Digital Supply Chains

18 Pages·2015·1.58 MB·English

European A.T. Kearney/WHU Logistics Study 2015
Digital Supply Chains:
Increasingly Critical
for Competitive Edge
European supply chain managers expect major
improvements to result from high digital investments.
Digital Supply Chains: Increasingly Critical for Competitive Edge 1
This seventh edition of A.T. Kearney’s European
Excellence in Supply Chain Management study
is dedicated to the future role of digitalization
in global supply chain networks. This study,
conducted with the business school WHU, reveals
that supply chain managers of leading European
companies expect the most important digitali-
zation levers in the next three years to be rather
traditional topics such as IT integration (an area
where 70 percent of supply chain managers are
planning significant or high investments), more
comprehensive use of data (more than 50 percent
expect big-data analytics to have a clear impact
on reducing outbound inventories), and paperless
processes.Interestingly, newer technological
advances such as 3D printing, robots, and smart
labels are expected to be less relevant over the
short term. Managers investing in digitalization,
nevertheless, have high hopes to improve decision
making and to achieve increased flexibility, lower
cost, and lower risk. As a result of digitalization,
they also clearly plan to reduce employment
in operational logistics areas, while slightly
increasing staff for tactical and strategic supply
chain planning.
Introduction
Companies in various sectors throughout Europe are investing heavily to digitalize their
business models in general and their supply chain management (SCM) in particular. Take major
logistics service providers such as DHL, which has announced that it will rely increasingly on
big data to minimize risk, while trials it has conducted with employees using data glasses for
picking processes have increased productivity by 25 percent. Logistics provider DB Schenker is
investing in a digital mobility lab, and airlines with a strong cargo business, such as Lufthansa
and Emirates, are expanding their paperless e-freight offering, which includes data cleaning for
customers. Ocean carriers and forwarders, such as Kuehne + Nagel, use INTTRA’s ocean freight
platform for e-payments, and global retailers Amazon and Alibaba have invested in robotics for
goods handling, drones for deliveries, and new apps for optimizing own asset-light delivery
services in cities.
What can be observed with logistics service providers and retailers is also notable in manufac-
turing companies as they digitalize their SCM. Automaker BMW is working on achieving a fully
digitalized factory and on a more dynamic, data analytics-driven supply-chain segmentation for
inbound parts. Referring to the 15th International Trade Fair for Logistics, Mobility, IT and Supply
Chain Management in Munich that ended in May 2015, head organizer Stefan Rummel told
industry journal DVZ: “Where logistics people meet, they almost always talk about digitalization.”
This seventh edition of A.T. Kearney’s European Excellence in Supply Chain Management
study also focuses on digitalization. Conducted jointly with the Kühne Institute for Logistics
Management at the German business school WHU–Otto Beisheim School of Management, it
delves into the ways that digitalization in all of its formats impacts SCM, based on feedback from
60 industrial and commercial companies throughout Europe (see sidebar: About the Study).
About the Study
The 2015 European Excellence in supply chain managers could Companies come from 16
Supply Chain Management study answer for the global SCM of their countries (including slightly
is the seventh edition to be companies; another fifth was more than one-third from
published since A.T. Kearney first answering with reference to the Germany) and a wide range of
undertook this research with the European SCM. industries, including automotive,
European Logistics Association chemical, pharmaceuticals,
in 1982. For the purposes of this Most participants’ route-to- building materials, machinery,
edition, A.T. Kearney and the market is not expected to signifi- fast-moving consumer goods,
Kühne Institute for Logistics cantly change between 2013 and metals, electronics, aerospace,
Management of WHU–Otto 2017. Fifty-five percent of wholesale, and retail.
Beisheim School of Management revenues are generated directly
conducted an online survey with end customers and users,
on digitalization of the supply 33 percent with resellers, and 12
chain in European industrial percent via a three-step route-to-
and commercial companies market and based on a wide range
between December 2014 and of as many as 650,000 SKUs. On
February 2015. average, participating companies
use the following number of
Overall, 60 companies partici- logistics service providers in
pated, and more in-depth inter- Europe: land freight (109),
views were conducted with 15 of warehousing (13), ocean freight
them. Two-thirds of participating (4), and air freight (3).
Digital Supply Chains: Increasingly Critical for Competitive Edge 1
This report summarizes our findings and explores in detail what SCM digitalization means for
business, how it affects investment in IT and analytics, and the areas where it will have the
greatest benefit.
Digital Technology Enablers and
Their Business Implications
Digital trends in SCM affect the overall business model
From sensors and cloud services to nanotech and big data, a number of technologies drive
digital trends. How fast these technologies advance in performance and cost will determine
how quickly they bring about change in SCM. In figure 1 we identify and describe six big
technology enablers that are digitalizing SCM.
