Despite a growing business case for digital transformation – according to our recent analysis, the return on investment could be as high as 600% – progress has been measured. Until last year, that is. The pandemic triggered the digital wake-up call that many organizations needed. Companies made massive changes to maintain business and operations through digital channels because they had to. Now, we have to maintain that momentum while working from a proactive rather than a reactive position. The way to do that is to focus on building five core digital capabilities within your supply chain.
The mandate has strengthened
The experiences of 2020 underscored the value of a digital operating model and solidified perspectives about the role of digital transformation in the next normal. In our 2021 Key Issues Study, approximately 73% of respondents said they expect acceleration of digital innovation to be a permanent characteristic of the business environment after the return to stability, and 72% expect an enduring shift to digital delivery channels.
Not surprisingly, enterprise digital transformation catapulted to the No. 1 priority for 2021, up five spots in the ranking from the previous year. Furthermore, digital transformation will be critical to advancing many of the goals on the 2021 supply chain agenda.
A framework for accelerating digital transformation
Today’s supply chain technology landscape is broad, with rapidly evolving tools and players, and ambiguity that still surrounds the potential benefits and return. With the stakes high and investment dollars limited, how can you be sure you are making the right moves?
We have found it effective to focus on building five essential digital business capabilities (Fig. 1): digital engagement, digital workforce and organization, digital service optimization, digital ecosystem, and analytics-driven business insight.
FIG. 1 The Hackett Group’s Digital Acceleration Framework
To illustrate these digital business capabilities and the technologies that enable them, we gathered examples from across our work with various supply chain leaders.
- Digital engagement
A flood of technology innovations has transformed the way companies and business services functions engage with customers, suppliers, partners and other stakeholders – and the field is still rapidly evolving. These technologies can optimize stakeholder experiences by digitizing and integrating interactions across channels and leveraging data. Broad-based capabilities for digital engagement encompass front office automation, customer self-service, e-commerce and social media platforms.
Development of digital engagement capabilities should emphasize knowing the customer – employees, business leaders, suppliers and other partners – across the journey, customizing interactions, enabling stakeholders to access services or information in different ways (web, phone, app, email, etc.), ensuring consistent interaction across channels, and providing analytics and insight in real time.
Examples of supply chain digital engagement capabilities that organizations are developing
- Omnichannel access to order information and status, services, and products
- Tools for engaging with service providers from all locations – corporate offices, satellite offices/locations, home or on the go (mobile)
- Real-time information and status on all requests/transactions
- Collaborative planning and forecasting
- Chatbots/intelligent agents
- Intelligent devices
- Customer portals
- Integrated business planning systems
- Digital workforce and organization
Technology has changed the nature of work by automating routine tasks, digitizing workflows, connecting co-workers in virtual teams, and untethering and empowering knowledge workers with personal productivity tools. These capabilities use digital tools and platforms to maximize productivity, intellectual property creation, and the value contribution of both individual workers and the teams in which they work. Most of today’s digital capabilities enable workers through remote access to applications and self-service provisioning: knowledge management tools; workforce collaboration platforms such as Microsoft Teams, Zoom and Slack; and other means of communication and engagement.
The next wave of digital transformation will have an even more profound impact on the workforce than traditional automation and, for many roles, will change the nature of work beyond recognition. This will be the result of a perfect storm: the entry of a digitally native generation into the workforce, the mass adoption of traditional technologies that eliminate most repetitive tasks, and the rapid maturation of cognitive technologies.
Examples of supply chain digital workforce and organization capabilities that organizations are developing
- Integration across planning systems, including demand planning, supply planning and fulfillment planning
- Artificial intelligence (AI) to identify and focus activity on exceptions
- Mobile devices to enable real-time operational visibility, enhance decision-making, and improve order processing and customer service from the warehouse through to delivery
- Employee listening tools and interactive feedback loops
- Integrated business planning systems
- AI platforms
- Mobile devices
- Virtual collaboration tools
- Self-service analytics
- Digital service optimization
Historically, business process automation has never fully lived up to its promise due to the inherently dynamic nature of business processes and operating models, and the inability of business applications to adapt to changes at the speed at which business operates. Without a major overhaul of technology platforms and upgrade of information technology (IT) capabilities, this agility gap will only widen. Digital service capabilities center around the use of content and process digitization, business process management, automated workflows and approvals, robotic process and cognitive automation to maximize the efficiency and effectiveness of business services, and the execution of underlying processes.
