Every industrial revolution – from the advent of steam power to electricity, computers and then the dizzying array of technologies that make up Industry 4.0 – has occurred more rapidly than the last.
As a consequence, embracing the opportunities of digitisation is a strategic imperative for every business today – and one that provides very little margin for error.
The supply chain is one of the most important battlegrounds in business, which is why Infosys Consulting conducted in-depth research among more than 5,000 senior supply chain directors in UK and German companies to understand the scale of the supply chain modernisation challenges they face.
We found that while four in five businesses across the two countries have begun their digitisation journey, a quarter of German companies report full digitisation, against just five per cent in the UK.
Germany’s significantly higher adoption of technologies such as automation and digitisation is surely a contributory factor to its 27 per cent productivity advantage over the UK, highlighting the advantage of implementing new technology early and effectively. How, then, can businesses get their supply chain modernisation strategies right – and what challenges do they have to overcome?
The four pillars of the digital supply chain
“Industry 4.0” defies easy definition. Unlike previous industrial revolutions, it’s not focused on any single technology, but rather on the integration of many new systems such as connected devices, automation, and analytics to name just three.
Nevertheless, in spite of its nebulous nature, we can identify four pillars for a well-architected supply chain model based on Industry 4.0 principles. These are the benefits of predictability, such as customer buying patterns, vehicle maintenance schedules, and even market prices; agility, which is particularly important given the trend for greater personalisation of consumer products; traceability, vital in sectors such as food and safety-critical manufacturing; and sustainability.
What these pillars have in common is that they all require massively improved data visibility, and therefore transparency, across the entire value chain. Every organisational gain flows from the ability to monitor, analyse, and act on this information in as close to real-time as possible. Yet the proliferation of data can cause almost as many problems as it solves. Overcoming these challenges is the key to a successful supply chain strategy.
The transparency challenge
Almost a quarter of those polled in our research cited transparency as the least important part of their supply chain operations; this is surprising, given how consumers are demanding greater openness from businesses about the provenance of what they buy. Consumers in the UK, for example, have experienced several supply chain scandals that saw horsemeat entering the food chain – with disastrous effects on the manufacturers’ reputations.
As supply chains become more complex, and while globalisation makes it far harder to contain any scandal affecting product safety, manufacturers need to know about their suppliers beyond the first tier. Traceability and sustainability therefore needs to be woven in the fabric of the supply chain. The aim should be not simply to protect a business from disaster, but to demonstrate a commitment to sourcing the very best materials. This in itself can give a major competitive advantage, especially for those companies that base their business models on quality.
The ethical dimension
People across the developed world are waking up to the impact that their consumption has on the planet. This is accompanied by more stringent regulations affecting everything from energy usage to reducing packaging and plastic.
Other elements in the ethical dimension include slavery, which has reared its ugly head in recent years, and governmental calls for greater transparency in businesses’ financial, environmental and social affairs. Little surprise that an overwhelming majority of respondents (84 per cent) cite new legislation as an important factor driving ethical sourcing.
Balancing transparency with security
If greater visibility within the supply chain seems like an unalloyed boon, we need to remember that it also presents many potential compliance problems and security vulnerabilities. The more data we use and the more source we gather it from, the greater the opportunity for crimes such as data theft and industrial espionage.
A quarter of our respondents have identified digital security as the most significant barrier to achieving their operational goals. In fact, this represented the second biggest challenge in both the UK and Germany, behind investment in the skills needed to implement digitisation initiatives.
Interestingly, respondents from Germany – which has a longstanding culture of stringent data protection laws – were much more likely to cite legislative compliance as one of the three main challenges in digitising their supply chains than those in the UK: 23 against 11 per cent. As the impact of the GDPR begins to bite, we can expect these numbers to rise, perhaps significantly.
The rise in national and transnational regulation means that businesses now face even more severe consequences for failures in their supply chain. As a result, disclosure and due diligence require manufacturers to gain granular data on every aspect of their operations, and to embed technologies such as analytics, automation and reporting functions into their procurement processes.
Building tomorrow’s supply chain strategy
Given the complexity of today’s supply chains and the bewildering array of technologies used within them, building a comprehensive supply chain strategy can seem a daunting task. It’s important to remember, however, that digitisation is a journey and not a destination. Too much focus on creating the “perfect” supply chain is a recipe for inertia; instead, businesses should focus on getting their projects off to the best possible start.
Rather than being bedazzled by the potential benefits of new digital technologies, they should begin by looking at the specific business challenges that they need to solve, and examine where they can achieve the best possible return on investment.
Focusing on clear strategic goals will enable businesses to choose the right mix of technologies, and to apply them in a way that will deliver clear, measurable and relevant benefits.