amudu: What exactly is a digital supply chain, and how is one supposed to manage it?

Wednesday, May 15, 2019

What exactly is a digital supply chain, and how is one supposed to manage it?

Digital Supply Chain

Two Definitions

Depending on the context in which it’s used, the term “digital supply chain” could have one of two different meanings. The term can either refer to:

The digital aspects of a physical supply chain
The chain of technology companies involved in the delivery of digital products

Definition 1: Supply Chain + Digital
In the first definition, “digital supply chain” is typically used when discussing how the development and implementation of advanced digital technologies (IoT, blockchain, machine learning, artificial intelligence, predictive analytics, etc.) can drive improvements to traditional supply chains. For example, in McKinsey’s concept of the “next-generation digital supply chain,” supply chain leaders ought to “place sensors in everything, create networks everywhere, automate anything and analyze everything to significantly improve performance and customer satisfaction.”
Who’s responsible for managing the digital supply chain? Within this definition, the team responsible for digital supply chain management is the same as the team responsible for any supply chain functions (which could be sales, manufacturing, logistics, etc.). These teams are tasked with finding new ways to accomplish the same goals they’ve always had: improving efficiency and increasing margins. In other words, “digital supply chain management” is really just supply chain management with an added layer of digital technologies. These technologies include:
- Predictive analytics to optimize inventory allocation and forecast demand
- Automated replenishment solutions
- Robotics to speed up assembly or picking
- IoT sensors to gather real-time feedback from manufacturing equipment and vehicles
Definition 2: Digital Product Ecosystem
The second definition — that the digital supply chain is the chain of technology companies involved in the delivery of digital products — originally referred to the supply chains of digital products that initially existed in physical forms, such as ebooks and mp3s. This the term was coined in a 2001 paper. Now, the definition has expanded to include the supply chains that help deliver any digital product, such as a website or software platform. Take an e-commerce website, for example. Its digital supply chain includes the website’s developers, its administrators, the cloud services company that hosts the web site's data, the CMS provider, and the devices that consumers use to access the website. In addition, every third-party technology a provider whose code provides the functionality to the website — e-commerce plugins, personalized recommendation engines, advanced analytics services, inventory tracking solutions, custom product builder, chatbots, etc. — should also be considered part of the digital supply chain.

Risks to the Digital Supply Chain
This second definition is especially useful for technology companies. Looking closely at any digital product, whether it’s an e-commerce website, B2B software product, or something else, one can discover the long list of providers upon which the product relies. Viewing this list as a supply chain helps IT, cybersecurity, and other teams understand the risks to the product and identify opportunities for improvement. Consider the 2016 DDoS attack on DNS provider Dyn that took down a large portion of the North American internet (including Spotify, Reddit, and the New York Times) for nearly a day. This is a typical example of a digital supply chain risk. The relationship between Spotify and Dyn is comparable to the relationship between a clothing retailer and a wool supplier — one relies on the other in order to deliver their product. Another example is the 2018 Ticketmaster breach. Card skimming malware was added to the Ticketmaster website via a vulnerability in the code of a customer support software company. In other words, a threat was introduced through Ticketmaster’s digital supply chain. Personnel at technology companies can take cues from their contemporaries at physical product companies concerning the monitoring and mitigation of supply chain risks. For example, creating a map of the digital supply chain to identify single points of failure among third-, fourth-, and fifth-party providers can help IT, cybersecurity, risk, and product teams avoid business disruptions and data breaches.

"Supply Chain 4.0 - the application of the Internet of Things, the use of advanced robotics, and the application of advanced analytics of big data in supply chain management: place sensors in everything, create networks everywhere, automate anything, and analyze everything to significantly improve performance and customer satisfaction"
Over the last thirty years, logistics has undergone a tremendous change: from a purely operational function that reported to sales or manufacturing and focused on ensuring the supply of production lines and the delivery to customers, to an independent supply chain management a function that in some companies is already being led by a CSO - the Chief Supply Chain Officer. The focus of the supply chain management the function has shifted to advanced planning processes, such as analytical demand planning or integrated S&OP, which have become established business processes in many companies, while operational logistics has often been outsourced to third-party LSPs. The supply chain function ensures integrated operations from customers to suppliers.

Steps For Digital Supply Chain Management

This is the very first step. It is important to realize the current situation of the supply chain, what risk each supplier brings and assess feasibility. Their significance of each potential risk is weighed, and you have to formulate solutions on how such possible complications can be offset. Once you properly understand the risk involved, it becomes much easier to take proactive steps and set up preventive frameworks in a timely manner.

At this stage, you will assess the maturity of your suppliers and the overall risk posed.

1.Understand your starting position and the risk involved

Define your strategy and be open from the outset

At this point, you will have known about the effects of potential changes, and you then encourage dialogue with the business entities involved and create a comfort zone where they can be honest with the common goal that you want a system that will benefit both sides. The use of dialogue will show inclusiveness and build the existing trust and confidence between you and your business partners. This will exchange will also shed some light on what is likely to work for both sides and provides the basis for how the foundation should be set.

These early discussions will also ensure that the digital management system will be made to suit your needs and the needs of the suppliers and other business partners. At its core, it is a system that will not be a square peg in a round hole. Understandably, suppliers will be concerned about the risk of losing you as a client if they voice concerns and potential risks, therefore these initial discussions are critical as they put everyone at ease and are all-inclusive. The suppliers will also broaden your idea on what the system needs and what components need to be in place for it to be a resounding success.

Have a sustainable, long-term approach

Have measures in place that will aid your system in the long-term. Take proactive steps to ensure system stability over time and in varying business and financial conditions. A reactive approach is susceptible to interruptions, delays and at times system shut down. This cautious and forward-thinking procedure safeguards your business from such unnecessary unpleasantness.

It is important to realize that the incentive to save money can prompt individuals and organizations to introduce measures that pose significant risks whilst focusing on the short term benefits. It is therefore very important to cover all bases and see the bigger picture as sustainability is a core value of all good business entities.

Proper research and analysis

A good supply chain is resilient and delivers the desired and expected returns. It is therefore of vital importance that you invest time in supplier analysis. Set up a contract with proper knowledge of just how much aware your suppliers are the potential risks involved. As much as suppliers are expected to do their own risk analysis, it doesn’t mean that they necessarily are.

All questions about expectations and mutual obligations should be answered by this point.

Segmented rollout and capability development

After the digital supply chain management system has been formulated. It is brought into action in phases, employing all the various insights acquired. A pilot project is set up and its success reviewed. After a successful pilot, the rollout should start with those supply chain where expected returns are the highest so as to ensure maximum returns right from the start.it is important to note that system capabilities will be expected to evolve over the course of the rollout due to the dynamic nature of today’s business environment.