Figure 1
Digital enablers and select implications for supply chain management
GPS-, GSM-, and Galileo-based positioning; sensors for filling
status, product quality, packaging quality, equipment status
• Reliable all-time localization
• More SCM information and event management requirements
(for example, temperature, humidity, opening, shock)
3D printing, microwave, Safe to operate in
laser-based production Sensors close man-machine
technologies environment, cheaper,
and
more flexible (including
• New production geolocation
flexible renting and
locations
Nanotech Strategy leasing schemes)
• New supplier and 3D Robotics
configurations • Picking
printing
• New production • Palletizing
Digital
materials • (Un)loading
technology
enablers • Automated CKD assembly
in smaller lot sizes
UI and
Multivariate regressions,
predictive analytics, Big data display
large-scale innovation
Augmented reality,
scenario analysis
Cloud customer self-service
• Demand forecasting services scanning, in-store
• Capacity planning navigation
• Routing optimization • Glasses-based picking
in warehouse
• Contracted and flexible
contracted versus • Displays on packaging
Connected devices, global real-time data
spot-capacity purchase consistency, fast distribution of analytics • Proliferation of interactive
optimization shelf displays
• Cloud-based tracking
• Advanced procurement • Displays on products
with collaborative • Cloud-based global real-time availability managed by the
optimization of SCM data and synchronized IT systems manufacturer
Note: GPS is global positioning system, GSM is global system for mobile communications, SCM is supply chain management, UI is user interface, and CKD
is completely knocked down.
Source: A.T. Kearney analysis
Digital Supply Chains: Increasingly Critical for Competitive Edge 2
A.T. Kearney has observed a number of general digital business trends not only with direct
effects on SCM, but also with much larger implications for manufacturing and retailing
companies’ overall business models (see figure 2). Obviously, each industry and company will
face different opportunities and challenges, even going so far as to completely question the
current business model or product configuration.
Figure 2
Select digital business trends and supply chain management implications
Digital business Select supply chain
trends Description management implications
Analytics-driven cross- Using advanced analytics with increasingly • Leveraging of data to improve SC demand
functional optimization diverse input to optimize complex forecasting and SC service procurement
and predictive cross-functional trade-offs and facilitate • Dynamic data analytics-driven SC
decision making value chain integration segmentation of parts and goods
From human judgment Multi-sensor information, algorithms, • More automated SC procurement processes
to machine intelligence big data, and machine learning, leading • More automated SC event and risk
to the gradual replacement of human management based on expert systems
judgment by machine judgment
Distributed resourcing Access to everything, anywhere, • More complex inbound SCs with more
and growing customer anytime. Growing transparency global suppliers and more variation
buying power and access provide customers of direct and aggregated procurement
with vastly increasing buyer power • Leveraging of meta platforms to source
SCM service providers (for example,
trucking companies and couriers)
Micro customization, Matching the long tail of demand, supply, and • Need to connect with customers for
matching micro production capabilities to create the ultimate earlier sensing of demand and batch shifts
demand and supply customer fit and fulfillment • Managing SCs for very customized
demand and supply; smart and dynamic
SC segmentation
Complemented Driving new ways of engagement • Optimized picking operations
reality-driven and productivity through augmented • Virtual testing of supplier parts and
productivity and virtual reality new packaging
• Reduction of need to distribute physical
sample products
Mounting digital Increasingly intertwined and ongoing • Growing exposure to risk with connected
risk exposure activities with customers, suppliers, products, embedded automated services,
and partners; growing exposure to digital and automated cross-company processes
business risks and crimes • SC management to SC partners in risk
management and defense planning
Sharing economy Sharing of proprietary assets via e-platforms • Additional availability of industrial truck,
to increase utilization and tap into capacities wagon, locomotive, and container capacities
formerly outside of markets
From physical Using digital to extend, expand, enhance, • Organization of SCM for services and
product transactions complement, replace, or go beyond physical management of diminishing hardware
to consumption offerings. Using measurability, sensors, and distribution, return logistics, and SC
connectivity to charge for usage instead for different rounds of life cycle
of purchase • Management of post-sales SC service
to customers
• More usage-oriented pricing with
SC suppliers
Note: SC is supply chain, and SCM is supply chain management.
Source: A.T. Kearney analysis
Digital Supply Chains: Increasingly Critical for Competitive Edge 3
Supply chain managers need to manage
the implications of the digital transfor-
mation of their function and of the under-
lying business model at the same time.
SCM will be central to wider digital transformation
Supply chain managers who want to lead the transformation of their SCM into the digitalized age
not only will identify the opportunities and challenges facing their own function, but will also
consider the digital transformation of the entire company, its products and services, and the way
suppliers, customers, and other market partners interact with their company. How SCM can
contribute to the digitalization of the business model is as important as defining the digital
transformation agenda of SCM itself (see figure 3).
