The digital transformation of supply chains is no longer a choice but a necessity in today’s fast-paced, technology-driven business landscape. As companies navigate the complexities of global supply chains, they must innovate to stay ahead of the curve. The question is, how can businesses successfully transition to a digital supply chain and overcome the obstacles that stand in their way?
In this article, I’ll first look at the challenges supply chain organizations face in digitalizing their operations. In particular, the problems that IT and operational departments have to deal with. Most importantly, I’ll discuss the crucial role corporate executives play in championing digitalization initiatives and overcoming risks. Moreover, I’ll provide practical insights for corporate executives to ensure success. This includes ways to minimize customer impact, developing a digitalization business strategy, and leverageing high-tech 3PL providers. Also, these tips include building consensus with system owners across the supply chain, encouraging experimentation, and fostering IT-operation collaboration.
1. The Slow Moving Transition to a Digital Supply Chain: Why Is This Change So Hard for IT and Operations?
First, let’s look at the operational and technical challenges of supply chain digitalization. Surprisingly, the supply chain industry has focused on this topic of digital transformation for years, yet progress remains sluggish. Despite the promise of improved efficiency, reduced costs, and enhanced customer satisfaction, many companies struggle to make the transition to a digital supply chain. The question remains: “what’s holding back the adoption of digital supply chains?” Below, I’ll describe the major operational and technological gaps that a supply chain must transition to digitalize. Also, I’ll provide examples of these challenges.
“what’s holding back the adoption of digital supply chains?”
a. The Supply Chain Transition from Isolated Functions to a Digitally Connected Network.
All supply chains are currently undergoing a digital transformation, moving away from paper-based transactions, compartmental information silos, and labor-intensive processes. In fact, many companies understand that digitalization is highly disruptive to their operations, fundamentally changing how their supply chains will work going forward. Moreover, the other challenge with these disruptive digitalization efforts is balancing these initiatives with continuing to meet customers’ needs. To better understand the dynamics of this digital transition, let’s start with two descriptions of supply chains, one physical and one digital.
Supply Chain Descriptions
- Physical Supply Chain is a network of entities that source, produce, transport, and deliver a product.
- Digital Supply Chain is characterized by the seamless integration of technologies such as IoT, smart robotics, AI, and advanced analytics, creating a highly interconnected and automated environment that drives supply chain operational excellence and customer satisfaction.
Let’s elaborate on these different supply chain descriptions. Before computers a supply chain only exchanged limited information, which was labor-intensive and typically followed a linear path. For instance, only specific individuals had access to crucial documents like the Bill of Lading (BOL) or a carrier invoice. As a result of this lack of digital technologies, information was confined to a particular functional department or geographic location. In other words, there was no end-to-end supply chain visibility. In contrast, digitalization is transforming supply chains into highly interconnected and automated environments, resulting in a fundamental shift in how these organizations operate. So, digitalization is not just a change in technology, but it is also a change in how supply chains operate.
b. Supply Chain Digitalization: IT and Operational Challenges.
So, digitalization is causing supply chains many challenges, both operationally and technically. To detail, below are major challenges that supply chains have with digitalization.
- Gaining Access to Data. Internal departments and external partners often hesitate to share data due to concerns about privacy, regulatory compliance, and protecting proprietary information.
- Difficult to Integrate Systems. Supply chains in particular have a diverse range of technologies, partners, competing standards, hardware, and software platforms used by different stakeholders. Hence, data integration between systems is slow, error-prone, and expensive to implement. Worse, many times the data that is actually transmitted is not well understood, nor actionable. Click here for more on this topic.
- Managing Operational Changes. Digitalizing a supply chain requires significant organizational and operational changes across the supply chain. This can be difficult to manage and may face resistance from both employees and 3rd party partners.
2. Stuck in the Innovation Gap: Why Supply Chains Executives Are Hesitant to Adopt New, Disruptive Technologies.
To remain competitive, supply chains must adopt new technologies. However, many established companies struggle due to the risks and uncertainty involved. To better understand this phenomenon, I’ll introduce you to the Innovation S-Curve and the Innovator’s Dilemma. Basically, these concepts describe the challenges that business executives have when balancing their current revenue streams with the potential benefits of adopting a new, disruptive technology. In the case of supply chains, this Innovator’s Dilemma explains why senior leadership hesitate to digitalize their supply chains.
a. The Innovation S-Curve Plateau: When Established Companies Struggle to Innovate.
