(Editors’ note: This is the fourth of a five-part series of articles about the journey to creating an end-to-end business network that enables demand-driven supply capabilities.)

The five stages of the maturity model for achieving digital transformation of the supply chain can be described as follows:

Stage 1: Reactionary: How can I identify and fix a problem I didn’t expect?

This is the reactive or “fixing it” stage, in which organizations don’t know there is a problem until it arises. At this stage, skills and organizational structures are individually oriented. Digital initiatives are investigative, exploratory, and discovery-based, and are often random and disconnected.

Stage 2: Project-Based Improvement: How can I formulate a project and implement a solution that addresses the issue moving forward?

At this stage, organizations will seek solutions to issues on an ongoing basis, by way of project-based improvement, and generally coordinated by a project management organization (PMO).

For example, a manufacturing company might task a project team with a track-and-trace initiative to better keep tabs on inventory or a new-product launch. Or it might undertake a serialization project to ensure product integrity.

Project-based improvement is a siloed and potentially disconnected approach to problem solving and capability building. Projects are managed individually, and their interdependencies aren’t addressed. Consideration isn’t given to the ways in which the success of one project might negatively impact that of another.

Project-based improvement is typically characterized by teams operating in a functionally or business-unit oriented PMO, designed to coordinate activities and track project performance. But PMOs aren’t necessarily coordinated to assess stages of maturity and map projects to business-performance improvements. Leading companies have evolved their PMOs into integrative centers of excellence (COEs), tightly coupled with business and leader-led transformation efforts.

Digital initiatives in Stage 2 are siloed, managed and deployed as projects. They tend not to be strategically focused or coordinated across the business for holistic capability transformation.

Stage 3: Integrative Functional Excellence: How can I work with my functional partners to improve efficiency and achieve functional excellence?

At this stage of capability, organizations are focused on building functional efficiency. Manufacturing, planning, compliance, customer service, quality, logistics, and procurement tend to still operate in a siloed fashion.

While projects might be integrated under specific functional excellence programs, there are remain potential disconnects. For example, a focus on procurement excellence and cost reduction might negatively impact customer service, or on time and in full (OTIF) performance.

Functional excellence programs do not necessarily drive harmonized standards and best practice-sharing across functions or the business as a whole. Many organizations get stuck in Stage 3 until they have defined a leader-led, transformational business vision (for example, one that’s customer- or patient-driven, or calls for digital network platform deployment). Often traditional I.T. systems and databases that require intensive integration and reconfiguration become a treadmill of non-value-adding work, causing the business to stall in its transformation effort at Stage 3.

To deliver efficiency and value in Stage 3, companies need codified integration onto a single platform, which removes complexity in the end-to-end demand-sensing and response process.

Single-instance enterprise resource planning (ERP) strategies are often a cause of Stage 3 stall. In its time, a single ERP system was the holy grail. But pivoting from a supply-driven to demand-driven supply chain is nearly impossible in highly complex businesses, given the lack of flexibility of most ERP technologies. To some extent, cloud-based strategies have made this easier, but the industry has largely underestimated the lack of capabilities in “path-to-the-cloud” strategies.

It’s too difficult to adapt and orchestrate a cross-organizational digital network platform as a single company, due to the complex integration challenge and lack of codified connectivity between network partners. (It involves more than electronic data interchange!) A single, internally focused I.T. platform isn’t sufficiently codified to leverage the power of a collaborative two-sided market ecosystem network.

Stage 3 companies are often characterized by traditional inside-out, supply-driven mentalities and processes, rather than demand-driven, multi-sided network-based capabilities.

In industries such as life sciences and consumer packaged goods (CPG), enterprise architectures consisting of multiple instances of ERP and advanced planning and scheduling (APS) systems have moved away from functionally focused excellence to end-to-end demand-driven capabilities, the latter of which represents an extremely complex transformation initiative. Few leaders have successfully made this transition.

Stage 4: Outside-in Collaborative Customer, Patient-Driven Operating Models: How can I work with partners to become market- and demand-driven?

