Warning. Your Digital Strategy May Make the Supply Chain Weaker.

Supply chain leaders love shiny objects. In our research, we find that 45% of manufacturers greater than 1B in annual revenue are deploying a digital strategy. The question is will this improve outcomes? The research casts doubt on current strategies. Less than 7% of companies deploying a digital supply chain strategy saw improvement. Here we share insights.

Cash matters in inflationary times. Today, companies are sitting on the wrong inventory. Over the last decade, days of inventory grew on average 28 days. The Consumer Price Index (CPI) rose 5.2% year over year in February 2023, following a 5.9% increase in January. This was the largest deceleration in the headline CPI since the rise of inflation in April 2020. The pain level is high, and most companies have the wrong inventory. With higher demand variability, traditional techniques to predict demand using historic order patterns becomes less relevant.

The current level of inflation and volatility is the highest in two decades. Over the past years, when supply chain volatility and price changes were low, companies implemented Integrated Business Planning (IBP) with many multi-step meetings and tight integration of the supply chain to the financial budget. These steps increase process latency (the time to make a decision) and does not help in the defining the right inventory response. Organizational alignment issues grew three-fold in this period. As a result, the deployment of traditional approaches to supply chain planning is not the answer.

The Problem with Digital Supply Chain Strategies

So, the enlightened reader might ask, why can a digital supply chain strategy not help? Couldn’t the deployment of machine learning and artificial intelligence to better sense and shape demand and align the supply chain improve outcomes? The answer is no. Digital strategies develop black and white answers in a world that increasingly gray (more variable). Testing shows that better engines inserted in traditional planning approaches yields marginal improvement. The answer lies in redefining work to design the supply chain to sense and adapt in the face of variability.

A digital brain is an oxymoron. The reason? A human brain thinks based on sensing and feedback loops and is both analog and digital. Today’s supply chains do not sense, and the response is based on history. History, in today’s variable times, is insufficient.

Over the last decade, supply chain planning processes focused on tight integration to enterprise data in an attempt to be very precise on imprecise data. Most digital supply chain strategies are an extension of this goal. These deployments will not improve business outcomes. The danger is that many will make business outcomes worse.

What will help is the redesign of work. Only 7% of companies design the supply chain based on flow to buffer demand and supply while sensing and responding based on market conditions. To accomplish this goal, the supply chain flows must be simulated outside-in based on market drivers. This journey redefines sales and marketing processes to sense and shape demand at the speed of business. Moving from a sales-driven or a marketing-centric approach to be market-driven is a tough organizational challenge making much of the current functional processes and technologies obsolete.

Conclusion

In summary, if someone in your organization is touting the deployment of a digital supply chain strategy, stop the discussion and ask three questions:

1. How do you define digital? Why does it matter?
2. Will this deployment improve the ability of the supply chain to sense and respond in the face of heightened variability? (To improve insights in the increasingly world of gray.)
3. How do we redefine work to improve answers with unprecedented variability to make decisions at the speed of business? (The speed of business is increasing while process latency using traditional approaches is increasing.)

Push for answers. Then and only then, can you make the right decisions to keep your supply chain from going over a cliff in a time of continued disruption.