Digitise or die

Supply chains are becoming ever more dependent on technology to manage challenges and improve productivity, but this same technology can also present its own obstacles. FOCUS looks at how companies can stay ahead of the digital curve.

Accenture, a South African business management consultant, predicts that software as a service for the supply chain management market will reach
US$ 4,4 billion (R52 billion) in 2018. Software as a service and digitisation are needed to manage the complex supply chains faced by companies today.

“Successful supply chain management poses some significant challenges for fleet-management companies that face demands from customers to minimise costs and vehicle downtime,” says Denise Fairhurst, general manager of supplier management at Eqstra Fleet Management and Logistics.

“Digitising the supply chain is an effective way of overcoming many of these challenges. Digitised systems provide data on all aspects of the supply chain by ensuring increased transparency, which, in turn, ensures proactive solutions from both suppliers and customers,” she adds.

The benefits of digitisation are particularly important when one considers the costs incurred by transport companies when mistakes occur in the supply chain. Gregory Schlegel, a professor at Lehigh University in the United States, notes that a mistake in the supply chain can cost a company up to ten percent of its shareholder value.

He notes: “Research shows that if a business is not prepared, even a single small to medium supply chain disruption can cost the business as much as R6 million. Most companies across the globe are experiencing an average of seven to ten supply chain risk events a year – from port congestion to poor supplier performance and changing weather patterns. This equates to an annual cost of R60 million.”

He adds that 25 percent of companies that experience a moderate to severe supply chain disruption go out of business about 18 months after the event.

Digitisation can address many challenges in the supply chain, but it is also a source of many challenges. Morne Weyers, vice president of delivery at T-Systems, says: “Digitisation is part of the problem that needs more digitisation to fix.”

Traditional challenges persist

Weyers explains that digitisation has not eradicated traditional supply chain challenges, such as cost. These challenges remain and have become even more complex, as digitisation offers companies more information.

“The supply chain is moving from inside-out to outside-in systems. In the past, the supply chain was about optimising delivery. Now, companies need to know more about the customer demands,” Weyers says.

Many companies have gone from tracking their load with a simple GPS, to tracking the temperature, shock, driver behaviour and more. While this offers more information to ensure a product arrives safely, the sheer mass and complexity of the data have created new challenges.

Weyers uses data analysis as an example. More data might offer the company more control, but much of the data currently collected is too complex to be analysed by one employee using a spreadsheet.

Skills shortage

“The person looking at the spreadsheet might not have the data-analysis tools. However, a company with the data-analysis tools might have a lack of understanding of how the supply chain operates. This could result in an incorrect conclusion being drawn.

“New employees entering the market often have the academic knowledge of data analysis and the right tools, but are not skilled in supply chain management. The industry needs employees with supply chain skills, who are also trained in data analysis,” Weyers says.

He adds that the most sought-after people will be highly skilled and will be able to engineer or re-engineer end-to-end solutions for the supply chain.

Fairhurst suggests partnering with credible companies to ensure knowledge is transferred to employees, and drawing up a change-management plan to reduce resistance to the new technology. She states: “Incentivising staff is a useful tool to encourage the adoption of new technology.”

Hackers, helpers and rewards

Implementing digitisation also introduces numerous other challenges, especially for legacy supply chain companies. Weyers points out that new companies can easily adapt and change, whereas many legacy supply chain companies are less able to quickly change established operational processes. He also warns companies about getting stuck with one vendor.

“For example, a vendor might supply internet devices and upload all the information. However, the client might not have access and will need to pay for the information. Changing vendors would mean updating all the information and devices on an entire fleet or supply chain. This can be very expensive,” Weyers explains.

Digitisation also poses a software security threat for supply chains. As the software advances, so do the skills of hackers.

“We are becoming so dependent on technology that we are lost if it is no longer there. Supply chain security traditionally referred to things like natural disasters that might occur. Now, it also applies to digital information. Companies need to consider what might happen if their sensors are shut down, for example,” he says.

For this reason, companies need to carefully evaluate digital systems before implementing them. Fairhurst suggests detailing the benefits expected from the software before purchasing.

“Work from an ideal state backwards and break down what must be done to achieve the benefits. Develop a scenario that establishes positive and negative outcomes and identify ways to handle these proactively. Ensure that all potential risks have been identified and have contingent solutions in place to minimise them,” she says.

Companies should also consider the cost and the time it will take to develop and implement the innovative technology, as well as what training will be required to manage the technology.

Supply chains can invest in developing skilled employees that can disrupt the industry, but should also review possible security threats to ensure the software is protected. In the digitised 21st century, it’s a case of digitise or die.