Established companies often struggle to adopt new, disruptive technologies because their primary focus is on maintaining current revenue streams. This phenomenon is known as the “Innovation S-Curve“, where innovation starts slow within a business, gains traction, and then eventually plateaus. As new, innovative technologies emerge, a new S-Curve begins. At this juncture, corporate executives must decide whether to stick with their existing successful models or adopt the new technology. Moreover, this S-Curve phenomenon is a repeatable pattern, depicted below, as each new, disruptive technology enters the market a new S-Curve begins.
The Innovation S-Curve Pattern
This repeating pattern of the S-Curve highlights the tough decision that senior executives need to make. Namely, do they adopt the new technology, making a leap to the next Innovation S-Curve or risk more innovative competitors driving them out of business?
b. The Innovator’s Dilemma: Why Supply Chains Struggle to Digitalize.
When an established company reaches the top of its Innovation S-Curve, it is the emergence of a new, disruptive technology that creates the Innovator’s Dilemma. See the graphic below. The Innovator’s Dilemma forces senior executives to choose between maintaining their current successful business model or adopting the new, disruptive technology. This is a difficult decision because adopting the new technology may well disrupt their “cash cow“, require new business models, and major investments in new technologies with uncertain long-term success. Moreover, not adopting the technology can result in more innovative competitors running them out of business. This is the challenge for senior supply chain executives faced with digitalization.
“The Innovator’s Dilemma forces senior executives to choose between maintaining their current successful business model or adopting the new, disruptive technology.”
The Innovator’s Dilemma
So, there are several reasons why senior executives of supply chains struggle with digitalization and the Innovator’s dilemma. To detail, below are several examples that illustrate why senior executives are reluctant to adopt digital technologies.
Examples of Why Supply Chain Executives Struggle to Digitalize
- Misalignment of Goals. For example, a manufacturer may prioritize cost reduction, while a logistics partner focuses on improving delivery times, creating tension and making it challenging to implement a unified digital strategy.
- Inertia. For instance, a company may be hesitant to adopt new digital technologies because they have invested heavily in existing systems and processes, making it difficult to justify the costs and effort required for change.
- Short-Term Focus. To illustrate, a company may choose to optimize its current operations rather than investing in digital technologies that may take time to mature and provide returns.
- Risk Aversion. Lastly, a supply chain may be hesitant to adopt a new digital platform due to concerns about data security, potential disruptions, or the risk of vendor lock-in.
For more on the topic of business innovation, see Unvarnished Facts’ article, Types Of Innovation for a Business Breakthrough: What You Need to Know, Characteristics, Best Strategies.
3. Transitioning to the Digital Supply Chain: Tips for Executives.
As the business landscape continues to evolve, executives are under increasing pressure to digitalize, adapting their supply chains to meet the demands of a rapidly changing world. Moreover they realize that the digital supply chain is no longer a luxury, but a necessity for them to stay ahead of the competition. Below are some tips for executives to accelerate and improve the success rate of their digital supply chain initiatives.
a. Direct Operations to Prioritize Maintaining or Improving Customer Service Levels during the Transition.
When embarking on a digitalization project, corporate executives must prioritize minimizing adverse customer impacts. At the same time, digitalization will require significant organizational and operational changes. To mitigate negative impacts, operations should take the lead to ensure that customer service levels are maintained or improved during the transition. Without a doubt, digitalization projects will disrupt customer service levels if the IT department goes it alone. What is needed is operational leadership. By coordinating with various departments, including IT, 3rd parties, marketing, sales, and customer services, operations can facilitate a smooth implementation and deliver improved services that meet customer needs.
“Become a customer fanatic.”
Jeff Bezos
b. Develop a Digitalization Business Strategy.
To succeed in digital supply chain implementations, corporate executives must fully commit to and champion these types of initiatives. What is needed is a well-defined business strategy. This includes clear business criteria, expected outcomes, and key responsibilities. In particular, this corporate strategy includes the identification of key responsibilities and how project teams will work with customers, internal departments and external third parties. Without a doubt, a corporate strategy is needed to guide operations and IT project teams to assure a successful conclusion.
Also, executives should ensure stakeholder involvement, resources are allocated, and focus is on critical outcomes to drive the project’s success. For more ideas on a digitalization business strategy, see my article, A Data-Centric Business Strategy Checklist: The Way To Energize A Digital Enterprise To Be More Agile, Bold, And Simplified.
c. Consider Partnering with a high-tech 3rd Party Logistics (3PL) Provider.
