Digitalization Turns Supply Chains Inside Out – And This Is Just The Beginning

Dr. Ravi Prakash Mathur

For generations, developments in manufacturing and IT have pushed the productivity frontier to a new level. Technology delivers not only new concepts and approaches, but also improved operational effectiveness and advanced supply chain management that open the way to a distinct, competitive advantage.

If we take a moment to examine the illustrious history of modern-day manufacturing, it becomes apparent that technology continues to push the boundaries of the impossible.

Supply chains in the 20th century

The 20th century saw giant leaps in operations and supply chain efficiencies driven by significant technology innovation. At the forefront of the revolution was the automotive industry, where manufacturing shifted from craft manufacturing to assembly-line or unit-flow manufacturing. Over time, manufacturing systems became large in scale, making the planning processes that supported them increasingly complex.

Multiple products, plants, markets, and suppliers became part of the system, requiring material planning systems that could handle a web-like network of supply chain nodes. Computing advancements led to applications that improved supply chain planning for large manufacturers in terms of material requisition and production plans. At the same time, programs – such as continuous improvement, lean management, Six Sigma, quality management – were pursued to improve production efficiency.

Supply chains in the 21st century

At this stage, as all competitors started adopting best practices, the maximum value a company could hope to deliver at a given cost, technology, and skill set began to diminish. As more organizations reached the productivity frontier, which can be defined as the sum of all existing best practices, profitability started to erode.

The other challenge was that the supply chain was no longer defined as a chain of linear relationships. Value chains gave way to value networks. Outsourced business processes – including those pertaining to manufacturing, R&D, logistics, and marketing – and the emergence of digital platforms were the primary factors that led to this change.

Supply chain network mapping became more complex and posed a further challenge in supply chain optimization. While some organizations adopted replenishment-driven, pull-based supply systems such as those based on a theory of constraints, others chose the forecasting method. Such innovative thinking paved the way for hybrid supply chain systems, which combine push- and pull-based systems and embrace multiple push-pull boundaries.

Supply chains today

As organizations use digital platforms to create new business models, the supply value chain is getting reconfigured and realigned to unlock even greater value. There’s no doubt that digital value nets are more customer-aligned, collaborative, agile, scalable, and fast-flowing. But they do come with their fair share of challenges.

Consider the rise of the e-commerce site. By building in data aggregation and analytics, manufacturers are empowered to predict demand and optimize demand and supply. In addition, increasing use of e-wallets and payment banks have taken the payment process out of a linear value chain and placed it firmly on a digital platform that supports various portals.

Another example is that of furniture being sold through Web portals. Furniture bought online is shipped in knocked-down condition and assembled in the customer’s home. Effectively, the manufacturing plant, which was traditionally upstream in the supply chain, has moved to the customer’s home.

Supply chains in the future

There’s little doubt that organizational boundaries are dynamically changing. The future of the supply chain will be more collaborative, complex, and dynamic – all of which will require more agile processes.

This is a significant challenge for IT systems that support such operations. Conventional IT solutions that worked well for linear supply chains will need to evolve further to provide greater efficiency throughout the supply chain. More important, such advancement will need to push the productivity frontier to help manufacturers gain a new competitive advantage.

For more insight on modern supply chains, see Live Business: Creating Digital Supply Networks.

Dr. Ravi Prakash Mathur

About Dr. Ravi Prakash Mathur

Dr. Ravi Prakash Mathur is Senior Director of Supply Chain Management (SCM) and Head of Logistics and Central Planning at Dr. Reddy’s Laboratories Ltd. He heads the global logistics, central planning, and central sourcing for the pharmaceutical organization. Winner of the 2015 Top 25 Digitalist Thought Leaders of India award from SAP, Dr. Mathur is an author, coach, and supply chain professional with 23 years of experience and is based in Hyderabad. He is also actively involved in academic activities and is an internal trainer for DRL for negotiation skills and SCM. In 2014, he co-authored the book “Quality Assurance in Pharmaceuticals & Operations Management and Industrial Safety” for Dr. B. R. Ambedkar University, Hyderabad. He is also member of The Departmental Visiting Committee (DVC) for Department of Biotechnology, Motilal Nehru National Institute of Technology (MNNIT) Allahabad. Professional recognitions include a citation from World Bank and International Finance Corporation for his contribution to their publication “Doing Business in 2006” and the winner of the Logistics-Week Young Achiever in Supply Chain Award for 2012.