Managing Director & Senior Partner
Investing in new digital technologies to fix a broken supply chain is like buying expensive new golf clubs to fix a poor swing. Instead of taking the game to the next level, it’s more likely to take an errant shot ten yards farther into the woods. While digitization can undoubtedly help by improving the supply-chain-planning process, it is naïve to think that it will help the business if the basics are not in place; instead, it may only speed up bad decision making, worsening existing issues.
Organizations that want to improve their supply chain planning should instead move quickly to identify their capability gaps and then fill them using a series of no-regrets moves. In parallel, they can work to understand where selective investments in new planning technologies make the most sense.
Businesses rely on supply chain planning to steer the movement of goods, services, and information throughout the value chain in an optimal way. Done well, it can also bring dramatic supply-side and demand-side benefits, including improved capacity utilization and superior customer service. (See Exhibit 1.)
Not surprisingly, many senior executives today are looking at new digital technologies to bolster their supply-chain-planning efforts and repair any problems in the supply chain. As most are undoubtedly aware, a variety of new digital solutions are making companies more responsive, reducing waste, and strengthening business results. Some of the latest technologies perform tasks such as aggregating internal and external data in real time—improving data availability and creating end-to-end transparency along the supply chain. Digital technologies will soon enable a truly dynamic planning process, utilizing algorithms, machine learning, and AI to balance supply with demand; automating demand forecasting, inventory management, and production scheduling; and running scenario modeling—all through a digital control tower.
As promising as they are, however, digital technologies will do little to improve supply chain planning if the fundamentals are not in place—whether in processes, organization, governance, data quality, performance metrics, or employee engagement. Whatever progress organizations may have made to date along the digitization path, therefore, we recommend they step back to evaluate the end-to-end maturity of their supply chain planning in all its relevant dimensions, uncover the gaps, and fill them before they make a bold move toward digital transformation. At the same time, they should consider implementing targeted digital solutions that deliver quick wins, balancing this short-term focus with their long-term focus on building the right foundations. (See the sidebar.)
A global specialty-food business was convinced that it had an effective supply-chain-planning process because it maintained good service levels and kept its customers happy. The company wanted to apply ERP-based digital technologies along the supply chain in order to grow the business without adding more employees. However, when it began to analyze the supply chain in preparation for its expansion, it soon discovered the only real reason its customer performance was strong: its employees were in constant crisis mode, performing heroics to get everything done. Not surprisingly, attendance at planning meetings was minimal and no one was working on the fundamentals. Worse, the employees were at the point of exhaustion and morale was declining.
Had the company attempted to introduce a new digital planning system, it might have made this situation even worse: with automated systems running on poorly defined business rules or inconsistent data, these systems would have recommended actions that might not make sense. People would have lost trust in the system’s recommendations and fallen back into their old workarounds or, worse, followed system outputs blindly, putting entire supply chains at risk.
In this case, investing in the basics—while selectively piloting digital tools and technologies—had to come first.
Immature supply chain planning will reveal itself in a number of ways. Even when documented, the planning process may be ignored—or may vary widely among locations and business units. Planning meetings may be poorly attended and agreements not considered binding. Worse, the process may not support the company’s business activities, resulting in constant fire fighting as employees deal with one issue after another.
Companies may also discover general dissatisfaction among important commercial and supply chain stakeholders—including a feeling that time in planning sessions is wasted, no one owns the process, or the process doesn’t provide enough of a window into decision making. Alternatively, companies may find a siloed mentality, with little coordination across functions. Functional staff may meet their performance targets, for example, but give little consideration to overall company performance or the impact of their work on the supply chain.
Running an end-to-end diagnostic will allow companies to assess the maturity of their supply chain planning, as well as its governance and organization, employee engagement, and metrics. As a result, they can determine exactly which elements are working well and which are underdeveloped—or out of sync. For example, even world-class demand planning will struggle to deliver results if paired with dysfunctional inventory management. (See Exhibit 2.)
As a next step, companies should develop a detailed plan for raising any lagging elements to the appropriate level. They can’t afford to stand still or hope for a digital solution to their problems. Instead, our experience tells us there are typically eight no-regrets moves on which companies should focus.
The two functions must therefore come together to decide how they will orchestrate future requirements, from both the business and the technology perspective, if the company is to eventually feed novel business requirements into IT pipelines and architectures.
Timing is also important. Selectively implementing digital tools early, when they can help the company learn about the opportunities and requirements of these new technologies, can bring clear benefits. However, implementing full-scale digital solutions too quickly, without the basics in place, can be a risky move.
As a first step, they should start to identify capable internal talent. These employees will have the primary advantage of understanding the business, which can allow them to translate the company’s business requirements into the necessary technology—and digital technologies into action.
Where there are gaps in expertise or capabilities, companies should begin to broaden their sources of future talent and the options for accessing it. The initial focus should be on attaining certain core capabilities, such as an understanding of advanced statistical approaches, rather than on finding specific solutions to, say, inventory optimization or transport-planning issues. Recruiting from innovative technology startups or partnering with universities can bring rigor and leading-edge technologies into the business and help it gain traction.
Digital technologies are not a silver bullet for enhancing a company’s supply-chain-planning capabilities. If the company understands its capabilities and gaps, however, piloting select digital technologies can be a way to help close those gaps before going all-in on new systems and processes. Doing so will help ensure that the potential impact of future technology investments is fully realized—and underpinned by robust, scalable, and adhered-to processes and capabilities.