A recent study by Capgemini consulting and GTNexus (registration required) has revealed some interesting insights into the state of the digital supply chain. Entitled “The Current and Future State of Digital Supply Chain Transformation” it is possibly the largest study into the digital transformation of the supply chain to date. The study surveyed 337 executives across 20 different countries, though most respondents were either in Europe or North America. Seven industries were surveyed with the following percentages represented:
While some of these categories invariably overlap it is still a broad study. What is clear from the study is that companies believe that the digital supply chain is important, or very important now (75%). Many (70%) have already started their journey and 95% believe that they will have automated more processes within the supply chain within the next five years.
The report looks at the state of industry now, what the challenges and enablers are for moving to a digital supply chain and also what companies should be considering. The report produces some interesting insights about how companies are moving towards a digital supply chain and their ambitions for the next five years. As a brief (eleven page) report, it is unable to deliver the substantive recommendations that it might have done had it been extended.
Legacy communication is still critical
While the study unfortunately did not differentiate between upstream and downstream supply chain activities, it did reveal some interesting regional differences. For example, US companies surveyed are more integrated with their supplier systems, although 40% are still relying on legacy communication such as phone, fax and email. The UK is also doing well in terms of automation despite 43% still using legacy methods. The major surprise is that Germany, an industrial powerhouse, lags a long way behind in terms of automated supply chain with 56% of companies admitting that phone, fax and email are still key.
As with all survey results there are issues here. There is no previous study data that would make it possible to see if there was an trend towards automation and which countries or industries were moving the fastest. Additionally the problem with these statistics is one doesn’t get the complete picture or reasons why these traditional methods are being used. Germany may be higher for example because the Mittelstand companies which often form a major part of the supply chain there, may be more conservative than those organisations polled.
There are clearly barriers to adoption and this is what the survey looked to identify. The authors also tried to see if the barriers were internal (culture or process) or external.
What do you need ?
It won’t be a surprise to reveal that respondents thought that two of the four key enablers listed in the report are data decision making and cloud-based software. Evidence based decision making has been around for a long time. Pfeiffer and Sutton proposed in an HBR article in 2006 (Subscription required) that the theory that had been applied in medicine was equally applicable to management in business. The problem for the respondents is that while they may want to make data driven decisions, the data is not present for them to do so. 52% of respondents believed that their organisation had little access to data from their supply chain.
Cloud-based software, according to the company is still not prevalent in most organisations either. Only 6% said that their companies used a majority of cloud-based software. This is one area where the study results are open to question as it fails to differentiate between private, public and hybrid cloud deployments. In a world where companies are adopting hybrid solutions, it is unlikely that every piece of software is going to be cloud-based and data could be stored on-premises or in multiple cloud locations. Further granularity and insights into what software relevant to the digital supply chain is cloud based may have been more insightful.
While the findings of the survey are not in question, one questions how much further cloud-based software needs to infiltrate companies before digital supply chains can be realised.The report does go into further detail and provides some interesting regional insights into which countries are further ahead than others. For example, while the US leads the way in cloud adoption (57%) it is Germany that has been the lead investor in big data and analytics.
The remaining key enablers were Supply Chain visibility platforms & tools and simulation tools. The agreement about these enablers being crucial was significant, and companies are already investing in them. Perhaps surprisingly only 48% believe that their organisations are investing in the Cloud, whist 74% are investing in supply chain visibility platforms and 50% in big data analytics. Measuring ones own company against these statistics might indicate how far along the road to transformation ones own projects are.
What will stop your Digital Supply Chain project
All transformation projects come with challenges and 44% of executives cited that a lack of awareness within the organisation was one barrier. Outside the organisation executives believed that 50% of their supply chain are not properly aware of the digital supply chain. What isn’t clear is if this is a case of a lack of knowledge or business culture.
Understanding the reasons behind this lack of awareness will be important to understand. Are internal staff resistant to change? How much education is required both up and down the supply chain? Are those business technically ready for the digital transformation? This was beyond the scope of the report but it is an area that needs further investigation.
The second challenge that they face is a lack of skilled talent within the organisation to deliver digital transformation. This will be music to Capgemini’s ears as they will be able to offer those skills through consultancy to clients.
So what next?
The report lists and briefly details six considerations that companies should consider when implementing their own digital supply chain:
- Focus on Business Value
- Fail Fast, succeed faster
- Adapt the governance model
- Talent management
- Develop a Partner Ecosystem
- Don’t forget Risk Management
While the last touches on security it might have been interesting to see how respondents viewed security in the digital supply chain in more detail, which has been cited as a barrier to adoption elsewhere. Hackers often view the supply chain as less secure and the low hanging fruit that will enable them to gain access into larger corporates. As companies become more integrated there will be new weak points that can be exploited. Companies need to be aware of what these are so that they can mitigate against the risk.
It is disappointing that the report did not expand on these considerations further. If there is a weakness in the report it is that the considerations were also not better connected to the findings. This could have been a more powerful report if that had been the case.
For GT Nexus and Infor there are challenges such as talent management (HRM) and the cloud-based supply chain tools that they can offer to help companies realise their ambitions. GT Nexus itself is built with integrations to several ERP solutions and they will no doubt be hoping that based on this very readable report, companies sit up and take notice of what can and should be done.
Within five years, the survey respondents companies’ expect to be well on the way to realising a digital supply chain. While the survey numbers were small they were significant and CEO’s will wonder whether they are being left behind. 78% of the respondents were from companies that had a turnover of more than $750 million which are not small companies. 53% of the respondents came from companies that had than 10,000 employees and 18% between 5001 and 10,000. These numbers could be skewed though as there were clearly multiple respondents from some companies and that level of detail was not disclosed.
There are building blocks to the transition that the report covers and companies should consider where they are in their transformation project. There is significant business value from enabling a digital supply chain, if it is done correctly. Many CEO’s, especially of smaller companies will remember EDI, and its sometimes onerous costs and complexity. The new iteration of cloud based tools are definitely simpler and certainly more measurable in terms of business benefit.
The report is certainly worth a read as a first step. It interesting to note that Korpela et al recently published an article entitled “Digital Business Ecosystem Transformation: Toward Cloud Integration” at the 49th International conference on system Science (registration required). While academic in nature it proposes that integrated cloud solutions will provide a cost effective business model to form an interoperable digital supply chain. This seems to back the findings of the Capgemini and GTNexus study.
The report concludes by saying that “The race is on.” Many have started already and while five years seems a long way away there is a lot of work to do before companies realise a full digital supply chain. Those that do so first will be able to obtain an early advantage over competitors if they effectively leverage the business value.