In Stage 4, organizational capabilities pivot to a demand- and market-driven value network starting with the customer, market or patient. Demand is fulfilled from a reliable, compliant, and predictable supply network. Key performance measures associated with Stage 4 include patient-centric therapies, customer-driven product configurations, and delivered OTIF and safely at the customer, patient, point of purchase and use.

In Stage 4, patients have access to compliant and safe medications, because the right product is available at the right time and place. Common goals, visibility and information-sharing between parties in the network ensure a high degree of demand-forecast accuracy. A horizontal, process-focused business operating model makes this capability possible.

Business benefits include availability of the right amount of inventory needed to manage current demand at the right place, without the need for storing excess buffer inventories and adding working capital to the cost equation.

If inventory isn’t physically available, companies can see where additional stock is located. This degree of visibility is achieved via a “digital twin,” created to separate the flow of physical product from its accompanying data.

In Stage 4, leaders deploy customer- and patient-driven segmentation strategies. They analyze the outside-in demand characteristics of varying domains and demographics, which are used to codify demand segments and proactively allocate inventory where it’s needed.

Stage 4 capabilities rely on digital operating models in an ecosystem of networked partners. The model collapses many aspects of traditional demand, and enables end-to-end visibility and orchestrated planning analytics for all partners in the network. The platform is supposed by technologies such as artificial intelligence and machine learning.

The biggest impact on operating models is the ability to engage in continuous integrative business planning (CIBP). Unlike constrained sales and operations planning (S&OP) initiatives, it’s not driven by individual events or pools of supply.

CIBP capability requires a digital network platform. Partners have full visibility into how product makes its way from point of origin to the patient. They can trace the journey of uniquely serialized medications along the way. This means that inventory can be planned; compliance and traceability can be embedded in fulfillment, and partners can proactively commit to demand requirements without the need for excess inventory buffers.

The digital network platform connects many-to-many networked partners. It provides a codified connection point in the form of a standard canonical, which can be used by manufacturers, suppliers, pharmacies, hospitals and providers in the healthcare ecosystem, as well as partners in other industry verticals. The Stage 4 digital network platform paves the way for a Stage 5 Total Networked Healthcare Ecosystem.

Stage 5: The Orchestrated Market Network: How can I be part of a global, digitally networked ecosystem that’s focused on winning with every customer?

In Stage 5, digital network platform capability moves from supporting a pivot from supply-driven to demand-driven, as characterized in Stage 4, to achieving win-win value from all networked partners in the ecosystem.

At this point in Stage 5, the platformed ecosystem is supported by multi-sided digital platforms, which deliver significant economic value in terms of scale, efficiency, safety, security, effectiveness, and responsiveness. Performance improvements in Stage 5 approach the 100x mark.

In Stage 5, the platformed digital network across companies and partners makes operations more agile and scalable. Compliant shipping, consumption, control, traceability, and visibility of serialized and regulated drugs is transformed into a holistic living ecosystem.

Economic returns become exponential when all countries and global stakeholders touching the development and distribution of medications are embedded in the network. They gain full visibility into the journey of each product and service via a fully digital network platform. The Bill and Melinda Gates Healthcare Foundation is just one example of the evolving networked healthcare ecosystem for partner countries in Africa.

Stage 5+: The Unfolding Vision: What is the future and ongoing value from a fully digitalized market ecosystem?

In Stage 5 and beyond, the market network ecosystem becomes a living organism. The network can adapt in a give-and-take, stretch-and-flex, fluid model by which stakeholders communicate in real time. In this way, the market-based healthcare ecosystem can address new demands and events such as a sudden outbreak of Ebola, the battle against AIDS, instances of malaria, and shortages of drugs in Syria and Puerto Rico. New network partners can quickly be added or removed, and visibility across the network is no longer internally focused inside a company, but extends across the whole network of partners.

The technology exists today to create a sophisticated, fully digitalized network platform. The challenge lies in building momentum behind the network, gaining trust and transparency with many different stakeholders, and adding partners to the networked healthcare ecosystem. The power and value of this unfolding vision lies in the scope, depth and breadth of the evolving network. Future possibilities to be addressed are virtually unlimited.

Next: The Opportunities Ahead.

Roddy Martin is chief digital strategist with TraceLink.