Earlier this decade, manufacturing executives were skeptical about the benefits of digitizing their operations.
According to various studies, only 37 percent believed digital business could drive revenue growth; 25 percent thought the sector would be highly impacted by digital transformation within the following five years; and fewer than 10 percent were implementing digital technologies to transform their businesses end to end.
That was then. The future is arriving fast.
Now every manufacturing C-suite in the world is on the path to digital transformation, with the supply chain at its heart. A transformed supply chain is the enabler for companies to deploy technology for personalizing products, accelerating delivery, and meeting rising customer expectations—all while constantly probing the boundaries of their existing business models.
Researchers at IDC have identified a clear turning point ahead: they predict that half of manufacturers will be benefiting from digital transformation in their supply chains by 2019.
Charging Ahead with Supply Chain Transformation
When successfully implemented, digital supply chain technologies will lead to revenue gains, boost service quality, help cut innovation costs, and speed product-to-market times. The evidence is already apparent.
Ninety percent of supply chains will use B2B commerce networks to collaborate. By enabling decentralized collaboration among members of networks, blockchain technology is beginning to demonstrate its potential to automatically speed up supply chain network transactions. CoinDesk reports that BHP Billiton, one of the world’s largest mining companies, has started using blockchain technology to automatically share data with vendors (including geologists and shipping firms) that collect and analyze mining samples instead of relying on spreadsheets.
Manufacturing centers and microfactories with 3D printers will receive 500 percent more funding. Ford is testing 3D printing to make parts, starting with plastic molding for auto interiors and spoilers that go on racing models. The technology has potential to speed delivery of parts and save money in assembly and service processes.
Supply chain productivity and efficiency using Internet of Things (IoT) sensors will improve 30 percent. IoT-based sensors that enable the collection and analysis of data—and the analytics tools that make good on the variety and speed of that data—make productivity and efficiency improvements possible. Following a model with jet engines made famous by General Electric, Kaeser Compressors has fitted its air compressors with internet-connected sensors and is selling metered air compressor services rather than the equipment itself. Not only does this represent a new business model for Kaeser, it also improves uptime and service quality for customers, because the manufacturer, not the user, is responsible for maintenance.
Fifty percent of supply chains will benefit from digital transformation, while others will lag due to outdated business models and systems. The creation of local factories and mini-warehouses will put subsets of products closer to where they are needed and will locate production processes and products closer to customers. Adidas is building a “Speedfactory” in Atlanta, slated to open in 2017, that will bring customized products to American retail customers faster than could be done when manufacturing is executed primarily in Asia. The Atlanta facility, modeled after a factory in Germany, will use robots to automate production processes that can, for example, customize shoe styles and fit to match customer specifications.
Fifty percent of mature supply chains will use artificial intelligence and advanced analytics for planning and forecasting. Intelligent systems can make faster and better predictions than people can. The healthcare unit at Merck KGaA is working on an initiative to bring sensors and intelligent software algorithms to bear on its supply chain, according to The Wall Street Journal. The goals: better data about how products do in the market and an accelerated planning process.
Fifty percent of manufacturers will deliver directly to consumers. The McDonald’s supply chain once stopped at the restaurant door. But after offering delivery services in Asia and the Middle East, the company has begun pilots to bring burgers to customers—even partnering with ride-sharing digital natives at Uber in Florida to deliver meals.
Digital Power Source
The opportunities for supply chain transformation are real, although the path forward is challenging. An SAP-sponsored study by research and advisory firm Longitude notes that while many enterprises appear to be digitized, the foundations of their operations—supply chain, procurement, and logistics—are still analog. Market forces are placing these companies under great strain, making them susceptible to disruption by digital startups.
Transformation means converting analog processes into digital supply networks—now. While every company’s digitization strategy will be different, enabling these processes requires the following:
- Ask the right questions. To avoid being overtaken by a lean startup, you need to continually evaluate your operations against competitors. Some questions to ask, according to Peter Weill and Stephanie L. Woerner in the MIT Sloan Management Review: Are the products you make ordered and delivered digitally? Can you equip them with data to make them more valuable? Are there other firms serving your customers that could become competitors? Can a digital offering replace your products now or in the future?
- Have the right data systems in place. You need information from everything in your production ecosystem—including sensors, machines, factory and warehouse equipment, trucks, and even products—in forms that you can analyze to improve production processes.
- Commit to automation. Machine-learning technologies make your systems more intelligent, so you can pursue the right opportunities and produce the right outcomes. For example, blockchain technology applied to supply chain systems can configure order processes so they happen immediately.
- Include every process. The digitization effort should cover manufacturing processes from product design and configuration to supply chain planning, manufacturing, shipping, and after-sales service.
These points are where the discussion starts. Every C-suite will have its own approach to how these elements come together for their firm to succeed. Many companies are executing their strategies now. The rest need to head that way.