The Digital Supply Chain: The key to fluctuating demand and inventory management | CPO INNOVATION
What is Digital Supply Chain?
The world is changing at a rapid pace with the advancements in Digital technology, customer behavior is shaped due to Social media trends and communication that happens over the Internet. The traditional Supply Chain might not be able to keep up with the unforeseen peek in demand which intern fails the business. Digital Supply Chain(DSC) comes to the rescue in such catastrophic incidents. Also known as Supply chain 4.0, it is essential for the industries to digitalize themselves and fight the Amazons of the world. Accenture Consulting proposes that “Digitalization has the potential to transform supply chains by making services more valuable, accessible and affordable.”
Digital Supply Chain is an advancement in the field of supply chain which creates a digital presence to tackle the problems of a supply chain using Artificial Intelligence, IoT, Blockchain technology and Machine Learning. Unlike the traditional supply chain in DSC, every pillar of the supply chain such as suppliers, distributors, producers, retails, logistics, inventory and customers are connected digitally and they can keep track of all changes happening in the system in real-time. This helps in figuring out the volatility of the market, sales and demand for the product. DSC has end to end transparency and can dynamically adjust and synchronized network accordingly. DSC has its heart in electronics and technology.
Figure 1: Digital Supply Chain Chart
To understand the concept of Digital Supply Chain(DSC) let us consider a scenario, a celebrity posts a picture of a bag on Instagram or twitter creating excitement around the product and sudden demand. The company which manufactures this bag happens to follow a traditional Supply Chain, which means the company forecasts demand on the basis of previous sales data. Due to the sudden rise in demand the company is short on the availability of bags. So they go back to the drawing board and adjust the forecast to meet the new demand, they place the orders only to find out that their supplier is short on raw materials and requests for time. Once the material is in place the productions take place and the next hurdle to pass is the distribution to the stores as this isn’t a planned event which means the company pays premium for shipping. For all of this to happen it takes time at least a month or two, the customers switch to a similar product from other company.
Specialists proclaim that digitalization of supply chain will revolutionize logistics industry and supply chain management. According to the MHI annual report, 80 percent of supply and manufacturing industry leaders believe supply chain digitalization will be the norm in five years; 16 percent think that day is already here. MHI and Deloitte developed the Supply Chain Digital Consciousness framework to help organizations assess their digital mind set and gauge their progress on the journey to becoming more digital. (http://www.mhi.org/search?q=digital%20supply%20chain)
Dealing with fluctuating demand and improve inventory management
There are many areas that DSC shows its influence on, few of them are as follows:
Demand planning: DSC uses analytical tools for demand planning by analysing sales history of a particular product, customers profile and the study of the customer’s purchasing history. Location demand of the product, availability of the goods in that particular region are few constraints that are looked into when demand is unpredictable and these constraints are surpassed by the early intimation to the local warehouses and to the manufactures depending on the demand’s highs and lows. The connectivity and interaction between each variable in the chain should be extremely high in DSC, which helps in efficient demand forecasting.
To deal with demand fluctuations, Predictive Analytics is used on real-time data. With real-time data, planning cycles, lead time are minimized and planning will be a continuous process to operate with demand fluctuations dynamically.
Advanced data analysis is also vital here. It improves decision making by
Decision support systems driven by predictive analytics can boost adaptability and reliability.
DSC makes warehouse management more efficient and monitors stock levels continuously with the help of arrays of sensors or via other advanced technologies. While customer behavior changes rapidly, the supply always needs to meet the demand. Consumers can place orders anytime from anywhere, thus stock at hand should be monitored in real-time. This does not mean the same amount of inventory should be kept at every distribution centre. It, in fact, means that buying trends and future demand for goods and services shall be recognized in advance to make informed decisions. DSC provides the required means.
When all the areas of a supply chain, including vendors and logistics providers, can communicate their wants and needs, the risk decreases. More importantly, better communication and understanding helps reduce cost by eliminating unnecessary activities.
Retailers must approach Inventory Management from both channels and customer-specific point of view while considering the requirements of the digital supply chain as a seamless system. The confusion implies the necessity to know how digital inventory management translates into better overall supply chain management and effective management of brick-and-mortar retail.
The use of a digital inventory management system can help shippers gain visibility and control into existing inventory and plan for future inventory needs. For future improvements, Warehouse Managers should do the following:
Track the movement of inventory through multiple channels.
Collaboration is very significant for a DSC to run successfully. Digitization within the four walls of an enterprise is necessary, but not sufficient, as companies embark upon or expand their digitization journeys, collaborating with partners is needed to align on objectives, synchronize their supply chain, minimize supply chain risk and ultimately maximize supply chain success — not just enterprise success.
Strategic planning, end-to-end transparency along with the SC and adapting to the change plays a major role in the implementation of effective DSC.
Figure 2: Strategic planned end-to-end distribution
The transformation from traditional supply chain to a Digital Supply Chain is not too far away. Companies which adapt DSC now will have a competitive advantage over others. Although every technology comes with its own challenges, the use of digital supply chain can revolutionize the industry and help eliminate the major problems that are prevalent in the supply chain industry and help lay a path in the direction of “Industry 4.0”.
This article is co-authored by Dr. Raul Villamarin Rodriguez, Thrishla Nagula and Sandeep Patil Biradar, Woxsen School of Business