Digitization – A Key to Success in Supply Chain Management
Supply Chain is typically seen as a cost center. Digitization allows for a paradigm shift making supply chains a differentiator and a strategic pillar of new business models.
Digitization can enhance the customer experience, improve efficiencies by eliminating manual processes, and foster new operating or business models. The supply chain exists to streamline the processes involved in procurement and as a way of increasing efficiencies business-wide. Not only will efficiency remain at the heart of the supply chain, but with digitalization enabling high levels of connectivity, we’ll see greater transparency and collaboration across different departments. In addition to ensuring the security of valuable information assets, companies also have the challenge of achieving an appropriate level of sustainability, while pioneering and advancing the digital supply chain overall.
One way to reduce costs is through a digital supply chain platform. The digitization of data and the application of collaboration, automation, and analytics technology presents the opportunity to drive business value throughout the global supply chain.
A digital supply chain will help to reduce risk, improve agility, and reduce costs in many areas of company’s operation. According to IDC estimates, by 2020, digitally-mature companies will achieve $430 billion in productivity gains.
In Today’s price competitive market, every company tries to keep their cost at minimum level by optimizing inventory levels to ensure more full-price sales. Digitization eliminates barriers to supply chain productivity by application of digital capabilities to processes, products, and assets to improve efficiency, enhance customer value, manage risk, and uncover new monetization opportunities.
Benefits of digital transformation supply chain management
There are many benefits as companies digitize their supply chain processes with modern SCM systems. Below are main of them
Just-in-time’ Techniques :
Just-in-time (JIT) becomes accessible. JIT manufacturing has been a cornerstone of a few vast enterprises for decades, but the technology backing it was inaccessibly expensive. Now, every enterprise can enjoy a digital supply chain that ensures that critical decisions and deliveries are pushed to the last minute. Doing so optimizes decision making and saves costs.
Just-in-time (JIT) especially in Fashion/Fabrics industry, fashion brands can postpone critical decisions on style adoption, product quantities, etc., until the last possible minute — allowing them to design styles much closer to final delivery date and to take advantage of the latest trends.
Improve cash flow :
With lower lead times and a JIT approach a digital supply chain reduces capital requirements and improves cash flow as less money is tied up in keeping excess stock in a warehouse. Supply chain data becomes accessible. The faster the supply chain moves, the less capital is tied up in the supply chain — a crucial benefit of digitizing your supply chain management processes. Cost of working capital will substantially reduce mainly due to timely delivery of products and it turns to speedy recovery from customer.
Optimize supply chain lead times :
These include factors such as the lead time for raw materials, reserving production capacity to ensure factory availability at the right time, and distribution planning.
Enable a demand-driven supply chain :
A demanddriven supply chain is the crux of supply chain management; without a digital system, though, it’s impossible. Digitization allows companies to adjust products in the supply chain based upon demand for those products using real-time sales information, allowing them to accelerate production of best-sellers.
Out of Stock :
Supply chains become forward-looking. Instead of operating on a reactive basis, digital supply chains allow companies to predict future requirements as more data is collected, analyzed, shared and eliminate supply chain glitches. Products that are out of stock implies a loss in revenue for a business. A digital supply chain can ensure that your company never runs out of stock, nor orders too much stock – which eventually leads to high discounting. Further, adopting JIT techniques, optimizing lead times and responding to consumer demand greatly increase the likelihood that companies can have the right product mix and to attract consumers helping in minimizing markdowns and out- of-stocks. Mark downs are dollar-for-dollar profit reducers, while out-of-stocks result in missed sales altogether.
Supply chains involve multiple parties that need to interact on a frequent basis. Smoothing out these interactions is the predominant goal of a digital supply chain. A digital supply chain can eliminate manual processes and instead connect enterprise digital systems into a single, fluent communications channel. Needless to say that ,a cost effective digital supply chain serves as a key to success in supply chain management.
(Article published by Indian Institute of Management in ‘Materials Management Review ‘ – Digitization Creates a Strong Value Chain Generating Cost Reductions November 2019 issue)
By CMA Vinod Shete