The digital transformation of supply chain management lowers costs and reduces risk

A host of digital innovations address the growing pressure to increase overall efficiencies and minimise risks within a rapidly evolving supply chain. Supply chain risks have been making headlines recently with the disruptions caused by the coronavirus. In its new report, ‘The Digital Transformation of Supply Chain,’ Lux Research categorises the supply chain into six distinctive parts: planning and forecasting, purchasing and procurement, inventory, warehousing, transport, and supply chain platforms. The report shows that warehousing and transport have the most innovation activity, while digitization of supply chain platforms will facilitate highly dynamic processes that will shift priorities in planning and forecasting and beyond.

“Supply chain management challenges come from all directions; upstream, internal, and downstream,” Jonathan Melnick, Ph.D., director of research at Lux, said. “Companies are facing internal pressures to be more efficient, integrated, and agile and to meet new consumer expectations of increased visibility into products. This is causing a shift in how vendors are evaluated and sourced to meet those expectations.”

Traditionally, companies would source preferred vendors at the expense of efficiency and transparency. As more data around vendors and their products become available, digitisation gives companies greater insight into better and more dynamic vendor selection. This is enabling sourcing on demand, where new vendors are brought in rapidly, reducing trust and long-standing established vendor relationships.

Digitisation is being used in purchasing and procurement in two key ways: to understand product quality and detect genuine vs. counterfeit products, and to lower transaction costs through increased pricing visibility. “Supply chains are becoming increasingly complex and interconnected, which has made managing risk more challenging. Digitisation allows companies to effectively manage this increasing challenge and risk,” Melnick explained. Lux predicts that multiple variables, such as supplier risk, lead time, and variability, will work together to create a dynamic pricing market.

“Despite all of these advancements, companies and supply chain solution providers will need to integrate previously siloed areas of supply chain management, increasing value and leading to a more optimized and autonomous supply chain,” Melnick concluded. As companies move toward a zero-inventory manufacturing model, it is expected that the role of supply chain management will change to include supervision of digital assets along with physical ones.

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