The Beginning of the Beginning: A Progress Report on the Digitisation of Supply Chains
We hear it everywhere: Covid-19 has accelerated digitization—but I have several questions!
Is this true for the supply chain industry?
What is the speed of progress specifically there?
Is there real evidence that supports the impression that digitization is truly and durably accelerated?
What seems to be clear by now is that the COVID-19 pandemic has laid bare the vulnerabilities and risks of today’s global supply chain networks. At the same time opening opportunities for driving positive transformational change, stimulating economic growth and building competitive advantage for businesses. This is also true for states and research institutes through advanced supply chain design and management expertise and capabilities.
The experience during Covid-19 has indicated that connected supply chain networks are the future as they have many benefits. They have proven to be one of the better options to prepare for shocks and help companies navigating successfully through adverse conditions in a globally interconnected interdependent world. An indication for this belief is the level of fundraising reached by digital players like Flock Freight, a trucking platform and project44, a supply chain visibility platform, which reached US$113.5 million and US$100 million respectively.
A well connected supply chain is data and analytics driven, a prerequisite of integrating networks into today’s digitised economy. It is sensor and system data that are foundational to drive a new quality of collaboration across networks. It was the strong business relations which allowed to closely collaborate that made the difference during this crisis. Also to note that some technological solutions failed us, as they never have been tested or trained in such a highly volatile environment. Confirming that the real power results from a machine-human hybrid and not from a “blindly” trusted automated digital sum of processes.
Covid-19—the global supply chain awakening
In a survey by the Institute for Supply Management released March 10, 2020, almost 75% of companies reported supply disruption due to Covid-19. However, must be stated that global supply chains as a whole did relatively well during the pandemic, despite the many constrains they faced. Closures of borders, critical infrastructure limitations, grounding of many commercial airline fleets, causing around 40% reduction in airfreight capacity, the continuous panic buying, with physical stores closures, resulting in unseen inventories of goods, with many products not anymore sellable in the future and the limitations in the movement of critical supply chain personnel, to name a few.
While Covid-19 clearly moved the supply chain front and centre stage of the public debate, the pandemic has not significantly changed the mainstream thinking and visions around the design and nature of future supply chain networks and practices. Many thought leaders and practitioners see their views confirmed. Nevertheless, the pandemic increased the pressure and urgency to accelerate the digitization of supply chain networks, in light of the real-life challenges and threats today’s world is facing. With outside pressures, exerted by governments, business partners and consumers, companies need to take much higher risks and move beyond experiments at the fringes of operations. They need to focus the digital transformation effort on the core of the organization and their business models instead.
Supply chain networks of the future—building better forward
Supply chains are the centre of gravity for innovation and transformation. It is the engine that cuts across the economy. Supply chain networks gather numerous actors joining forces for providing compound services around regular, ad hoc and episodic supplies, destined for companies and consumers. Supply chains deliver what our global society needs.
Connected smart supply chains enable businesses and countries to pivot rapidly in response to a swiftly-changing situation. In an unpredictable and volatile environment, access to accurate, real-time data is the key to adaptation. Supply chain data are a prerequisite to knowing which parts or materials are critical. Suppliers need to prioritise actions to support solutions. Shipment and lane data can alert of disruptions and bottlenecks on route and provide information about the best transit options. Inventory tracking enables flexible e-Commerce fulfillment models and allows for managing shocks caused by shop closures. Digital marketing and sales became a must-have for many businesses in times of Covid-19. Digitisation is no longer an option but has become a necessity, a question of survival. Also, the pandemic triggered some more fundamental and longer term thinking about the design of supply chain networks, this, in the private as well as in the public sector.
Supply chains are shaped by necessities, risks and opportunities. Governments increasingly provide incentives to nearshore production of critical goods, which are usually the more complex ones, when it comes to ecosystem build-up. While the call for nearshoring seems legitimate, the digital transformation of the supply chain network industry is as important as building shorter chains. Experience shows that a country will never be able to produce all what it needs. Hence, the efficiency and resiliency of supply chains in general and the fluid flows of imported and exported goods become a critical factor of our supply. This suggests a surge in globalised digital platforms, with specifically more automation of production. A global study conducted by Gartner, the global research and advisory firm—surveying over 1,300 supply chain professionals—found that 56% of the respondents think that automation enables them to make onshore manufacturing economically viable.
The digital transformation journey starts with adapting a mindset that the digitisation of supply chain networks has become inevitable, at the top but also throughout the company. This corporate mindset is required to establish a favourable cultural context. Why is this important? “Culture eats strategy for breakfast,” explained Peter Drucker, the management consultant. “In preparation for the reset in a post-coronavirus-world, supply chain leaders seek to exploit the benefits of digitalisation to an even greater degree,” writes Gartner. While the need for change and digitisation is evident, the awareness about the cultural prerequisites may be more of a question mark.
Where to find accelerated digital transformation
Continuous growth in the logistics sector has motivated software developers and connected devices manufacturers to develop solutions software to allow brands, manufacturing and logistics services providers to build managing global networks through connected supply chains. The e-Commerce growth has further bolstered the digitisation of the world of supply chains. One indicator of this development is the adoption of cloud computing. A survey conducted by O’Reilly in January 2020 showed that more than 88% percent of respondents used cloud in one form or another, and most respondent organizations expected to grow their usage over the next 12 months. Another indicator for technological progress and digitisation is the evolution of the share prices of technology companies. Through December 21, 2020, the information technology sector of the S&P 500 was up about 40% in the calendar year, while over the same period the S&P 500 itself was up only 14.8%.
