We’ve talked about the modernization of legacy enterprise systems and the dawn of cloud-native, and everything from low-code to AIOps. We’ve covered how these digital transformations drive value through business applications that meet customer needs, in whatever Hybrid IT environment they run on.
Now let’s zoom in our view, behind the meta-layer of applications and infrastructure, to the supply chains that produce all of the commercial goods moving through our applications, and even the system hardware itself.
Current events have brought the world’s focus back to supply chains. How did the United States lose so much of its capacity to produce pharmaceuticals and medical devices? Why are farms disposing of crops and livestock, when many store shelves are empty and food lines are forming?
Why can’t we just flip a digital transformation switch and tell our software to reroute these supply chains to meet current demands?
Highly interconnected and non-linear
Many assume there’s a linear process to the supply chain, something like:
Design > Source > Build > Transport > Sell > Service… and all of the data and payments required to support each step in the process.
Supply chains are massive global multi-party networks, encompassing as much as $80T in annual global GDP in 2019 — without taking into account the impact an unprecedented year like 2020 will have on that estimate.
Attempting to encompass a supply chain into digital transformation terms can be like trying to count the waves in an ocean — because they are seldom discrete entities. Supply Chains are by nature highly fluid and changing multi-party business arrangements, and each participant will have their own systems for accounting the exchange of value for results.
It’s hard to tell who owns each step at an atomic level, unless you command a vertically integrated chain, which can be rather inefficient compared to assembling specialized participants. (Take for instance how Amazon produces and sells its own batteries.)
“Supply chain digitization requires everything coming together at the same time: processes, data, security, transactions, recording, analysis,” said SyncFab CEO Jeremy Goodwin. “Take a large aerospace or electronics OEM. Most of their supply chain is fragmented across thousands of small or medium-sized suppliers outside their own company, where there is a lot of room for optimization in matching demand with commercial-ready parts.”
This complexity makes supply chains an easy target for criticism when our digital world can’t produce the real-world results we expect.
Entering the Industry 4.0 era
When it comes to adopting new technology, software companies consider themselves to be on the cutting edge. But the software industry has often lagged years behind supply chains in their adoption of best practices.
Take the advent of Lean IT principles, Agile Kanban planning, or the constraint-based aspects of DevOps, all of which were commonplace in automotive and high-tech supply chains for decades before they came on the scene in software development. DevOps thought leaders have already paid homage to the value of constraint-based planning and a supply chain mindset in software delivery.
Supply chains have morphed into more holistic value chains, and now, they are moving toward an Industry 4.0 world, where production processes interface directly with governments, capital and customers to optimize delivery across an entire ecosystem.
Real progress is being made toward this vision, but by the time such a versioned buzzword takes hold, it may already be passé. Let’s not let that stop us from using technology to support the best transformational ideas of this movement.
Meet the digital twin
To make software inroads to the supply chain, we need a complete representation of the real world assets flowing through it. A digital copy, or digital twin.
This digital twin contains all of the data and metadata needed to understand the material composition and origin of every piece of capital and every good in the supply chain, its source, custody, and intended destination, and in the case of manufactured goods, the exact ownership status, location, design specifications, handling and assembly instructions, and maintenance requirements.
By populating software models with digital twins, trading partners can get real-time visibility into production and transport lines, and test out ‘to-be’ plans for humans to improve every step of the supply chain process — as ephemeral and changing as it may be.
Digital twins allow supply chains to ‘shift left’ the simulation and observability of all components in a supply chain, and gamify future business scenarios. Combined with advanced planning software, they provide a way to predict ROI at the planning stage of an investment, control production work in process, inventory and maintenance costs, and optimize the value of delivering finished goods to customers at the ideal price point.
BYO digital transformation preferences
Supply chain solutions are far from monolithic. A constellation of vendors serve one or more phases of the supply chain cycle from their own angles:
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- Financial systems are still at the center of any supply chain transformation, as any order or invoice settlement transaction has to be transmitted and processed, finances secured, and funds must land somewhere, whether in a legacy ERP system or newer supply chain accounting or payments platform.
- Digital process automation. Complex multi-party business processes demand intelligent management tools to follow each order, and orchestrate handoffs and execution.
- Strategic design and sourcing literally defines competitive differentiation, as collaborative supplier relationships inform every aspect of a viable product and service offering.
- Advanced planning for supply, factory production, warehouse management, logistics, retail resupply and demand planning has evolved from better algorithms to claims of artificial intelligence and machine learning that sees beyond near-term conditions.
- Edge networks, IoT and 5G are making huge inroads toward increasing the utilization of industrial machinery and controls at the facility, and in tracking, geo-location and local optimization for logistics and field service outside of the ordinary corporate network boundaries.
- Blockchain is even finding some very interesting footholds in supply chain, as an immutable ledger for managing multi-party collaboration, as well as providing a distributed system of record for storing intellectual property and designs, and certifying the provenance and compliance state of goods at every phase of production and delivery.
None of the above even address the massive integration challenges facing today’s matrixed companies, who must conduct trade across systems as heterogeneous as the global supply chain itself, and may resolve down to a root level of unstructured data in old spreadsheets and paper documents.
The Intellyx Take
It is tempting to dive down the rabbit hole of any digital transformation technology we cover, and attempt to apply them prescriptively to the problems of today’s supply chains. That would be way beyond the scope of our cross-cutting business focus, and there are plenty of great research firms, books and educational programs delving into the science of supply chain.
Look for more thoughts on supply chain technology transformation as the reactive contact surface of a business for overall digital transformation, and more coverage of vendors leading the charge on this frontier.
This reactive contact service is where IT and the real world merge to make companies more responsive to real-time conditions and rapidly changing customer needs, with more positive and predictable outcomes over time.
© 2020, Intellyx, LLC. Intellyx publishes the weekly Cortex and Brain Candy newsletters, and advises business leaders and technology vendors on their digital transformation strategies. Intellyx retains editorial control over the content of this document. At the time of writing, no parties mentioned in this story are Intellyx customers. Image source: bluefug (collage)
