The Importance of Using Digital Technologies In the Supply Chain

For businesses involved in moving and distributing goods around the country or the world, the pandemic of 2020 has shown how important it is to have digital technologies to support planning, managing, and executing distribution operations. Even after the Coronavirus pandemic subsides, the world is not going to go back to what it was, things will change.

However, some things are not going to change. The pressure to operate efficiently and use resources effectively will remain. The challenge will be for companies to make their supply chains more resilient without weakening their competitiveness.

We need supply chains

No business can emulate Henry Ford’s vertically integrated factory of a century ago, which didn’t depend on any outside suppliers. These days very few, if any, organizations can possess the range of capabilities necessary to produce everything by itself. To do this, businesses have turned to suppliers and sub-contractors who focus on specific areas. In turn, those specialists usually have to rely on others. This arrangement provides the flexibility of what goes into a product, and the ability to use the latest technology. But it leaves enterprises vulnerable. That’s what the world learned in 2020.

The rush to digital technologies

The pandemic was a wake-up call for digital laggards. It did not take long for business leaders to realize how technology could improve business operations. According to IDC, there is now a renewed focus on technological innovation with over 33% of organizations planning to accelerate their digital transformation efforts and redress their technology deficiencies.

A study by the Royal Academy of Engineering (Supply Chain Challenges) has backed up evidence that using digital technologies can enhance the visibility of available capacity across the supply chain. Through the use of technology, organizations were able to pivot quickly during the pandemic to develop new ways of delivering products. Having modern solutions to manage inventory and provide full traceability allowed food suppliers to protect the integrity of their supply chains. In addition, those businesses that had implemented software to handle product returns were able to cope with the surge of online returns that accompanied the surge in online purchasing.

With digital technologies, organizations can use data to maximize visibility into demand, inventory, capacity, supply, and finances. Companies with digital platforms, accessible data and analytical capabilities were able to respond more quickly, accurately, and successfully to COVID-19 disruptions.

Old strategies and tools re-applied

As a result of the pandemic, old strategies have got a new lease on life; practices that were not deemed efficient any more are now acceptable again. Counter to the practices of just-in-time (JIT) replenishment and lean inventories, businesses now appreciate the need to hold intermediate inventory or safety stock. The savings of JIT has to be weighed against the costs of disruption. Similarly, having a high product variety to cater to different customer segments is being reconsidered as businesses look at the pros and cons of producing numerous product variations against available capacity.

The importance of the bill of materials (BOM) has re-appeared as companies realize they can use it to identify potential risks of supply . By going down the BOM hierarchy, people from procurement, logistics, and finance can collaborate to uncover gaps that need to be fixed to protect the company from future disruptions and help procurement to re-align with business objectives.

Changing processes

Some processes that were becoming fashionable are now being re-examined. For example, Demand Driven Material Requirements Planning (DDMRP) is a process to determine buffers needed for materials based on order patterns. But when old order patterns become unstable, and unpredictable gyrations occur, it is less helpful.

Managers who had production forecasts for Q2 and later in 2020, have thrown them out. Instead, they now appreciate it is better to have a handle on metrics and what is currently happening. Basically, they need to have their fingers on different sources of information by using dashboards so decision making can be more agile. In order to achieve this, they have to be knowledgeable enough about data and technology to make informed decisions.

Supply chain disruptions are making companies re-assess processes like order fulfillment. This process involves the receiving, storing, picking, packing and shipping of orders to customers; in some cases, it includes reverse logistics, processing returns from customers. Fulfillment costs represent all the expenses involved in handling a product from receiving to distribution. To be more efficient, it requires an inventory management system that automates the process, enhances the workflows, and moves orders to the next step. This system also reduces the chances of human error and can reduce operational costs.

Having extra stock to mitigate supply chain disruptions means that costs go up. So cost containment has become a more important part of business practice. A warehouse and inventory management system provide the information-driven approach that gives a full picture of the costs associated with material and product procurement, transport, storage, handling, quality testing and inspection, shipping, and other types of supply chain services.

In the current environment where stock availability is uncertain, integrating the sales process with warehouse and inventory information, allows order fulfillment to offer improved customer service. A sales order processing system enables a salesperson to automatically replenish the stock in the event of stock shortages by raising a purchase order for stock, or by initiating a transfer from another warehouse, or by creating a job for items to be made.

Why supply chain automation is important

Supply chain automation means using technology to centrally manage and automate part or all of the supply chain. In the ‘new normal’ of 2020, it has several benefits, such as reducing manual effort while increasing productivity, efficiency, and accuracy. Other benefits include:

  • Decreasing operating costs by reducing labor costs, as well as inventory, warehousing, and overhead costs associated with inventory storage;
  • Increasing productivity by optimizing how, where and when current resources are deployed;
  • Improving accuracy by reducing errors associated with manual processes, and improve cost control by providing accurate, real-time information on inventory levels;
  • Increasing volume through combining the skills of trained workers with the accuracy of automated equipment, thereby increasing productivity;
  • Improved integration with systems of larger suppliers and customers;
  • Improved time savings by streamlining business processes and reducing the time associated with labor-intensive tasks;
  • Improved compliance through standardizing processes.

Where is supply chain management going?

It seems the pandemic may lead to major changes, such as governments intervening in and regulating “key supply chains”, and businesses moving to an era of localized or regionalized supply chains. What will help companies to recover is using data to provide better and faster decisions at digital speed. Winning companies will likely make the decision to invest in the technology, data, processes, and people to improve efficiency, reduce costs, modernize processes, and speed up decision-making so they can make their supply chains more adaptable and faster to course-correct based on how conditions change.

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