This article follows on an earlier article on the Opportunity Cost of Digital Inaction (https://itsupplychain.com/the-digital-imperative-the-opportunity-cost-of-digital-inaction/). The article makes reference to six digital megatrends. This article expands on the first megatrend: Automation.
Let’s embrace Automation: Automation adds value
There are three key points to be made regarding Automation:
- Automation delivers value
- Automation continues to grow enabled by Digital Platforms
- Automation is being embraced by your competitors
In spite of all the compelling benefits of Automation, there is unfounded fear. By now, you may been exposed to publications on Automation forecasting AI doom and gloom. In some extreme cases, the message is AI Automation will lead to significant underutilization of human capital / unemployment and a collapse of the economy. In reality, Automation increases the need for training prompting the labor force to focus on more value added products and services. Research proves Automation enables and prompts society to create new products and services that drive economic growth enabled by new technology.
Automation improves efficiency
Automation improves efficiency of processes. It enables you to get things done (effectiveness) and do more with less (efficiency). However, we should qualify this statement. There is a tipping point at which poorly planned automation delivers diminishing returns.
Visualize Automation as a simple 2 dimensional spectrum. In Chart 1 below, we have Point A representing labor intensive manual processes. These manual and repetitive tasks rely on relatively simple business rules. An example is the manual three way matching of a vendor invoice with the Purchase Order and the Goods Receipt documents. At the other end of the spectrum, we have Point B representing complex processes involving intuitive decision making driven by subjective assessment of risk. An example is the one involving creation and/or design of sophisticated Promotional Campaigns based on real time competitive pressure insights provided by customer order flow analytics or macroeconomic trends.
The challenge is identifying the optimal level of automation for your business. This challenge is typically addressed with a Digital Roadmap.
Manual Processes are ripe for full automation
Manual processes are slow, inefficient, and costly. Digitalized processes will eventually replace all manual processes. Any process that requires a human to review, analyze, reconcile, and make corrections requires longer duration and effort relative to digital solutions. Depending on your industry, delayed deployment of digital solutions may lead to a slow, but steady margin erosion. This trend is driven by aggressive competitors who undermine you with lower prices enabled by a lower cost structure.
The opportunity cost of highly manual processes is twofold. Highly manual processes are slower at responding to business needs. If the business need is time sensitive (slow order confirmations, for example), this can easily translate into a competitive disadvantage. If you couple inefficiencies due to human errors with lengthy, and often uninformed, decision cycles, then your business as a whole is inefficient and places the company at competitive disadvantage.
How to identify Automation Use Cases
In the Table 1 below, we cover three different Use Cases Categories.
Category A covers highly repetitive, labor intensive tasks that represent low hanging fruit to the business. The return on investment tends to be very high, with short paybacks.
Category B focuses on semi-manual tasks that may be candidates for automation upon careful analysis.
Category C deals with highly complex tasks that require a high degree of sophistication. Advanced Artificial Intelligence (AI) is typically considered for this Use Case Category.
Table 1 – Automation Use Case Categories
Guidelines that facilitate Automation
A significant amount of Automation is driven by distinct and well documented Business Rules.
Automation can be facilitated based on the guidelines provided below:
- Guideline 1: Repetitive tasks have the highest potential for automation.
- Guideline 2: Non-repetitive tasks are automatable if business rules are well defined and exceptions are within an acceptable tolerance range.
- Guideline 3: Use Advanced AI selectively. One pragmatic way to bring state of the art AI engines into complex decision making is providing insightful recommendations subject to approval by leadership. In this scenario, AI is now one of many tools that support complex CXO decisions involving strategic direction and/or tactical maneuvers.
- Guideline 4: Don’t become mesmerized by AI. The promise of 100% AI Automation is a theoretical construct. This is because of the variability of input factors/ variables make it very challenging. Investing blindly on AI engines to drive the business towards 100 % Automation is theoretically possible; but, only once a solid track record of flawless execution is achieved.
- Guideline 5: Complex decisions that require subjectivity, consensus building, and political compromise may not be good candidates for automation.
Summary and Conclusions
Research proves Automation enabled by a Digital Core drives high ROI, high Customer Satisfaction, and high Operational Excellence.
Representative results by Use Case are listed below provided by the Value Engineering team at SAP.
Regardless of whether the enabler is a Digital Platform (e.g., S/4HANA) and/or Digital application add-ons (e.g., Ignio), it is in our best interest to explore options and design a Digital Transformation Roadmap that will support your strategic initiatives.
Lastly, Automation is an essential of an overall Digital Business Transformation. For further insights on how Digital Platforms are using automation to eliminate constraints and drive customer delight, please consider this excellent article: The Next Big Thing: ERP4.0 (Ecosystem Resource Planning)?