It’s not an overstatement to point out that supply chains are essentially running the industrial world.
The supply chain is vital to the global economy. A year-long study by the World Economic Forum points out that if every country in the world were to improve two key barriers — border administration and transport, and communications infrastructure — to even half the level of the strongest country they evaluated (Singapore), this one step would increase global GDP by nearly 5%, and global exports by nearly 15%. (By comparison, if we were to eliminate all import tariffs, global GDP would grow by a mere 0.7%.)
Organizations today recognize the strategic role of the supply chain, and the potential of digitization to drive innovation. Yet the majority haven’t moved off the dime. A 2017 McKinsey survey notes that today’s average supply chain has a digitization level of only 43%. Only 2% of respondent organizations have a focus on supply chain in their digital strategies.
Even worse, a recent Deloitte survey reveals that 51% of manufacturing respondents believe the digital maturity of their supply chains is above average when compared with competitors. But only 28% have started to digitize their supply-chain operations.
The same study shows that supply-chain transparency is the most important operational goal for manufacturers as a key to efficiency. Yet only 6% of respondents are part of an ecosystem with sufficient transparency for participants to have access to each other’s data while transacting business. These astonishing disconnects could have devastating consequences for those who fail to see the implications of their inactivity and the potential for disruption.
The trillion-dollar question, then, is this: Why aren’t these organizations moving more quickly?
We believe the slow progress of digitization is due to the transformation hurdles that arise with every large-scale change. Our internal research of more than 450 organizations and 90,000 suppliers shows three critical challenges that procurement decision makers face in their journey to digitization (they are surprisingly consistent, regardless of country or region): budget, lack of organizational urgency, and implementation of new technology into legacy systems.
How to surmount this impasse? A recent study by Janet L. Hartley and William J. Sawaya through the Kelley School of Business at Indiana University echoes these barriers, and offers some insights on how to help organizations progress. Their report specifically examines robotic process automation (RPA), artificial intelligence (AI), machine learning (ML) and blockchain.
Based on interviews with supply-chain professionals in 14 large and mature manufacturing and service organizations, the authors provide research and analysis about the path to broad-scale adoption of these emerging technologies. They conclude that organizations should take the following steps “to ensure their readiness to adopt and effectively use one or more of these technologies”: identify a supply-chain technology visionary who can lead through the maze of technologies and the changing digital landscape, develop a digital technology roadmap for supply-chain processes, and update foundational information systems.
Additionally, and especially in the area of risk management, we recommend the adoption of consistent contractor hiring policies and procedures throughout the process. Keep the policies simple, but make it clear that strict adherence is required.
Define the roles and responsibilities of all participants as the new technology is adopted. Ensure that participants understand the business objectives for each additional program, and establish a top-down culture around procurement, environmental protection, and management of health and safety risks.
Organizations must communicate these policies clearly to contractors as well, to ensure they understand what is expected, and the vital importance of the policies the organization requires and upholds.
Digital maturity allows the supply chain to evolve as a strategically important function that fosters informed decision-making, and lays the foundation for a more flexible organization. As the supply chain gains strength in digitization, it leads to more profitable businesses, as well as a stronger global ecosystem and economy.
Arshad Matin is president, CEO and board member of Avetta, a global provider of supply-chain risk management.
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