15 May 2018
Did you know that according to a recent study from Accenture only 10% of all leading executives believe that digital investments leads to sustained growth and that two thirds fail to create either customer value nor competitiveness? A similar study from Amrop which studied board members in publicly quoted companies strengthened this claim further. One of the distinguishing features of companies that succeed in creating growth and value from digitalization is that they have created a customer-focused segmentation of their supply chain. One which has then been an integrated part of its strategy for the digital world.
Nowadays I constantly find a myriad of reports and articles that try to explain the challenges and problems that companies experience when it comes to digitalization in general, and digitalization of supply chains especially. I’ve concluded that most of the problems experienced are connected to one or several of the following areas;
But now let us instead focus on what creates prerequisites for creating both growth and value through digitalization. The place to start is the area which McKinsey, amongst others, deem has the most potential when it comes to digitalization; supply chains.
To increase the likelihood of creating added value through digitalizing your supply chain you must first carry out a customer-focused segmentation and integrate it with a strategy for the digital world which your company will encounter. But more of this later.
The key to success in building a so-called “end-to-end” digital supply chain from your customers to your supplier with a basis in customer segmentation lies in the acquisition of the following abilities and competences:
The digital connection means that through the best possible technology and methodology connect everything from on-demand-data, order data and status signals along the information path. During the connectivity process you can also find obvious possibilities for increased cooperation and collaboration, where new technology can be utilized optimally.
Accessibility of data along the entire end-to-end flow opens up possibilities of measuring and analyzing data. The purpose of this is to build an exception-based way of working, in other words not searching for the right information, but instead act on deviations from expected events and outcomes. Furthermore, the availability of digital data makes it possible to measure performance in the data flow, which in turn opens up dialogues internally and externally about cause and effect of problems and how to better improve the flow of information. Longer term, the data analysis will provide not only descriptive analysis, but also predictive (what to expect) and even prescriptive (how to act) analysis.
To best utilize the automation of the manual work processes to smarter tactical and strategical decisions that lowers costs, generates sales and increases long-term competitiveness is difficult. It requires a great degree of leadership and a well communicated plan for the digitalization process, including its effects on the organization itself and its way of working.
“…and the biggest future impact on revenue and EBIT growth is set to occur through the digitalization of supply chains”
– McKinsey quarterly, February 2017
Before we begin you need to define specific supply chain configurations developed for the different customer-specific segments and sub-segments that have been identified. For the potential 0of creating value within each respective segment and sub-segment should be your guiding light. In the report “Taxonomy for Selecting Global Supply Chain Strategies”, the professor Martin Christopher suggests that a global supply-chain strategy could be based on the supply-and-demand dimension, as seen below. At a first glance, it might look simple, but it can form an effective model for your segmentation and sub-segmentation work.
The way forward, is to start defining the specified customer segments and sub-segments – “As is”. Subsequently, shift the focus of the discussion towards how the processes within these segments can be improved and create value (“To be” – processes). One simplified conclusion could look as follows;
Specified customer segments and sub-segments – “To be”
By using the examples listed above you can understand and develop the relevant solutions for digital information exchange for each segment. Traditional techniques for system-to-system communication such as EDI can be used in some cases, while in other cases you might need data gathering though IoT-solutions or apps designed for mass reach.
Even techniques such as RFID, as well as new communications methods such as REST-API (Representative State Transfer, standardized web services for machine-to-machine communication) are relevant.
If you are ever going to succeed in building digital supply chains creating substantial value for your company, you need to implement a more strategic and customer focused approach than what’s common today. One of these approaches need to be built upon three important fundamentals; maximum digital connectivity, smart analysis of data for better decision making and finally the ability to utilize the automatization process that comes with digital connectivity.
CEO of PipeChain Group