Digitization Can Fix Supply Chain Breaks Before They Happen
There always existed a recognition for the value of digitization in supply chain management, but pandemic-wrought disruptions have brought these capabilities into sharp focus
The value of big data and technology has never been clearer as the COVID-19 pandemic has put immense pressure on supply chains. Manufacturers and retailers are forced to rethink their supply chain networks and reimagine them for future needs due to the disruption caused by the pandemic to supply chains globally. Particularly affected have been globally distributed supply chains in the manufacturing, auto, and pharma sectors. It has been particularly evident in the form of a need for liquidity as disruptions have put suppliers in untenable working capital positions, while at the same time, their buyers are also looking to extend credit periods. These situations have come up suddenly, breaking supply chains practically overnight, with little chance to respond. The need for real-time updates, rich data, and paperless processes has become ever more evident.
There always existed a recognition for the value of digitization in supply chain management, but pandemic-wrought disruptions have brought these capabilities into sharp focus and moved them from "nice to have" to "must-have" practically overnight. In addition to improving efficiency, minimizing manual errors, and reducing costs, digitization is improving the resilience of supply chains, providing visibility into financial and operational weak points and allowing corporations to respond in a more proactive vs reactive manner.
According to a DBS Digital Readiness survey, the three most significant digital investment sectors for major corporates in India are trade and supply chain financing (82 per cent), continuing cash management (58 per cent), and back-office operations (55 per cent) in terms of digital spending. Around 63 per cent of Indian SMEs are investing in new cash management systems. More than anything else, funding for digital initiatives has surged, outpacing increases in prices, the number of employees working in technical roles, and the number of customers.
Digital Supply Chain Focus Areas
Customer centricity: When it comes to demanding forecasting and planning, the pandemic has changed established customer behavior to the extent that companies have had to re-assess demand almost from scratch. Smart sensing of customer behavior and thinking via tools like Social Media Analytics (SMA) can, however, compensate for this disadvantage. The real power comes from linking insights from consumer behavior, as it evolves, directly into demand planning and sourcing. Right now, disconnected data silos and systems create a delay between learning what consumers want, and sourcing goods to provide for the same.
Remote visibility: End-to-end visibility, accessibility, and control across all stages-supplied material, labor, multi-stage inventory, and logistics-as well as reduced reliance on manpower-are all enabled by a comprehensive digital ecosystem. For robust resilience and corporate success, a command center that can remotely control the whole supply chain becomes essential. Linking this command center to financial controls allows a potential near-real-time view into liquidity and capital flows into the supply chain.
Resilience & agility: The latest digital technologies, such as extended reality (XR), aid in preparation for a faster and more agile supply chain. To fulfill changing demands in the post-COVID-19 age, businesses require resilience and adaptability in processes. This can be accomplished by rapid data access and analytics, using simulations to assess impact of risks and developing fallback solutions.
Digital working capital delivery: The COVID crisis hit a huge portion of the supply base, and firms are bracing for a multi-fold increase in operating costs due to labor shortages, global supply chain problems, and closer to home, a continuing liquidity problem for Indian MSMEs. Buyers are increasingly needing to keep a close eye on the liquidity condition and continuing viability of key suppliers, and then proactively take steps to ensure working capital and liquidity reaches the parts of the supply chain most in need. Digitization to view and assess state of payments to the supply chain, and the power to accelerate (or slow down) payments with granular power is now possible through supply chain finance platforms.
The development of processes, systems, and structures that enable quick adaptation and resilience in the face of disruptions is required to strengthen supply chains in preparation for inevitable future uncertainty, such as:
- Creating a roadmap of current processes to remedy gaps in communication between many stakeholders using digital levers
- Define a supply chain liquidity strategy – what are target DPOs, which vendors are "irreplaceable", how and when to deploy vendor financing and to what vendor categories, what funds to use, how much to keep as contingency, etc. Follow up with a platform-centric digitization process to make this strategy a reality.
- Bringing important supply chain stakeholders together to optimize their individual and collective performance in pursuit of a single aim of servicing customers.
- Providing regular input across functions and regions to enable continuous process integration and improvement
- Encouraging cross-functional collaboration to identify critical processes and assess supply chain links in depth.
While excellent leadership and agreement on overarching strategy have traditionally been indicators of success during disruptions or transitions, the extent to which technology plays a differentiating role in this crisis is striking.
Manufacturers and merchants are discovering that investing in data and automation provides the necessary capability to make smart, agile decisions as we move beyond the consequences of the pandemic. Those firms that experimented with new digital technologies throughout the crisis and spent more money on digital technology than their peers will be the ones to survive this global disruption.