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Optimizing Digital Operations for 'Smart' Supply Chain

Analyst Insight: Variously called Industry 4.0, the Industrial Internet, or simply digitization, the emergence of machine-to-machine interactions, human-to-machine interactions, robust data and analytics capabilities, and cheaper, more ubiquitous sensors is pushing the Internet of Things (IoT) into the core operations of more and more companies. Among the business operations especially ripe for transformation by digital and IoT capabilities is the "smart" supply chain. – Eduardo Alvarez, Principal, PwC, and Rodger Howell, Principal, PwC

Optimizing Digital Operations for 'Smart' Supply Chain

The smart supply chain consists of six key building blocks: horizontally integrated planning and execution, logistics visibility, procurement, smart warehousing, spare parts management, and prescriptive analytics. Companies that can put together all these pieces into a coherent and fully transparent system will gain a huge advantage by creating tangible value in the areas of customer service, flexibility, efficiency and reduced costs. By 2020, we are likely to see the very earliest adopters with these end-to-end capabilities.

Data integration is the primary driver behind the smart supply chain, enabling the capture and analysis of both structured and unstructured data from internal and external sources to provide critical insights and information throughout the supply chain. Ultimately, we believe that digital technologies will play a unique role in the supply chain in three key ways and make possible new activities that "catalyze" value capture:

Robust data transformation. Because digital supply chains handle large amounts of real-time data in the cloud, companies can integrate and utilize these data more easily than ever before. In the past, data was static and stored in ERP databases that were often difficult to access. Now companies can quickly integrate, filter and transport data to multiple nodes along the supply chain and use that data quickly.

Uplift of core processes. The ability to predict what will happen to equipment and materials will allow companies to stress-test and plan ahead for much better core process decision-making. Moreover, digital modules are designed to interact with companies’ legacy systems. This is a huge advancement. By being able to layer digital modules on top of existing systems, digital offers advantaged analytics without companies needing to replace complex, expensive systems.

Ability to rewire workflows. Once a company puts new modules in place, it must rewire core information flows at control points in the field, such as activities in a warehouse. The fact that smart phones are in everyone’s pockets means that information can be transported simultaneously and quickly to multiple points in the supply chain to ensure that actions in the field are consistent and repeatable.

As noted, we expect that 2020 will be something of a tipping point for digitized supply chains, with early adopters putting the first true end-to-end systems in place. And we also expect that the advantages of these supply chains will become a clear competitive advantage so quickly that a paradigm shift will occur. Those who do not have smart supply chains will suddenly find themselves playing defense and scrambling to imitate the early adopters.

However, being a “fast follower” will not be as quick a route to parity as is often the case with other technologies. Digitizing a supply chain takes time and hard work, so if a company believes the smart supply chain is truly the way of the future then the sooner it begins the transition the better.

The Outlook

To find the right starting point, companies should review their current supply chain maturity, identify areas for improvement, and develop solutions for the use cases that will target those critical areas.

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