Figure 3
Digital supply chain framework
Shared products,
Connected Embedded Omnichannel
1 2 3 product as 4
products services distribution
a service
Digital business model
Digital supply chain
Digital Digital Digital Digital
planning supply manufacturing logistics
A Supply chain integration
B Supply chain automation
C Supply chain reconfiguration
D Supply chain analytics
Source: A.T. Kearney analysis
Digital Supply Chains: Increasingly Critical for Competitive Edge 4
In terms of the key dimensions for digital supply chain management, we differentiate between
digital planning, digital supply, digital manufacturing, and digital logistics. While this study
largely focuses on digital logistics, all aspects of digital supply chains are taken into account.
Key levers for digital SCM listed in figure 4 have been tested empirically as part of our study to
establish what supply chain managers will focus on and what investments they will make in
the next three years.
The SCM function is not digitalizing in a vacuum. While some elements of digitalizing the
SCM function are exclusively within the purview of the SCM departments, such as replacing
paper freight documents with digital ones, the overall digital transformation of the business
model can be thought of as a second dimension of digital outside of its control (see figure 5
on page 6). SCM decision makers who clearly understand the dynamics in this dimension as
well will be better able to address the challenges posed in each dimension. The extent to
which the SCM must transform itself will also depend on whether the company has entered
the market with a digital business model from the beginning as a digital native, or has
adopted it later on as a digital migrant.
Figure 4
Areas of digitalization and supply chain management levers and challenges
Areas for Select digital supply Areas for Select digital supply
digitalization chain management digitalization chain management
of the levers and challenges of supply chain levers and challenges
business model management
1 • New SCM requirements for A • IT integration across all areas
smart products (for example, of company
Connected chips in textiles) Supply chain
• IT integration with supply
products integration
• Shorter lead times and price chain partners
changes for electronic components
• Paperless freight document
2 • New spare parts and B • Smart packaging informing and
service requirements acting on conditions of goods inside
Embedded Supply chain
• Setup of online monitoring • Radio or GSM tagging and tracing
services automation
and second- or third-level support of goods
• New failure analytics due • Radio or GSM tagging and tracing
to more possible reasons outside of packaging and containers
of own products
• Smart labels communicating with
each other, creating decentralized
3 • Disposition and capacity optimization intelligence
management of rented products • Robots and autonomous vehicles
Shared
• Product and product parts
products,
monitoring and replacement
product as planning C • 3D printing and additive
a service • Logistics for relocation, maintenance, Supply chain manufacturing
refurbishing, and repair reconfiguration • E-platforms for direct carrier
selection and transactions
• Product software management,
including firewalls • Use of app-based e-platforms for
express and parcel courier deliveries
4 • Direct sales (bypassing wholesalers
or via online) to users and D • Big data analytics for
Omnichannel consumers, with smaller lot sizes SCM improvement
Supply chain
distribution and different central and regional
storage requirements analytics
• Cross-border selling, partially
with own customs solutions
Notes: SCM is supply chain management, and GSM is global system for mobile communications.
Source: A.T. Kearney analysis
Digital Supply Chains: Increasingly Critical for Competitive Edge 5
Figure 5
Interdependence between digitalization of business model and supply chain management
h
g
Hi Current state
Future state Company A: Digital natives
Digitalization of the business model
•••• CESOmhomanbnrneeiecddchd ptaeerndodn d sepuelr crodvtdisiscu,t ercpistbrsoudtiuocnt as a service Companies B and C: Digital migrants
w Company D: Rare case
o
L
Low High
Digitalization of supply chain management
• Supply chain integration • Supply chain automation
• Supply chain reconfiguration • Supply chain analytics
Source: A.T. Kearney analysis
Digital to Drive Heavy Investment in IT Integration
and Big Data Over the Next Three Years
IT systems integration remains the hottest topic—internally and externally
European supply chain managers tell us that the key digitalization topic for their companies
is SCM IT integration. This is where they anticipate the greatest impacts and where planned
investments are highest. More than 80 percent of respondents expect the integration of IT
systems and data within their group to offer significant, high, or very high potential for improve-
ments to their SCM, and 77 percent anticipate the same from IT networking with partnering
suppliers and customers in the supply chain. A core finding of the study is not just that businesses
expect IT integration internally and externally to deliver strong benefits in the next three years,
but also that 70 percent of respondents intend to make considerable investments in internal
IT integration (42 percent relevant investments and 28 percent high investments) and 53 percent
in external IT integration with supply chain partners (see figure 6 on page 7).
