decided to use the Internet as the foundation for a networkedeco-system.[iii] With involvement of alltheir supply chain partners, customers and employees, the system provided Ciscowith scalability and agility which allows the company to grow with marketdemand and reduce its product development timelines.
Still, the firmneeds to figure out how to make this transformation. According to CapgeminiConsulting, normally five dimensions need to be considered regardless of thescope, which are Digital Supply Chain Strategy, Supply Chain Operating &Governance Model, Integrated Execution, Integrated Supply Chain Performance Management,and Supply Chain Technology Architecture & Infrastructure as shown in theabove graph.
In conclusion, successfullydigitized supply chain will have highly automated end-to-end processes, flexiblebundling of activities and improved visibility. However, the firm should notonly depend on the IT system to collaborate with internal departments orexternal partners, it is just a tool for reflecting facts. Direct communicationis still vital for make supply chain planning and improve the firm’s service level. Digitised supply chain is a powerful tool, the questions remains to how do you take this opportunity but not over relying on it.