For decades, the focus for supply chain executives has been relatively straightforward: reduce costs and increase efficiency.
However, the global upheaval of the past few years—from COVID-19, geopolitical conflicts, and other disruptions—has brought into stark relief a newer, more complicated reality: The supply chain is vulnerable and business risk is high. Whether due to port closures, materials and labor shortages, or economic impacts like rising inflation and fluctuating demand, we are in a moment of unprecedented pressures.
These pressures are, frankly, not going away anytime soon. In fact, a CNBC survey found that 61% of logistics managers say the supply chain is still not operating normally—and most of them say they don’t expect it to do so until 2024 or even later.1 Similarly 82% of supply chain leaders surveyed by Coupa Software say challenges will stay the same or worsen over the next six to 12 months.2
So, what are decision-makers to do? U.S.-based supply chains are undeniably out of sync, and in order to survive, these executives must find real, lasting solutions to today’s pressing challenges. This isn’t just about business continuity; it’s about future growth, revenue, and overall success.
To navigate contemporary challenges and build more resilient supply chains, leaders must embrace a thoughtful and comprehensive digital supply chain strategy. At a foundational level, this digital strategy should be built on three key principles:
This is about more than simply implementing new digital technologies—it’s a full, end-to-end reimagining of the supply chain, all contained in one interoperable, process-driven solution strategy. Supply chain leaders must reinvent their traditional processes and transform their approach. This will not only assist in extracting risk out of the process but in embedding sustainability into it. This will show that a better, more agile, and more resilient future is very much possible.
How we got here
Before I dive into the three vital principles for digital supply chain strategy success, let’s talk about how we got here.
Supply chains have historically been viewed as a cost center. As a result, managing them called for a steady focus on optimizing cost efficiency and maximizing profit. This meant that many companies excelled in their core competencies but outsourced the rest. Suppliers were selected based primarily on cost, and manufacturing was often moved to areas of the globe that had lower material and labor costs.
Recent supply chain disruptions—whether due to the pandemic, Russia’s invasion of Ukraine, the Suez Canal blockage, or some other event—exposed the inherent risks of this traditional way of thinking. Rocketing prices, inventory shortages, and empty shelves have become not only more common but downright frequent. Why did this happen? Because traditional supply chain and planning approaches have proven to be ineffective when variability arises, due to a lack of real-time visibility into evolving trends across the enterprise (such as market demand, resource availability, and raw material prices).
The other vital factor in this discussion is our growing climate crisis. Every year, we are using more resources than the planet can sustainably provide. The harmful effects—on climate, biodiversity, and even social inequality—are only increasing. This is one of the reasons why, as we rethink our approach to the supply chain, we must transition from a low-cost, streamlined approach to one that is risk-resilient and sustainable.
Where we are going
What will this risk-resilient and sustainable future look like? It’s not something we can approach in a piecemeal way. If you try to take several small bites at the apple, you’ll be exposing wide swaths of your organization to unnecessary risk for years to come. Functional business areas will remain disconnected and operate as distinct entities, rather than key cogs in a whole machine of interoperable business processes.
To properly address these foundational issues, supply chains need to evolve beyond cost considerations and embrace wider business issues of speed, customer service, risk, and sustainability. This means focusing on alleviating risk and building resiliency to shock and disruption, while still addressing critical sustainability mandates. Otherwise, decisions will be made in functional isolation, based on history and static operation rather than in-the-moment, information-driven action.
Investing in foundational digital tools and technology is a key enabler of this supply chain reinvention. But to be successful, we must rethink how we’re fabricating our digital supply chain strategy. To do so, start with these three principles.
Principle #1: Connect every process
To build a resilient and sustainable supply chain, you must start with an enterprise-wide lens. You can accomplish this by digitally integrating the supply chain from end to end—design to planning to manufacturing to logistics to maintenance to service. This end-to-end visibility is absolutely vital.
For instance, look to integrate design and production engineering. Build an approach where engineering bills of materials or recipes are managed through a consistent digital thread and handed over to the manufacturing team. A well-connected supply chain is one where custom orders are managed through variant configuration in an integrated manufacturing environment. It’s one where production engineering can easily communicate last-minute changes to the shop floor. It’s one that enables raw materials and parts supplied to the production lines to be orchestrated between manufacturing execution and warehouse management systems, eliminating waste hiding in functional siloes and driving profitability.
