Trending: Digital Supply Networks (DSNs)

Since the Digital Revolution (1950-1970), when computers and digital record keeping emerged, our lives have increasingly been affected by electronic and digital devices: the use of digital logic circuits, and the technologies these empowered such as personal computers, smartphones and the Internet of Things, have become an influential phenomenon of the contemporary world. Naturally, these developments have also significantly affected different aspects of business industries: it is close to impossible to find industries where firms do not make use of digital technologies of any kind. Consequently, the digitization process has already left its marks within operating models and supply chains.

For 2016, however, several websites, journals and companies¹ within the supply chain and logistics management discipline have identified the (further) digitization of supply chains and operating models as one of the most important trends to keep an eye on. With the rapid advancements in the digital world and the continuously shifting demand of consumers, companies are increasingly using their resources to transform their supply chains into more flexible and informative, digital, models, commonly referred to as Digital Supply Networks (DSNs). But what exactly is meant by further digitization, and what can we expect from these so-called Digital Supply Networks in the nearby future?

Changing Supply Chains

Historically, a supply chain is defined as a system of linkages where raw materials, natural resources, components and (un)finished products are transferred to subsequent firms that add some sort of value to the product. Over time, many theories and technologies have had an influential impact on these chains, by smoothening the processes they encompass. The introduction of technologies like RFID (Radiofrequency Identification) within supply chain management enabled major advancements in automation and supply chain visibility. This technology is used in different operational practices, for example in tracking individual products that are stored and transported along the supply chain, providing companies with timely information on stock levels. In turn, this helped streamlining the supply chain by timely identifying, reporting and resolving problems and inefficiencies. The use of RFID-technologies in operations and logistics provides us with a good example of an IT-enabled supply chain. Of course, as companies increasingly adopt technologies and solutions like the RFID applications, more IT-facilities are required to process and analyse all the data that is gathered.

In the fast-moving fashion industry, Inditex (better known for its subsidiaries like Zara, Bershka and Massimo Dutti) is currently implementing an advanced RFID system at their Zara stores after years of experimenting. By the end of 2016, they hope to have RFID tags attached to all of their products, creating a wide range of benefits for the company and its customers. For example, the system considerably increases the efficiency of taking the inventory at a given branch: it allows 10 employees to complete this task within half of the time it previously took around 40 staff members to do so. Because of this, Zara is able to check their inventories every six weeks, where before, these storewide inventories were only performed once every six months. This is significantly improving the monitoring of sales, providing the company with valuable information on what styles and fashions are selling well and on any garments that are less popular. Additionally, the system allows staff members to check the availability of certain items at different locations, providing them with the opportunity to better help their customers. Besides Inditex, several other retailers in Europe have been working on applications of the RFID technology in order to increase the visibility of their inventories.

The Emergence of Digital Supply Networks

With the continuing convergence of the physical and digital world, many expert companies in the field predict that an increasing number of firms² will turn to re-invented supply chain solutions that are not only supported or enhanced by IT-functions, but which have their fundamental roots in IT. This new type of supply chains, which are commonly known as Digital Supply Networks (DSNs), are better capable of handling physical flows as well as talent, information and finance through a more connected, flexible and faster network than traditional (IT-enhanced) supply chains. They are better suited for analysing and visualizing the large amount of data on operations, sales and customer requirements that is collected and stored by many companies. For example, the DSN will considerably increase supply chain visibility for all links in the chain by making use of among others GPS, Big Data and the Internet of Things to a growing extend in order to determine precise, real-time locations from the instant of order to the instant of delivery. Consequently, the increasingly integrated DSNs have the potential to develop new and improved synergies, providing every link in the supply chain with more accurate, up-to-date information and data. This enables the supply chain to be more innovative and to respond better and faster to their customers’ demand.

It is thus not surprising that more and more industries are relying on these developments: for example, the aerospace-and-defence industry is increasingly using digital tools to integrate their large and complex supply networks. Because parts like jet turbine engines are made up from a huge number of components, a small design modification is likely to affect more than one individual supplier. Hence, digital supply networks are being used in order to make cooperation between suppliers and the focal firm faster and more efficient, for example by sharing virtual designs along the DSN. This leads to a decreased amount of risk that modifications potentially embody and helps to implement changes more rapidly, as adjustments to the original design can be communicated almost immediately to the different stakeholders. The reduced risk and faster response times cause costs to decrease and customer satisfaction to increase, which is likely to translate into an increased competitive position for the manufacturers and their suppliers.

Expectations for the (nearby) future

In the foreseeable future, the trend of digitization will continue as top-performing companies leverage business networks to create a digital community of partners in order to execute coordinated processes in a more organized and informed way. These developments will cause the lines in, and between, organizations to blur, which is expected to result in closer and increasingly transparent forms of collaboration, more dynamic processes and ultimately in improved efficiency and effectiveness of supply chains.

¹ supplychaindigital.com, procurementleaders.com, Supply Chain Management Review, SAP, Capgemini Consulting

² Accenture, McKinsey