Digital transformation of supply chain operations can do more than lower costs.
While many chief executives are looking at supply chain management (SCM) in the cloud as a way to lower costs, a strategic move to the cloud can also help them transform their business, stimulate innovation, and create new revenue streams. Based on the Oracle Insight team’s consultative work with companies in manufacturing and related industries, we have found there are five major areas for executives to consider during a move to the SCM cloud.
(1) Learn to manage complexity by focusing on high-value processes to streamline. According to the Institute of Mergers, Acquisitions & Alliances, in 2015 alone, there were approximately 44,000 M&A transactions worth US$4.5 trillion Such transactions result in more complex global supply chains with an increased number of suppliers, customers, manufacturing and service facilities, distribution channels, etc. Executives find themselves working through this ever-present complexity to integrate business processes, streamline operations, and realize the value of synergy from M&A. Enterprises that adhere to best practices prioritize processes to streamline based on strategic imperatives. The idea is to evaluate processes for potential impact, business criticality, and capability gaps (how well they serve strategic intent and what may be bottlenecks), and specifically target those processes for transformation. For example, they may rationalize service centers, consolidate warehouses, or centralize order management and fulfillment locations, based on the value to the business of each action.
(2) Enable better, faster collaboration for better supply chain performance with Cloud. An undeniable characteristic of modern supply chains is a constantly growing number of stakeholders, within as well as outside of an organization. This is due to factors such as an increased number of suppliers, more geographically dispersed manufacturing locations, and outsourced customer care centers to enable 24×7 service. Amongst these multiple and far-flung stakeholders, greater collaboration is even more critical for integrated supply chain performance. For instance, lack of such collaboration in demand and supply planning functions can lead to inefficient processes, resulting in higher inventory costs, poor inventory turns, write-offs, stock outs, poor service levels, or even loss of customers. In innovation processes, better collaboration between design and planning functions can help reduce product waste and inventory costs by improving platform or technology reuse. Cloud solutions offer a quick way to enable collaboration across functions and processes, without as much time, expense, and effort-intensive implementation.
(3) Greater visibility through IoT can positively affect supply chain performance. Given the growth of sensors and the Internet of Things, supply chains, which are already complex, also now generate prolific data at an accelerated pace. Such ubiquitous data and the possibility of real-time analytics hold the potential for greater supply chain visibility—the holy grail of supply chain management. Greater visibility means executives can have a better idea of emerging demand, available supply, and capacity, all of which are key supply chain metrics. Greater visibility of inventory in transit, or crews doing service, can enhance customer service. It could also mean optimizing fleet routes by monitoring traffic and improving supply chain delivery performance, or monitoring product shipment conditions for perishables to reduce waste in transit. The data must be available to stakeholders in a location- and device-agnostic matter, and without many barriers while at the same time being secure.
(4) Cloud technology can reduce SCM costs and help companies create new revenue streams. Industry research shows significant SCM costs differential between top and bottom performers $94 per $1000 in revenue which represents, $470 M in potential savings for an organization $5B in revenue annually. Traditionally, enterprises reduced SCM costs through leaner operations. With digital transformation, the ability to launch new processes and business units is growing in importance. For instance, manufacturers have expanded into installing and servicing the assets they produce beyond the initial sale. These service processes are emerging as new revenue streams, opening up growth opportunities for mature supply chains and organizations. Such innovations, like any other, count on the speed to market and collaboration that cloud offers. In that sense, best-in-class leaders are looking to cloud as not just an opportunity to reduce costs, but innovate and re-imagine their business processes, and enable business transformation.
(5) The fundamentals of SCM performance are unchanged and valid. While the cloud is changing many things about traditional supply chains, the fundamental way we look at supply chain KPIs and business impact has remained the same. Metrics such as delivery performance, perfect order fulfillment, order fulfillment lead times, and service satisfaction rates remain paramount. These metrics are shifting to reflect better customer care, such as faster lead times from improved planning and order management, and better delivery performance from logistics enhancement. Similarly, cost-based SCM KPIs, such as inventory turns, warehouse costs, and supplier management costs continue to be the relevant and valid internal-facing metrics, with greater emphasis on capabilities corresponding to SCM transformations such as better supplier collaboration or speed to deployment of such capabilities. Tools that aid in delivering visibility into these metrics remain an important piece of the supply chain excellence puzzle.
Supply chain transformations traditionally offered the potential to reduce costs or improve efficiency. With the cloud, supply chain transformations can also enhance business agility and offer competitive advantage. Leveraging best practices can help companies manage the complexities of moving to the cloud while reaping the benefits of digital transformation.
The article was written by : Dr. Madhavan Veeravalli, July 2016