When it comes to digitalization, one question all executives need to ask themselves is, “Is my organization tech-savvy enough to master the complex world of digital supply chains?” If the answer is no, then a Do-It-Yourself (DIY) approach is not the way to go. Other approaches for supply chain digitalization is to outsource to a high-tech 3rd Party Logistics (3PL) provider, or adopt a hybrid approach. This is a strategic decision for senior executives to determine upfront before any major digitalization effort is started. Indeed, corporate leadership needs to clearly evaluate both the magnitude and trade-offs between using a 3PL or having their own organization act as its own supply chain integrator.
For a detailed look at leveraging a high-tech 3PL, please read my article, The Digital Supply Chain Challenge: Is a High Tech 3PL Integrator the Best Way?
“Is my organization tech-savvy enough to master the complex world of digital supply chains?”
d. Gain Commitment from System Owners to Achieve Seamless Data Integration Across the Supply Chain.
To achieve seamless data connectivity, executive leadership is crucial in securing commitment from system owners across the supply chain. With numerous data interfaces required to connect systems, users, devices, and even AI agents, both internally and with external partners, data exchange can be a significant hurdle. In fact, exchanging meaningful data between just two systems is a major challenge for most supply chains. So, I am convinced that corporate executives, to champion these efforts, must fully understand what it takes to truly achieve data interoperability. Indeed, this connectivity is more than simple data file exchange, but consists of the following three data interoperability components.
Key Components to Achieve Digital Connectivity
- seamlessly data transfer capability between systems
- agreed upon business glossary to assure that the data sent is understood
- secure digital access between trusted systems, users, and devices.
Only with these components in place will a digital supply chain have meaningful, secure data exchange. For more information on this topic, see my article, Logistics Data Interoperability: Advice To Make It Understandable, Usable, Secure.
e. Encourage Experimentation to Maximize Innovation and Minimize Risks.
To maximize innovation and minimize risks, executives should encourage experimentation within their organizations. This involves creating a culture that supports the testing of new ideas, learning from failures, and expanding efforts based on successful initiatives. By doing so, companies can stay ahead of the curve and identify new opportunities for growth and improvement in their supply chains. One way to try out new technologies is with a pilot project. For instance, these pilot projects could include experimenting with digital integration of technologies such as IoT, smart robotics, AI, and advanced analytics tools. For more on this topic, see this article, Technology Pilot Project: The Best Way To Prove Tech Viability And Scalability.
f. IT Implements in Partnership with Operations.
Lastly, the successful implementation of digital supply chain technologies requires close collaboration between IT and operations teams. Indeed, digitalization is not a passing IT fad or a mere operational expense. In fact, digitalizing the supply chain is about digitalizing business operations. Thus, it is critical that operations and IT work together to ensure that the technology solutions are aligned with business needs and that operational requirements are met. This partnership is critical for achieving seamless integration, minimizing disruptions, and maximizing the benefits of digitalization. For more insights and examples on this topic, see my article, The Way of Digital Transformation: A Business First, High Tech Reinvention 0f Processes and Culture.
More References.
- Benjamin Talin’s article, The Innovator’s Dilemma – Why Successful Companies struggle with Disruptive Innovation
- Susan Lacefield’s article, Are you keeping your 3PL from innovating?
- Jon Crabb’s article, Innovation S Curves and Gartner Hype Cycles
Need help with an innovative supply chain solution that leverages emerging information technologies? I’m Randy McClure, and I’ve spent many years helping logistics organizations to make the most of new information technologies. As a supply chain tech advisor, I’ve implemented hundreds of successful projects across all transportation modes, working with the data of thousands of shippers, carriers, and 3rd party logistics (3PL) providers. I specialize in new strategies, proof-of-concepts and operational pilot projects using emerging technologies and methodologies. If you’re ready to supercharge your supply chain or if you are a solution provider, let’s talk. To reach me, click here to access my contact form or you can find me on LinkedIn.
For more from SC Tech Insights, see the latest articles on Supply Chain, Information Technology, and Interoperability.
Greetings! As a supply chain tech advisor with 30+ years of hands-on experience, I take great pleasure in providing actionable insights and solutions to logistics leaders. My focus is to drive transformation within the logistics industry by leveraging emerging LogTech, applying data-centric solutions, and increasing interoperability within supply chains. I have a wide range of experience to include successfully leading the development of 100s of innovative software solutions across supply chains and delivering business intelligence (BI) solutions to 1,000s of shippers. Click here for more info.