Digital transformation is the buzzword in SCM which is converting the traditional supply chains into a smarter supply chain. It is connecting modern suppliers and customers in a brand-new way that is both efficient and smart.
Some business leaders assume that creating a digital supply chain means automating a single task, such as forecasting demand or optimizing the production schedule. At TAFF, we know that supply chain digitization requires a holistic transformation mindset.
According to a McKinsey research report, the average supply chain has a digitization range of 43% which is still lower than the other 5 main business areas that were studied. Another study by McKinsey reports that companies that focus on digitizing supply chain management are likely to grow their annual EBITA by 3.2 percent. It is also estimated that companies can expect an extra annual growth of 2.3% CAGR by switching to smarter supply chain solutions.
The Growing Shift To Smarter Supply Chains
The Covid-19 pandemic and the global lockdown wreaked havoc across the local and international supply chains. Global product shortages, facility closures, factories being shut down, etc, were some of the undesired outcomes of Covid-19, yet the shipping industry survived and still persists to offer a smart supply chain. The companies that survived the 2021 scare are now facing a totally different set of new challenges in 2022. Let us look at the challenges below.
Cost Containment
According to the quarterly report by the US Federal Reserve, the country is facing its highest inflation in history. Due to the rising cost of the supply chain, most of the consumer-facing industries are facing heavy pressure in profit margins as the cost keeps on increasing. Some of the key factors that led to this cost increase are
- Global Brent Crude pricing is trading above 86$ which is at 4 year high. This has led to increased cost of transportation via road, air and sea.
- Due to increasing demand and challenges in the supply chain, the cost of raw materials has increased a lot, be it steel, chemicals, lithium, aluminium, etc.
- Labour costs have increased significantly throughout the globe.
- The international cost of shipping and storage skyrocketing is another main challenge
Increasing Customer Demands
The start-up ecosystem has thrived both in Silicon Valley and in other countries like India even during the pandemic period. Today customers have multiple choices to choose from and they are looking for only products and services of the highest quality. Not only quality, but the speed of delivery is another important thing that determines the buyer’s decision. Price is no longer the deciding factor for consumers as new requirements have popped up recently like
- Consumers prefer only those companies that can deliver goods and services immediately.
2. Products should beat the quality requirements put forth by the customers.
3. Raw materials and working conditions of the employees should fulfill the regulatory compliance set by the regulators.
4. Consumers are more ethically aware now and giving priority to businesses that source raw materials from environmentally friendly suppliers.
Globalization
Today customers prefer to order products from other countries online sitting in the comfort of their homes. Many e-commerce and logistics startups have started offering international products available to global consumers which have created a new marketplace.
Supply Chain Visibility
Consumers prefer to stay ahead of the curve and would like to get real-time updates about their orders. They prefer to track their product location live using technology. Globally successful e-commerce players like Amazon enables the customer to see where their products are at any given point.
Risk management
Supply chain management is always prone to both regulatory and legal risks. The constantly changing environmental factors or volatile economic activities can lead to unprecedented delays in the supply chain. International trade disputes is another area of concern that the supply chain has to deal with.
The Road to Smarter Supply Chain with TAFF
As mentioned earlier, the global supply chain industry is moving in a different direction and it is imperative only those businesses that embrace a smarter approach to the supply chain will thrive and succeed. We at TAFF believe that a smart supply chain system can be made possible with 3 core characteristics or 3i s as we call it.
Instrumented: Digital transformation is key to achieving a smart supply chain and we can instrument it through all stages of your SCM. Example Information that was previously created by people will gradually be machine- generated-streaming from sensors, RFID tags, meters, actuators, GPS and more. Inventory will operate and calculate itself. Containers will recognize their contents and Pallets will review and report if they end up in the wrong place.
Interconnected: Our entire supply chain will be interconnected — Not just suppliers, customers, I| systems and also connecting products, parts, smart objects to the supply chain. The broad connectivity will help the worldwide networks of supply chains to plan and take the right decisions together.
Intelligent: Our advanced analytics and modelling will help executives in evaluating the trade-offs and suggest the alternative solution incase of any complex and dynamic risks and constraints. Smarter systems will make some decisions automatically — increasing responsiveness and limiting the need for human intervention.
We know that digital transformation in supply chain management performs best and it will unlock great value when they’re integrated across the entire enterprise, when they involve both processes and people. Adapting a smarter supply chain not only helps in just positioning companies to be more agile, reliable, and efficient; it also delivers higher margins and lower costs.
The Smarter Supply Chain of the Future
The modern supply chain must grow to meet new customer demands and supply chain challenges, and supply chain managers need to plan ahead to keep all the processes running smoothly. They have to align their supply chain strategies with rapidly changing business strategies. Then, to implement those strategies, they’ll need to innovate and make the supply chain more sustainable, flexible and responsive through increased instrumentation, interconnection and intelligence.
The adaptation to the Smarter Supply Chain should be seamless, without any operational interruptions or performance slips.
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