For many companies, IT integration remains a Herculean task. They still have large numbers of
stovepipe solutions that do not interface or share data seamlessly with other systems. Arriving at
and maintaining globally standardized supplier, material, and product data remains an equally
big challenge. When a supply chain spans multiple countries and partners, new challenges arise
whenever acquisitions are made or partners change. Jan Keller, group vice president for supply
Digital Supply Chains: Increasingly Critical for Competitive Edge 6
Figure 6
Digital levers worth investing in for the supply chain
% of respondents expecting % of respondents planning
significant, high, or very high relevant and high investments
improvement (2015–2017) (2015–2017)
IT integration across all
82% 70%
areas of own company
IT integration
77% 53%
with SC partners
Big data analysis for
72% 48%
SCM improvement
Paperless freight document
68% 37%
processing and archiving
E-platforms for direct carrier
45% 43%
selection and transactions
New and innovative
43% 27%
computer software
Use of app-based e-platforms for
40% 22%
express and parcel couriers
Radio or GSM tagging and tracing
35% 13%
of packaging and containers
Radio or GSM tagging
33% 15%
and tracing of goods
Smart packaging informing and
33% 8%
acting on conditions of goods
New and innovative
25% 17%
computer hardware
Smart labels communicating
20% 3%
with one another
Robots and 18% Significant improvement 7%
autonomous vehicles
High improvement Relevant investment  
3D printing and
15% 7%
additive manufacturing Very high improvement High investment
Note: SC is supply chain, SCM is supply chain management, and GSM is global system for mobile communications.
Source: European A.T. Kearney/WHU Logistics Study 2015
chain at ABB, states: “As a rule, our internal IT systems are managed locally. The objective has to
be a unified product base that’s identical in every country.”
In addition, some businesses remain cautious about IT integration with suppliers and
customers. The potential benefits of streamlining their IT may be clear, but a number of
respondents state that they lack a sufficiently trustful relationship with SCM partners to
engage in more intensive data sharing. Alexander Moldenhauer, chief supply chain officer
at Avanco GmbH, explains: “Many of our raw material suppliers have started downstream
activities and turn into competitors, so sharing data calls for a special degree of trust.”
Moving forward, the larger companies intend to invest more heavily in IT integration along
the supply chain than the smaller companies. This is hardly surprising, given that they are in a
better position to set standards within their supply chain and thus extend IT integration
outside their own organization. Expected benefits are first and foremost substantially lower
inventory levels and more flexible delivery times and batch sizes.
Digital Supply Chains: Increasingly Critical for Competitive Edge 7
Demand forecasting and planning is focus for IT investments
Digital trends are affecting all supply chain IT systems. This not only refers to general needs, such
as seamless integration and interfacing within and across companies, but also includes real-time
synchronization of data, global standardization of implemented work flows, and rising demands
on cyber security. These trends challenge the core of supply chain IT system functionalities and
features, requiring them to evolve to best support areas such as integrated, automated data
gathering, tactical planning, procurement, and execution (see figure 7).
Fifty-seven percent of surveyed supply chain managers plan to invest significantly in demand
forecasting over the next three years (see figure 8 on page 9). This is some 20 points higher than
for other IT systems in SCM. For example, Fortaco, a Finnish production engineering company,
has integrated a forecasting system into its enterprise resource planning (ERP) system which,
Fortaco CEO Lars Hellberg explains, covers downstream customers and suppliers. Not all supply
Figure 7
Implications of digitalization on supply chain IT systems
Classic IT systems for Degree of change Examples of digital supply
supply chain management caused by digital chain transformation
Demand forecasting Very high • Integration of big-data predictive analytics
and planning
Inventory planning Very high • Integration of big-data predictive analytics
and management • Analytics-based dynamic supply chain segmentation
Warehouse management High • Fitness for augmented reality
• Better integration of manual and robotics processes and
self-coordinating robots handling packaging beyond RFID
Network and routing Very high • Integration of big-data predictive analytics
optimization • External interfacing for automated
updating of capacities and schedules
Transport management High • Integration with advanced procurement systems
• Seamless interfacing with e-platforms for booking
and reservations as part of the standard configuration
Tracking and event High • Implementation of more sophisticated machine judgement
management • Advanced scenario planning
• Process-integrated risk management
Freight document handling Very high • End-to-end digital document handling
and archiving • Interfacing and integration of all documents and
document handling systems
Transport and logistics High • Collaborative optimization
procurement • App-based spot-market tendering to truck brokers and truckers
• Seamless interfacing with TMS systems
Interfaces with suppliers, High • More standardization of interfaces (including due to more
customers, and supply chain shipper-carrier interaction and more independent providers
service providers of specialized supply chain services)
• E-platform proliferation
Note: RFID is radiofrequency identification, and TMS is transport management system.
Source: A.T. Kearney analysis
Digital Supply Chains: Increasingly Critical for Competitive Edge 8