Delivering an agile supply chain with the ability to instantly react to both environmental and government-specified changes has become a more difficult process. As consumers continue to demand more accountability from the brands they purchase, manufacturers must consider the need for ethical inventory or material supply while ensuring government regulations concerning receiving supply from specific regions are adhered to.
The Covid-19 pandemic also disrupted supply chains across the world and although things are slowly returning to normality, international supply lines still function at limited capacities. Despite the considerable efforts and resources enterprises continue to spend to deliver an optimized supply chain, decision-makers still overlook the solutions digitalization offers. According to a McKenzie study, the average enterprise applies digitization solutions to approximately 43% of supply chain operations. This leaves approximately 60% of supply chain operations to informal procedures and the rule of thumb.
Multiple reasons for the low adoption rate of digitization to optimize supply chains have been provided and difficulties with deciding which processes to optimize have been at the forefront of the challenges enterprises face with digitization. One example is a company in the food and beverages manufacturing industry integration of an enterprise resource-planning system to optimize its supply chain operations. Using the ERP did not lead to any recorded improvements instead, the company recorded declines in its service –levels. On further analysis of its digitization process, it was discovered that the enterprise used physical demand forecasting methods which were inaccurate. Digitizing its demand forecasting process using historical sales data ensured the ERP was provided with the data it needed to optimize the company’s supply chain.
The experience above shows that the right approach to digitization of supply chains requires extensive planning and the digital transformation of the different aspects that affect supply chain operational processes. Thus, a digital revamp of supply chain operations is required and with proper planning, the revamping process isn’t as costly as you may think.
Developing a Digital Transformation Roadmap
Developing an effective digital transformation strategy that takes into consideration every aspect of the supply chain involves assessing the supply chain’s current state and evaluating the effects of new changes. Digital transformation solutions also provide the tools for assessing a supply chain’s current status and evaluating future changes to it. One example is the use of simulation modeling, which is a powerful tool, for evaluating complex processes and operations.
A simulation model of the complex operations that define the average supply chain provides a virtual environment for assessing the diverse challenges that hamper optimal operations. The insight a supply chain simulation model provides kick-starts the process of creating a digital transformation road map to digitally transform every aspect of the supply chain. A comprehensive roadmap must establish a vision concerning how digital solutions can be applied to improve service-levels, reduce cost, and enable organizational agility when responding to different situations.
The example of an advanced industrial company, which is the largest producer of sugar and ethanol in Brazil, struggles with optimizing its raw material supply chain highlights the importance of applying simulation modeling to develop applicable roadmaps. The industrial giant struggled with fulfilling orders across its 18 processing facilities because of difficulties getting its agricultural supplies to individual plants.
The manufacturer developed a simulation model of its supply chain to analyze the bottlenecks it experienced transporting materials to meet fluctuating demand. Evaluating its supply chain with simulation modeling helped the manufacturer develop a digital transformation roadmap designed to help the company save approximately $500,000.
Implementing an Effective Digital Transformation Plan of a Supply Chain
A digital transformation roadmap should also provide information on what digital technologies are required to implement transformation strategies. A few decades ago, manufacturers relied solely on manufacturing enterprise systems (MES) to analyze production cycles and processes. Today, diverse digital transformation technologies exist to capture data, analyze data, and to deliver real-time monitoring or analytical services.
Examples of such digital technologies include the application of IoT to capture data across every aspect of the supply chain, inventory management and demand forecasting software to capture demand data and predict demand. These few examples do not exhaust the list of digital transformative technologies and the functions they perform as sales and operations planning software, and customer relationship management platforms also capture important data that affect supply chain operations. Analytical applications which analyze captured data also rely on artificial intelligence and machine learning to provide optimized applicable results that improve the supply chain performance.
The application of digital transformation technology requires creativity and choosing the right tools to achieve your enterprise’s optimization goals. The digital twin for example is a powerful tool that can combine the data from the diverse software used to capture supply chain data to provide real-time insight into supply chain operations. Thus, after the implementation of a digital transformation strategy, the digital twin enables you to visualize the new operations and evaluate their impact on the supply chain in real-time.
The Benefits of a Digitalized Supply Chain
Successful implementation of digital transformation to improve supply chain operations come with facility-wide benefits that deliver improved customer satisfaction. Some of these benefits include:
- Improved Decision-making Processes – Digitalization of a supply chain provides data-driven analysis to stakeholders to help with making decisions within complex environments. With accurate data sets and a means to analyze them, stakeholders can get answers to questions concerning the effect of changing situations. These questions could be determining the effect of a changing scheduling and material planning requirement on a supply chain.
- End-to-end Customer Engagement – Digital transformation solutions provide a means to integrate customers into every aspect of the production cycle including the supply of materials and the delivery of the produced goods. The transparency and accountability of including customers into the production cycle lead to improved customer satisfaction levels.
- Reduced Operational Cost – An optimized supply chain leads to reduced scrapping or material wastage during production cycles. This reduction, in turn, leads to a reduced total overhead cost for production and revenue growth.
Conclusion
The McKenzie study continued by stating that companies with aggressive digital transformation implementation initiatives to improve supply chain operations boost annual revenue growth rates by approximately 3.2%. You can start the process of digitally transforming your company’s supply chain operations with simulation modeling by speaking to a Simio expert today.