Investing in supply chain technology
Supply 4.0 relates specifically to the supply chain and is part of wider digital revolution taking place called industry 4.0. Increasingly, businesses working within the supply chain are waking up to the need for greater investment in this area, especially as the effects of the COVID-19 pandemic continue to be felt around the world. Greater collaboration is needed to create a smoother flow of goods and services through use of artificial intelligence, machine learning and other digital tools. Here we explain more about supply chain 4.0, its benefits and what to consider before adopting it within your business.
What is supply chain 4.0?
Supply chain 4.0 is the next step in the evolution of supply chain management. It involves the adoption of tools, software and investments that will bring companies up to speed with the latest technological developments, improving efficiency and productivity to meet growing customer demands for greater speed in service, fulfilment and deliveries.
By 2023, it is predicted that more than 50% of large global businesses will be using artificial intelligence, Internet of Things (IoT) and advanced analytics in their supply chain operations. Humans will be integrated within this setup, working collaboratively to maximise the potential of the technology.
What are the benefits of supply chain 4.0?
Supply chain 4.0 offers several key benefits, such as:
Data will be exchanged more effectively between businesses, suppliers and customers within a digital supply chain. Real-time asset tracking systems that are powered by cloud-based dashboards, IoT and other tech solutions will make it even easier to identify the precise location of products. Updates will be added to the digital ecosystem as it moves through the various points, making the ordering process more traceable, accurate and efficient.
Forecasting errors can be reduced by up to 20% through use of predictive analytics. The tech evaluates stored historical information about current market trends, demand, weather conditions and other key data points to produce statistic-based demand forecasts and optimised inventory reports. This can be done daily, weekly or monthly, depending on the product, reducing the likelihood of out-of-stock scenarios and ensuring deliveries have more accuracy. Use of real-time analysis also provides more flexibility for organisations as they can respond and adapt quickly to new trends to maximise sales opportunities.
Better supply chain management
Research suggests that digital supply chain management providers a 25% faster response to changes in market demand. Supply and demand planning, cash flow, process management and other underlying supply chain processes can all be managed within a single digital ecosystem. IoT and data analytics used by custom warehouse management systems provide valuable insights into packing and shipping to help optimise the warehouse.
Improved customer service
The Ombudsman Services estimate that UK businesses lose around £37 billion a year due to bad customer service. Digital supply chain guarantees end-to-end visibility to improve the knowledge of employees out on the shop floor. Product availability is more readily available for customers who will receive more accurate updates and detailed information about their order. The result is a better overall experience and the opportunity to increase customer retention rates and long-term sales figures.
Prioritising supply chain investment
While coping with the unexpected strains caused by COVID-19, supply chains have shown that by being more flexible and resilient they can be instrumental in the supporting the recovery process. Traditional supply chain optimisation is changing, and assumptions such as prioritising cost reduction are now being seen as less important.
Risk mitigation is becoming a key priority for many companies. In the past, supply chain improvements were not deemed important enough or critical in achieving growth and profit. This has shifted towards investment to increase resilience for fast recovery and to support the restoration of profit. COVID-19 proved to be the catalyst for more businesses to understand the importance of investing in a supply chain. While costs may be higher, the chance of the businesses surviving is also significantly increased.
When done correctly and with a good level of investment and better systems and plans in place, supply chains can recover from destruction more easily, while becoming a source of competitive advantage. In turn, this can open interesting new marketplaces and opportunities that can be developed over time.
Calculating a business case
Adopting supply chain 4.0 technology is a unique scenario that extends beyond the usual return on investment scenarios. This requires you to build a strong business case for investment, regardless of whether it is being considered in response to internal or external business drivers.
The introduction of new technology can be met with scepticism, which in turn raises the bar for the return on investment. This is because there are not as many business cases available for comparison, which increases the risk being taken. Many of the early supply chain 4.0 success stories were a result of upper management driving through change in the belief their company had to innovate, rather than mapping out future economic security.
When external forces are the reason for the adoption of the technology, things tend to become a little more complex. In most cases, supply chain managers justify investments based on efficiency or a specific, projected demand. When the investments are integrated within the business strategy, it becomes less clear how to answer the question. However, it presents an opportunity for supply chain managers who may have the chance to influence business strategy, rather than being a function of it.
Scalability is an important factor to consider here. When new technology can be piloted in a small, controlled environment before being rolled out across the company, a business case becomes much more compelling. This can limit the initial scale of investment, while discouraging investments that have high upfront costs, which can often be more acceptable for upper management prone to be risk adverse.
Ultimately, both the technology and managerial implications must be considered. Operations will be changed for years to come by this exciting technology. However, to fully benefit from supply chain 4.0, companies should be involved with projects that are aligned with external business strategies, while identifying the benefits and having a clear idea of their ability to actually implement the changes needed.