We never could have anticipated how dramatically the world was about to change when we launched our first “Supply Chain Planning Digital Transformation” report in 2019. The study, conducted jointly by ToolsGroup and Spinnaker, surveyed nearly 200 North American supply chain professionals in early 2019. Its goal was to understand and benchmark the drivers, obstacles, technologies, and progress of companies’ digitalization journeys. The results have subsequently provided a timely baseline for comparing the accelerated digitalization instigated by COVID-era disruptions. (An infographic developed for the 2022 Q3 issue of CSCMP’s Supply Chain Quarterly shows some of the results of the most recent report.)
If there’s one big takeaway from the surveys we’ve been running through 2022, it’s the value of “fixing the roof while the sun is shining.” In other words, those companies that had begun to introduce digital technologies to their supply chain planning processes prior to the pandemic fared better during the past few years than those that had not.
But we know that initiating a big change before an urgent business need arises can be a hard sell. It’s not surprising then that in the wake of the past few years of immense disruptions, we are seeing more and more companies looking to digitally transform their supply chain planning operation. And, as we’ll cover later, there can even be some advantages to transforming during a crisis.
Weathering the storm
Unsurprisingly, in our 2021 study (carried out in the throes of the crisis), the leaders with the most mature, digitally transformed supply chains reported weathering the COVID storm most successfully. In 2021, when asked what stage of digital transformation they were in, 12% of respondents said they were reaping the benefits after a successful digital transformation. Fifty-four percent of that group said that they were managing COVID-related demand and supplier uncertainty “very well.” In comparison, only 13% of those companies that were still “evaluating” or “not pursuing” a digital transformation reported handling the uncertainty “very well.”
Although many countries have come through the worst of the pandemic itself, supply chain storms show no sign of abating. Supply Chain Quarterly readers hardly need reminding that disruptions to supply chains and the talent pool are expected to last years, compounded by inflation, the war in Ukraine, and other factors.
It follows that in this year’s digital transformation survey, the biggest concern on leaders’ minds can be categorized as “external factors.” A full 64% of respondents were either very concerned or extremely concerned about “supply delays on supplier order fill rates” and “escalating fulfillment/delivery costs”; 56% were similarly concerned about “accurate demand forecasting.” All this tallies with the massive pendulum swing we’ve seen in supply chain strategy away from lean, just-in-time (JIT) models to ones focused on resilience and characterized by higher inventory buffers and more supply alternatives.
In light of these continuing disruptions, it is not surprising that more and more companies are turning to digital technologies to help. Our 2022 survey with CSCMP reveals that 31% of respondents are now in the “executing” phase, or fully in the throes of a digital transformation effort. That’s four points higher from when we ran the first survey during a relatively “sunny” January 2019.
This jump is high enough to indicate that some companies are indeed reacting to the crises and stepping up transformation efforts. But it’s also small enough to suggest that for some companies, transformation has felt too onerous to get started with.
Indeed, other survey responses give clues to the extent that organizations are struggling with transformation. This year the majority (53%) of respondents cited the peoples/skill deficit as the number one obstacle to implementing supply chain transformation plans. Compare this to January 2019, before the pandemic, when the top reason supply chain leaders gave for delaying transformation was “fear of change” (30%). At that time, only 23% cited the people/skills deficit.
Our second clue is that this year “data quality/lack of data” was reported as the second biggest obstacle to transformation at 41%. Compare this to a much lower 25% in 2019. We know from our own customer experiences how difficult it is to undertake the exacting and laborious data hygiene and modeling work that underpins digital transformation when you’re in the midst of a crisis.
Deprioritize customer experience at your peril
A serious concern from this year’s study is that many organizations appear to have put some aspects of customer experience on the back burner. Our survey revealed that “keeping up with evolving customer behaviors and expectations” has plummeted to fifth on the list of primary objectives for supply chain planning digital transformations—sixth if you count that “better/faster reaction to unplanned disruptions” and “increase supply chain resilience” tied for second place.
Now is a very dangerous time to deprioritize adapting to meet new customer behaviors. The pandemic has radically altered people’s shopping habits. Taking your eyes off the ball now could have very damaging long-term consequences and allow new upstarts to steal market share by offering more competitive prices or appealing to consumers’ increasingly eco-friendly shopping habits.
For example, the cosmetics company Glossier and the apparel company Allbirds are just two of the many new direct-to-consumer brands that cut out the middlemen, offering premium quality products at affordable prices—very compelling during a cost-of-living crisis. Other clothing brands, like Zero Waste Daniel and Ruby Moon, are appealing to eco-conscious shoppers by offering garments made from leftover material and pre-consumer cutting room fabric scraps or postconsumer waste.
Meanwhile older retailers are realizing that if you don’t pivot and adapt to changing consumer expectations, consumers may opt for products that appeal to their wallets and their environmental conscience. As a result, companies like IKEA and Primark, which had long resisted adapting their channel strategies, are now finally pivoting to online sales, click and collect, and garment recycling.
The silver lining: innovation from chaos
There is a silver lining here. Throughout history, the most ground-breaking inventions, new business models, and solutions to enduring problems have arisen from large-scale disasters. The most obvious example is the COVID vaccines, which were developed and tested in record time thanks to an intense global collaboration from the scientific and medical communities. The urgency of the climate crisis has also given rise to some incredible new innovations in biodegradable packaging, water purification, waste management, and earthquake early warning systems—to name just a few.
The catalyst for all these innovations is technology, which has matured at an astonishing pace over the last 50 years while becoming more and more affordable. More companies are deploying advanced technologies for automating the supply chain including artificial intelligence (AI) and machine learning, analytics, drones, and others.
In fact, 51% of this year’s respondents said their top primary objective for supply chain planning digital transformation was to “increase level of automation to focus staff on higher value activities.” This addresses the talent shortage in two ways: It automates routine, labor intensive, and repetitive tasks, and it paves the way for people to do more interesting “human” work that makes the best use of their business knowledge and relationships.
So, although my opening gambit might have felt dark and ominous, I genuinely believe that the crises we are all battling to overcome will usher in a new era of supply chain solutions and creativity. And if you’re in the tricky situation of having to fix your roof in the current storm, you are likely to be rewarded with strength and resilience for many years to come.
View the full 2022 digital transformation survey report on the ToolsGroup website.
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