Going a step further, all of these business functions can provide even greater visibility and foresight by implementing cutting-edge artificial intelligence (AI) tools that can detect and analyze activities across the extended supply chain. This level of visibility will improve supply chain resilience by allowing companies to take preventative actions to mitigate bottlenecks.
The widespread elimination of data disconnects and process siloes enables some key benefits for the enterprise, including:
How to set all of this into motion? An integrated business planning (IBP) process that embraces product development tools and IBP supply chain solutions can go a long way toward connecting every process. An effective IBP process that brings together both financial and operational stakeholders can break down the siloes that currently exist throughout the planning and decision-making process. It moves the decision-making process into a single place and ensures that data is easily available for all. Furthermore, it creates transparent plans with clear priorities, synchronized functional siloes, investment in organizational and cultural change, and the involvement of your broader partner ecosystem.
Principle #2: Contextualize every decision
In order to create risk-resilient and sustainable supply chains, leaders need to base their decisions on data and information that is not only accurate and up-to-date but also contextualized. A good digital strategy will bring together accurate, in-the-moment operational data with always-up-to-date business information. The accuracy of what you put into your system—your data acquisition—is paramount, but so too is your data analysis. Let’s consider three examples from very different parts of your supply chain.
To properly execute demand planning, you need to have a complete picture of daily demand; only then can you make decisions that will optimize profitability, deliver high customer service levels, and enable accurate supply planning. Creating a complete picture, however, requires going beyond merely reporting sales data to providing a context for that data. A good AI tool, for example, can help automatically identify meaningful demand thresholds and raise alerts when anomalies are detected.
Contextualizing decisions can also help you better maintain and manage your assets. A proper digital strategy for the lifecycle management of assets would not only gather and report sensor data, inspection results, and historical maintenance records but also analyze that data and form correlations. It would leverage AI, the internet of things, and rule-based frameworks to enable not only prescriptive maintenance (fixing the asset after it breaks) but also predictive maintenance (fixing it before it breaks).
Finally, digital technologies can help refine product design decisions by providing data around the usage of critical materials, energy consumption, and emissions. This type of context will help companies eliminate waste and ensure their products meet both regulatory requirements and their own sustainability goals.
Turning toward the future, intelligent technologies can help you contextualize your operational and business data, which will enable you to:
Principle #3: Enable collaboration
A truly successful supply chain strategy is one that also creates dynamic, digital connections across all suppliers, contract manufacturers, logistics partners, and service providers. It’s all about collaboration.
What would this look like? Working closely with shippers and carriers, for instance, to help optimize logistics processes, increase on-time deliveries, and mitigate supply risk. Or empowering operators, manufacturers, and service providers, for example, with a single digital network for resiliency and transparency.
This kind of close collaboration has many other benefits, including:
An eye towards tomorrow
These three principles are vital steps to building a risk-resilient and sustainable supply chain. Once your design, manufacturing, logistics, maintenance, and service processes are connected and providing you the context you need to make effective decisions, you will finally be able to respond to disruptions in real time and connect your organization to an entire ecosystem of partners and collaborators.
The magnitude of the shift from after-the-fact reactions to in-the-moment actions—and even in-advance prediction—cannot be understated. It’s a move from ordinary to extraordinary, from automation to business-changing transformation. It’s about turning agility, resiliency, and sustainability from pie-in-the-sky, C-suite dreams into grounded, operational realities.
As a result, your supply chain will become more nimble, and you’ll see costs, profits, and customer service capabilities all trending in the right direction. You’ll see risk fading into your rearview mirror, and you’ll see sustainability and success rising just above the horizon.
So, drive on. Because the future is here.
1. Lori Ann LaRocco, “Most supply chain managers expect problems to continue at least through 2024,” CNBC (Dec. 23, 2022): https://www.cnbc.com/2022/12/23/supply-chain-managers-expect-problems-continue-2024.html
2. “Consumers Should Brace for Continued Supply Chain Disorder in 2023,” Coupa Software press release (Feb. 1, 2023): https://www.prnewswire.com/news-releases/consumers-should-brace-for-continued-supply-chain-disorder-in-2023-301736323.html
Darcy MacClaren is the senior vice president and head of Digital Supply Chain for SAP North America.