Digital and the Supply Chain—How Far Have We Come?

The reality of digitalisation

“Two years of digital transformation in two months,” was the comment that one retailer made when discussing how COVID-19 had accelerated their digitalisation journey. For many organisations, this change was forced upon them so they could continue to run their businesses. The impact was across manufacturing plants, transport networks, warehouses, and retail outlets. Digitalisation has impacted every part of the business. Those that were already on a digital path had clear roadmaps in place. Those who made investments in the underlying technology and have seen their businesses thrive during 2020. Unfortunately, those without have suffered.

Our analysis of digital and non-digital manufacturers over time shows an index of profit performance, with digital manufacturers outpacing their peers (Figure 1). We can see that while both groups dropped, those that are digital suffered a smaller loss, and non-digital organisations effectively saw the last five years of growth erased. 

Figure 1: PPI – Digital vs Non-Digital Manufacturing Organisations: WW Manufacturing. Source: IDC 2021—Digital Analysis: Manufacturing

Driving for Digitalisation

One of the key messages to come out of 2020 was reducing risk and improving resiliency; ranked the number one business priority with 61.9% of industrial organisations in our 2020 industry 4.0 survey. This is important because in 2020, we saw a focus on organisations gaining control of all aspects of the business, which they could effectively control. As one organisation said, “there is enough uncertainty out there! I want to be in control of everything I can!” The supply chain was one of the areas that has seen this focus with a large emphasis now on supply chain responsiveness—with businesses wanting to ensure they see an external change, and that supply chains can adapt to that change. Critical to this is visibility, but going beyond that to have the ability to act on that visibility.

Figure 2: PPI – Digital vs Non Digital Manufacturing Organisations. Source: IDC Manufacturing Iansights APeJ Industry 4-0 Survey. N=420

Making Digital Happen

With the drive for digital, the challenge of making it happen is still one that many organisations are still struggling with. Fundamental to success is having the commitment and understanding from senior leadership. The path to digital is one of many small steps, which when put together, can yield notable benefits. Having this mapped out in a coherent master plan is crucial. In particularly as a tool to ensure that foundational technology is in place to enable future capabilities—getting this right from the outset is vital. The struggle with defining outcomes that drive business efficiency in the short-term while aligning this with long-term capabilities and growth is a common issue across organisations today and hinders the shift to digital.

The Technology Challenge

From a technology perspective the biggest challenge that industrial organisations have, is integrating operational data sources. The trend we are seeing of integrating IT and OT groups – bringing the operational data from the shopfloor and equipment and linking to enterprise systems ERP, MES, SCM, PLM. This platform of data can then be used as the foundation for innovation where business users can bring together data sets to give them the information they need to make decisions. Increasingly we are seeing external data sets be incorporated into these innovation platforms e.g. weather, traffic information that adds increased opportunity for innovation.

My closing thoughts

The benefits of being digital are becoming more and more prominent. Both from a financial dimension and from an ease of operations perspective. Decisions can be made quickly based on accurate data. In addition good data can even perform predictive outcomes, which help managing uncertainties as well as a better positioning of resources.

However, the journey to being digital is difficult, especially for traditional organisations. A mindset change coupled with a deeper understanding of how digital can improve business processes is critical to success and investing in the foundational technology at the outset a necessity.