Optimizing digital service will require tools that are faster to implement, easier to configure and more intuitive to use than tools employed by the supply chain in the past.
Examples of supply chain digital service optimization capabilities that organizations are developing
- Automation of processes and transactions with robotic process automation (RPA) technologies and analytically derived business rules
- Integration of advanced analytics to enhance and expedite supply chain decision-making
- Enhanced visibility to inventory levels, production status and customer order status
- Dynamic optimization of manufacturing and logistics assets
- Digital twins for manufacturing assets to diagnose inefficiencies and identify improvement solutions
- Supply chain visibility
- Business process management, workflow and automation
- Supply chain optimization applications
- Internet of things (IoT)
- Digital ecosystem
Traditional organization structures and value chains are evolving into networks of digitally connected resources, service providers, and consumers. The business-to-business networks, knowledge networks and IoT are examples of emerging digital ecosystems. Within a knowledge network, companies may, for example, crowdsource innovation, collaborate with strategic suppliers to innovate, or incorporate customer feedback into product development. An ecosystem based on the IoT may enable entirely new business models, products or service offerings.
Digital pathways that connect the business with suppliers, customers, and other partners enhance value through greater process efficiency and effectiveness, as well as a better user experience.
Examples of supply chain digital ecosystem capabilities that organizations are developing
- Supply chain control tower to monitor inventories internally and externally, including vendors and customers
- Collaborative planning and forecasting with suppliers
- Enhanced traceability across the extended supply chain network – from vendors to customers
- Standardized integration with customers and vendors to automate the transfer of information
- Analytics and big data management
- Virtual collaboration tools
- Customer/vendor portals
- Analytics-driven business insight
Superior ability to mine data for business insight is an important – and for many industries, the most critical – competitive differentiator. Digitally native companies like Uber, Amazon, Facebook and Google optimize their service offerings almost in real time based on analytics-driven insight. Established industrial age firms like Caterpillar, GE and Bayer are redefining their business models, generating analytics-based revenue streams. Consumer packaged goods giants like Unilever and Procter & Gamble compete based on the analytical capability of their marketing functions.
The pressure to deliver on strategic goals is driving adoption of more sophisticated tools for analyzing rich datasets. Modernizing data management platforms, managing data as a strategic asset and applying new analytics solutions will accelerate the speed to value.
Examples of supply chain analytics-driven business insight capabilities that organizations are developing
- Cost-to-serve analysis to understand customer profitability
- Optimized inventory levels based on volatility and service levels
- Identification and resolution of quality defects
- Optimization of total landed costs, including sourcing, logistics and manufacturing
- Integrated business planning
- Predictive and prescriptive analysis for better decision-making
- Automated analytics
- Data visualization
- Master data management tools
- Smart data capture
Of course, your specific priorities for developing digital business capabilities will depend on unique enterprise and functional business strategies and objectives. Also, keep in mind that these capabilities are highly interdependent, with business insight as the thread that ties all of them together. Therefore, you cannot decouple and approach them as discrete concepts.
Fast-track your supply chain digital journey
While business services functions are increasingly becoming the owners of the digital journey, you will still need to work closely with the technology organization to ensure that system/tool selection is consistent with the overall enterprise direction. You will also need to make sure your own organization develops and maintains adequate capabilities to execute its digital business strategy. This includes capabilities for identifying and prioritizing opportunities, implementing new solutions at speed, and optimizing digital functionality following deployment.
The following steps can help you mobilize quickly yet intelligently for digital transformation:
- Segment supply chain digital capabilities into the five categories described above.
- Determine the baseline maturity of these capabilities using an established maturity framework.
- Identify the key gaps and opportunities within your supply chain processes.
- Develop a heat map that prioritizes areas for digital innovation.
From there, you’ll begin to see a clear picture of the direction you need to take.
 Our analysis of benchmark data projects that a $10 billion company, with business services organizations operating at a digital world-class efficiency level, spends $15 million more on technology than the typical organization of its size, and it has a $106 million lower operating cost.