The significance of digital technologies in supply chain operations

In a world reshaped by recent events, businesses that move and distribute goods have learned a crucial lesson: having robust digital technologies is essential for planning, managing, and executing their distribution networks. While the world may not fully return to its pre-2020 state, the core pressures on companies to operate efficiently and manage resources effectively will persist.

The inescapable nature of modern supply chains

The era of a single, vertically integrated factory, like Henry Ford's, is long gone. Today, few, if any, organisations can possess all the capabilities needed to produce everything on their own. Businesses rely on a complex network of specialised suppliers and sub-contractors, who themselves depend on others. This provides flexibility and access to the latest innovations, but it also creates vulnerabilities, a fact the world learned so clearly in 2020.

The urgent shift to digital solutions

The pandemic served as a catalyst for those who were lagging digitally. Business leaders were quick to recognise how technology could dramatically improve their operations. A renewed focus on innovation is now evident, with over a third of organisations planning to accelerate their digital transformation and address existing technology deficiencies.

Evidence from a study by the Royal Academy of Engineering shows that digital technologies can significantly enhance visibility across the supply chain. During the pandemic, businesses with modern solutions for inventory and full traceability were able to adapt quickly. Food suppliers, for example, used these tools to protect the integrity of their networks. Similarly, companies that had implemented software to manage returns were better equipped to handle the sharp increase in online returns that accompanied the surge in e-commerce.

With digital platforms, organisations can use data to achieve maximum visibility into demand, inventory, capacity, supply, and finances. Companies that had these capabilities were able to respond more quickly, accurately, and successfully to COVID-19 disruptions.

Old strategies, new relevance

As a result of recent global events, some older strategies are experiencing a renaissance. Practices that were once deemed inefficient are now being reconsidered. In a shift away from just-in-time (JIT) replenishment and lean inventories, businesses now see the value in holding intermediate or safety stock. The savings from JIT must now be weighed against the potential costs of disruption. Similarly, the practice of offering a vast number of product variations is being re-evaluated as companies consider the trade-offs between variety and available production capacity.

The bill of materials (BOM) has regained its importance. Companies are realising they can use the BOM hierarchy to identify potential supply risks. This allows procurement, logistics, and finance teams to collaborate and uncover gaps that need to be addressed to protect the company from future disruptions and realign procurement with overall business objectives.

Adapting processes

Certain processes that had become popular are now being re-examined. For instance, Demand Driven Material Requirements Planning (DDMRP) is a method for determining material buffers based on order patterns. However, it becomes less useful when old patterns become unstable and unpredictable.

Managers who had production forecasts for the second half of 2020 and beyond simply discarded them. Instead, they now understand the importance of having real-time metrics and a handle on what is happening right now. They need to leverage various information sources through dashboards to enable more agile decision-making. To do this effectively, they must be knowledgeable about data and technology to make informed choices.

Supply chain disruptions are also prompting companies to reassess processes like order fulfilment. This process involves receiving, storing, picking, packing, and shipping orders, and in some cases, managing returns. To be more efficient, it requires an inventory management system that automates workflows and reduces human error, which in turn helps to contain costs.

Having extra stock to mitigate disruptions increases costs, making cost containment a more critical part of business practice. A comprehensive warehouse and inventory management system provides the data-driven insights needed for a full picture of all associated costs, from procurement and transport to storage, handling, and quality control.

In the current environment of uncertain stock availability, integrating the sales process with real-time warehouse and inventory information allows for improved customer service. A sales order processing system can automatically create a purchase order for new stock, initiate a transfer from another warehouse, or create a production job for items that need to be made.

The case for supply chain automation

Supply chain automation involves using technology to centrally manage and automate parts of, or the entire supply chain. In the "new normal" of 2020 and beyond, it offers several benefits, such as reducing manual effort while increasing productivity, efficiency, and accuracy.

Other benefits include:

• Lowering operating costs by reducing labour, inventory, warehousing, and overhead costs.

• Increasing productivity by optimising how and when resources are deployed.

• Improving accuracy by reducing manual errors and providing real-time data for better cost control.

• Handling higher volumes by combining skilled workers with the precision of automated equipment.

• Enhanced integration with the systems of key suppliers and customers.

• Saving time by streamlining labour-intensive tasks.

• Improved compliance through standardised processes.

The future trajectory of supply chain management

The pandemic may lead to significant shifts, such as governments taking on a more regulatory role for "key supply chains" and businesses moving towards more localised or regionalised networks. The key to recovery will be using data to make better and faster decisions at "digital speed". The companies that come out ahead will likely be those that decide to invest in the technology, data, processes, and people necessary to improve efficiency, reduce costs, and modernise their processes. This will enable them to make their supply chains more adaptable and better able to course-correct as conditions change.