Digitalization – Where we go wrong

Digitalization – Where we go wrong

Did you know that according to a recent study from Accenture only 10% of all leading executives believe that digital investments leads to sustained growth and that two thirds fail to create either customer value nor competitiveness? A similar study from Amrop which studied board members in publicly quoted companies strengthened this claim further. One of the distinguishing features of companies that succeed in creating growth and value from digitalization is that they have created a customer-focused segmentation of their supply chain. One which has then been an integrated part of its strategy for the digital world.

Why we go wrong

Nowadays I constantly find a myriad of reports and articles that try to explain the challenges and problems that companies experience when it comes to digitalization in general, and digitalization of supply chains especially. I’ve concluded that most of the problems experienced are connected to one or several of the following areas;

  • A lack of understanding of available technologies and the advantages they can bring, which in turn creates uncertainty when it comes to decision making.
  • Unclear projects that aren’t included in a greater defined roadmap for the digital strategy.
  • Poor adaptability to a new and different way of working, after digitalization, which in many cases greatly hamper value creation.
  • Lack of focus on the possibilities of value creation for customers that opens as a result of the digitalization.

But now let us instead focus on what creates prerequisites for creating both growth and value through digitalization. The place to start is the area which McKinsey, amongst others, deem has the most potential when it comes to digitalization; supply chains.

Greater added value by addressing the right issues

To increase the likelihood of creating added value through digitalizing your supply chain you must first carry out a customer-focused segmentation and integrate it with a strategy for the digital world which your company will encounter. But more of this later.

The key to success in building a so-called “end-to-end” digital supply chain from your customers to your supplier with a basis in customer segmentation lies in the acquisition of the following abilities and competences:

Connectivity – Maximum digital connectivity of business-critical information flows.

The digital connection means that through the best possible technology and methodology connect everything from on-demand-data, order data and status signals along the information path. During the connectivity process you can also find obvious possibilities for increased cooperation and collaboration, where new technology can be utilized optimally.

Smart analysis of information flows online

Accessibility of data along the entire end-to-end flow opens up possibilities of measuring and analyzing data. The purpose of this is to build an exception-based way of working, in other words not searching for the right information, but instead act on deviations from expected events and outcomes. Furthermore, the availability of digital data makes it possible to measure performance in the data flow, which in turn opens up dialogues internally and externally about cause and effect of problems and how to better improve the flow of information. Longer term, the data analysis will provide not only descriptive analysis, but also predictive (what to expect) and even prescriptive (how to act) analysis.

Ability to take advantage of automation for smarter tactical and strategical decisions.

To best utilize the automation of the manual work processes to smarter tactical and strategical decisions that lowers costs, generates sales and increases long-term competitiveness is difficult. It requires a great degree of leadership and a well communicated plan for the digitalization process, including its effects on the organization itself and its way of working.

“…and the biggest future impact on revenue and EBIT growth is set to occur through the  digitalization of supply chains”

– McKinsey quarterly, February 2017

Find value through customer-focused thinking.

Before we begin you need to define specific supply chain configurations developed for the different customer-specific segments and sub-segments that have been identified. For the potential 0of creating value within each respective segment and sub-segment should be your guiding light. In the report “Taxonomy for Selecting Global Supply Chain Strategies”, the professor Martin Christopher suggests that a global supply-chain strategy could be based on the supply-and-demand dimension, as seen below. At a first glance, it might look simple, but it can form an effective model for your segmentation and sub-segmentation work.

supply and demand

The way forward, is to start defining the specified customer segments and sub-segments – “As is”. Subsequently, shift the focus of the discussion towards how the processes within these segments can be improved and create value (“To be” – processes). One simplified conclusion could look as follows;

Specified customer segments and sub-segments – “To be”

  1. High predictability / Long lead-time
    • Example: Possibility to improve the customer service through better forecast accuracy (or through introducing prognosis into the customer process)
  2. High predictability / Short lead-time
    • Example: Possibility to improve flexibility, efficiency and customer service through smarter replenishment processes (for example VMI)
  3. Low predictability / Long lead-time
    • Example: Implement tools for the customers to help them understand availability and the possibility to move their demand in time for better service.
  4. Low predictability / Short lead-time
    • Example: Get access to”point-of-sale”-data in real-time to improve your reaction time through shorter information lead times..

 

By using the examples listed above you can understand and develop the relevant solutions for digital information exchange for each segment. Traditional techniques for system-to-system communication such as EDI can be used in some cases, while in other cases you might need data gathering though IoT-solutions or apps designed for mass reach.

Even techniques such as RFID, as well as new communications methods such as REST-API (Representative State Transfer, standardized web services for machine-to-machine communication) are relevant.

It’s all about a holistic and segmented customer focus for creating value

If you are ever going to succeed in building digital supply chains creating substantial value for your company, you need to implement a more strategic and customer focused approach than what’s common today. One of these approaches need to be built upon three important fundamentals; maximum digital connectivity, smart analysis of data for better decision making and finally the ability to utilize the automatization process that comes with digital connectivity.

-Hans Berggren

CEO of PipeChain Group