The supply chain and logistics ecosystem is reliant on the contribution of many autonomous actors. Sometimes they are competitors chasing the same customers, yet at other times the same players seek to collaborate to expand their geographic coverage or operational capabilities to reap the benefits of co-operation. This collaboration is usually sub-optimal, local information sharing communities have emerged to obtain higher performance. Port Community Systems, Government Single Windows, Trader Community platforms are all examples of this sort of development.
All parties along the transport chain need to be well joined up. They need to ensure a flow of information from the material supplier down to the end customer. An important task for all involved is collaborative alignment. Platforms span across the chains, connecting the different local networks. Initiatives such as IATA’s ONE Record, building upon the Internet of Logistics, or the TradeLens data sharing environment, originating from the collaboration between Maersk and IBM, are two initiatives intending to create a network of (local) networks. Within the European initiative of the Digital Transport Logistic Forum (DTLF) , concepts for a federated environment of networks of networks are also emerging and being validated within the FEDeRATED and FENIX projects.
Furthermore, ports are engaging more actively in the digitisation effort to establish globally interoperable platforms. In 2021, we can expect the continuing rollout of the IPCSA Network of Trusted Networks (NoTN) and the expansion of this innovative solution well beyond its original 15 countries, 42 sea ports and ten airports enabling all stakeholders to share data, as the basis for improved communication and collaboration. The platforms are populated through feeds from the various systems and internet of things (IoT) devices and equipped with analytics to make sense of the data. The ability to establish platforms, install IoT devices and use analytics is the prerequisite to match the requirements of world class supply chain networks and the expectation of modern consumers. Global standards are required to ensure interoperability. The prototypes can be built with the help of innovators, which also make good partners for implementing and testing of digital innovative solutions.
Also, the academic sector showed significant headway in 2020. After seven years of intense research, a new discipline was launched: Maritime Informatics. Maritime Informatics is the application of information systems to increasing the efficiency, safety, sustainability of the world’s shipping industry. Sustainability covers economic, ecological and ethical aspects of doing business. The true balance in the interest of our well-being and the well-being of future generations. The new discipline of Maritime Informatics will help the sector to digitize its activities. Involved in the Maritime Informatics initiative are top experts and influencers in the maritime industry, with some of them representing key players in the sector.
Testbeds, incubators, and accelerators are on the rise. Hackathons are another emerging path to collaborative innovation driving sector digitisation, offering a broader, more concentrated and probably more diverse participation in a transformational effort in the supply chain industry, focused on a number of specific use cases, often framed as challenges. Hackathons, in various setups, have become, more present, for example in the maritime sector during the last five years, and just recently, one was concluded for the ports of Morocco.
Conclusions—the need to look beyond digital technologies
In hindsight, the year 2020 may be dubbed the “beginning of the beginning of supply chain digitisation”. The dynamics manifest themselves in a rise in publications, a surge in open innovation efforts, like hackathons, the creation of accelerators and do tanks supporting the digital supply chain movement, more experiments and the concrete implementation of projects. However, it has never been an easy road and lots of things have yet to be sorted out.
Several specific requirements and challenges need to be addressed to reach eventually totally connected supply chain networks. Supply chain digitisation at scale requires that the community lowers the threshold for any actor to become digitally included. Actors themselves need to overcome their resistance to new business models. Prerequisite is also that the participants in major supply chain networks agree on ways for identifying the cargo being transported, with different levels of granularity. Creating connected supply chain networks can only be achieved when we also address the fears around data sharing through providing protection by robust data sharing rules and solid governance models. Actors need also to let go the misconception that withholding non-sensitive data creates a competitive advantage, or that they just need to wait long enough until their data can be monetised. That day will probably never come. Much of the data has an expiration date. There is a need for protecting the actors too. Protecting stakeholders includes the substantiation of data sharing trust and security models between the role players.
This underlines that digitising supply chain networks is not just about digital technologies and the transformation of processes, systems, assets and the creation of new solutions. It is first of all about culture, i.e. tackling the major challenge of making the workforce and leadership board fully prepared for this change. Once this has been achieved, companies can start to identify pain points and focus on the critical elements to turn traditional into digital supply chain networks. The technology is largely available. Companies need to find ways to constructively deal with this technology but also the innovators themselves. Experts can help organisations to embark on the digital speed boat and give their current innovation efforts an additional accelerator push.
Advisory Board Member,
The Logistics & Supply Chain Management Society (LSCMS)
Wolfgang Lehmacher is a member of the LSCMS Advisory Board. Previously, Director, Head of Supply Chain and Transport Industries for the World Economic Forum, in New York and Geneva, Partner and Managing Director, China and India, at strategy firm CVA, Hong Kong, and President and CEO of GeoPost Intercontinental, the global expansion and investment vehicle of France’s La Poste. Prior to La Poste, he was Head of Eastern European and Mediterranean Regions, and Country General Manager Switzerland at TNT.
He holds numerous board positions for organizations and ventures across the globe. He is judge of the IATA Air Cargo Innovation Awards and the Automotive Logistics Awards Europe, member of the Logistikweisen, a think tank under the patronage of the German Federal Ministry BMVI, and the Expert Network of the World Economic Forum. He is founding member of NEXST, alias Centre of Excellence for Global Emerging Supply Chain Technologies, initiated by Reefknot, Kuehne & Nagel and SGInnovate, Singapore, and expert of SEA20, an international not-for-profit initiative and network of ports, academia, associations and companies supporting maritime transformation.
Lehmacher is a prolific writer and frequent public speaker at events across the globe, including the Annual Meeting of the World Economic Forum in Davos, and the Global Leadership Lecture Series at MIT. He is FT, Forbes, Fortune, BI and Nikkei contributor and author of white papers and business books, such as The Global Supply Chain—How Technology and Circular Thinking Transform Our Future.