We spoke with Rich Sherman, senior fellow at the Supply Chain Council of Excellence at Tata Consultancy Services.
He also held senior management positions at several supply chain startups. His article “The Common Pitfalls of Demand Planning” appeared in the December 2018 issue of Supply Chain Management Review.
NextGen Supply Chain: What is the value of digitization to the supply chain?
Sherman: The supply chain operates in silos. You have operations here and procurement over there and sales right here, for example. Each has its own mission and is focused on optimizing results in its silo only. Not only are their perspectives and metrics different but their data are different. That makes optimizing the supply chain very difficult if not impossible.
Digitization is a technical exercise that collects all transaction data from all of the silos into an electronic state in a central location. The data only has to be captured once. It never needs to be re-entered. So now the silos have data in common. Furthermore, data management is not only simplified but codified across the enterprise. That combination delivers huge value to the supply chain.
NextGen: Judging from the sound of your voice, though, that’s only the baseline for the value that digitization brings to the supply chain.
Sherman: You’re a good listener. Digitization does much more and that’s where its true value becomes unlocked.
We all know the forecast is always wrong at least in part. So why is that? Is no one in planning competent? At every company? Of course, not. But they do all have one thing in common.
All forecasts are based on history. But history rarely exactly repeats itself for any of a myriad of reasons. And that causes variability in the supply chain. Variability ranges from weather to stock outs to promotions. Problem is, people typically don’t have enough time to compensate for any of that unforeseen variability.
That’s where digitization arrives front and center. Digitization removes the time delay in communicating variability across the supply chain. Digitization gives people more time to respond to change. It removes latency from the supply chain. That’s the real value of digitization.
NextGen Supply Chain: You also use another similar word here, digitalization. What’s that and why is it important?
Sherman: While digitization is a technical exercise, digitalization is a business exercise. Digitalization is how a company architect’s digitization from a process perspective. Digitalization allows you to leverage all that data so latency can actually be removed from the supply chain. Few people realize the difference but it’s an important one.
NextGen Supply Chain: Analytics probably figure in here too. Where exactly is that?
Sherman: Digitization and digitalization are all about the data, collecting, organizing and disseminating it. Analytics is about turning that received data into information that allows supply chain managers in all silos to work to the plan and accommodate variability in real time. Taken as a whole, this is the start of the perfect state to run your business. It’s all about the “to be” not the “what is.”
In a digital supply chain, digital demand management using predictive analytics is the path to tying the silos together. It facilitates sharing data across silos so variances that started in one but affect another can be communicated in a timely fashion.
I want to point out that we are talking real specifics here. What I mean is aggregate numbers are at too high a level to be effective. Digital demand management has to come down to the individual or as close to the individual as you can get. Do it right, and you’ve broken the traditional chain and created a system, a network of activities. You need to put an end to sequential thinking.
NextGen Supply Chain: Who are the leaders here?
Sherman: Four names come to mind right away – Amazon, P&G, Unilever and Colgate. Let me offer a couple of examples.
You place an order at Amazon. During that process, Amazon offers you next-day delivery if you spend above a certain level. You decide you don’t want to up the ante so you settle for second-day delivery with Prime. To your surprise, the package arrives next day. What happened? Quite simply, digital Amazon determined it was better for its processes to fill and ship your order for next day than wait an extra day. That’s a digital supply chain right down to the individual based on what’s best for Amazon.
Meanwhile, P&G can fine tune production schedules based on data coming from point-of-sale terminals at stores. It can do this in real-time. But it doesn’t stop there. As it fine tunes production, P&G is also doing the same with shipping to those individual stores based on that same POS data. That’s digital demand management.
Becoming a leader here doesn’t just happen. It requires a significant realignment of company culture and a willingness to change processes. They have to be willing to either break rocks or go around rocks to make digital demand management work.
Gary Forger is special projects editor for Supply Chain Management Review. He can be reached at firstname.lastname@example.org.