Manufacturers and suppliers are taking a second look at digital transformation as they strive to operate in the new uncertainty of COVID-19. While they previously looked to technologies such as data, IoT, robotics and analytics to drive efficiency, they’re now viewing them as a means to increase resiliency in disruptive times.
"COVID-19 is vastly accelerating digital transformation," Mary Long, director of the Supply Chain Forum at the University of Tennessee Knoxville, told Supply Chain Dive.
As the pandemic has thrown the world into economic upheaval, manufacturers and supply chain leaders are reconsidering digital initiatives that previously sat on the back burner, Long said.
"We just took a huge leap forward. Companies that have always taken the safe, always-as-it-was approach are suddenly looking at anything that takes touches out of the system," she said.
The financial barriers
Manufacturers have strong interest in digital transformation but have often been held back by a lack of funding, strategy or governance.
Three-quarters of supply chain leaders said developing digital and analytics capabilities were very important in their overall supply chain strategy, according to a 2019 survey by Deloitte. Yet many said they lacked funding, ownership of the investment, and the talent to drive many digital initiatives.
"If they’re barely holding their ship together, they may not [have the funds] to buy a new ERP system."
Director of the Supply Chain Forum, University of Tennessee Knoxville
Digital capabilities offer many benefits in today’s environment, but many organizations are facing economic uncertainty and financial pressures. Those already behind the digital curve are now trying to deal with all the complexities at once, struggling to measure demand, attain visibility, create more flexibility and update antiquated systems.
"If they’re barely holding their ship together, they may not [have the funds] to buy a new ERP system," Long said. "There are some companies whose situation is so dire, they may just never come back."
The average budget per user of an ERP system is $7,200, which can quickly add up to hundreds of thousands of dollars for a mid-market manufacturer, according to a report by Softwarepath.
COVID-19 spurs a leap to digital
Some of the easiest and lowest-cost digital initiatives can pay off in a time like this. For example, many have started by moving antiquated warehouse and delivery paper-processes to digital formats, Long said. Those with more access to capital are considering easy-to-deploy robotics solutions to support human labor and adopting IoT and sensors to better track materials.
As companies respond to address immediate needs, many are looking at solutions that offer visibility and flexibility, Stephan Zech, partner at Bain & Company, told Supply Chain Dive. Advanced analytics can improve supply forecast accuracy by up to 60%, and companies with more resilient supply chains can more easily meet customer demands in a shifting market, according to Bain. Eighty-five percent of Bain’s clients say they are investing in big data and analytics right now, Zech said.
Industrial products and pharmaceutical manufacturers are looking more to smart factory initiatives while consumer-oriented companies are focusing on demand-sensing technologies and preventative maintenance solutions for machinery and equipment, Jim Kilpatrick, global supply chain & network operations leader at Deloitte, told Supply Chain Dive.
"There’s no question in my mind that, both in the recovery phase of the crisis and [when] we come out of this, it is clearly going to accelerate the digitalization of supply chains," Kilpatrick said.
Priorities move from efficiency to resiliency
While supply chain leaders have traditionally viewed digital transformation in the context of efficiency and cost, the main focus is now on resiliency.
Over the past 20 years, companies have focused on building lean operations by maximizing capacity utilization and minimizing inventory. Yet creating more buffers in the supply chains will require them to take the exact opposite approach and look beyond the flow of products and cash to the flow of information.
"It is clearly going to accelerate the digitalization of supply chains."
Global Supply Chain & Network Operations Leader, Deloitte
"That’s where technology comes in. You need better end-to-end visibility, better predictive analytics, better and smarter automation. It’s not to produce a billion widgets at the lowest cost but to customize and flex based on market demand and make better use of ecosystem partners," Zech said.
Part of that information flow requires organizations to view risk not just with direct suppliers but also with tier two and tier three suppliers. While the traditional process involved time-consuming and burdensome manual interviews to obtain that information, new digital solutions enable organizations to eliminate that supply chain risk more quickly and with more confidence, Kilpatrick said.
Building tech in-house
Many leading companies innovate and create their own applications in challenging times. For example, to help minimize the disruptive impact of Hurricane Sandy in 2012, P&G deployed a platform to deliver real time information on production and external demand. The company’s "ready for anything" supply chain leverages real-time information and digital technologies to avoid disruptions in the most cost-effective manner.
For smaller organizations, new SaaS solutions make it easier than ever to create and pilot new digital applications, Long said.
"It’s not complicated to go out and find somebody, partner and write your own API. Even if you’re not 100% right on it, you can get more visibility and keep improving," Long said.
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