Supply Chain Digital Transformation: Five Common Mistakes

Five years ago, the buzzword was big data analytics. Now it is digital supply chain transformation. The energy is fueled by hype. The Amazon effect of real-time data, new business models and shortened delivery times makes supply chain leaders uncomfortable. Their processes are slow, batch and largely out of step with meeting the needs of the customer. They are inside-out with a focus on enterprise efficiency versus outside-in with a passion for the customer.

We can learn much from the work in marketing departments on the driving digital transformation. It was driven by necessity. This transformation was driven by the shifts in media and the need to communicate brand identity in new ways. Companies did not have a choice. Brand pressure dictated a change. The greatest change happened when the work happened in parallel to traditional marketing practices. The teams were diverse, scrappy and maverick. These were no large projects with buses of consultants. The change was not incremental. It was a step-change.

In supply chain, many would argue that there is no compelling need to change. Most companies are complacent when it comes to supply chain. In our research, we find that 90% of companies struggle to drive progress on the metrics of growth, operating margin, inventory turns and Return on Invested Capital simultaneously. However, never before has there been the promise for supply chains from the confluence of new technologies. This includes blockchain, cloud, open-source analytics, cognitive computing, Internet of Things (IoT), robotics, and wearables/mobility. This offers exciting possibilities. A conundrum…

Five Mistakes Companies Make in Driving Digital Transformation

The promise is great. The Art of the Possible calls. Companies empirically know that there is an opportunity. However, most make five mistakes:

1. Goal Clarity – Digitization Versus Digital Transformation

Digitization is the process of converting information into a digital format. This will often lead to hands-free, or automated, processes. In contrast, a digital supply chain transformation redefines the atoms and electrons of the supply chains to redefine processes. These initiatives take the confluence of technologies and drive transformation. In practice, digitization speeds up, and automates, current processes while a digital transformation redefines what is possible. The greatest value happens in driving digital transformation. Most companies progressing down a digitization path are not able to drive a digital transformation. For most, it’s a question of goal clarity.

2. Incorrect Reporting Structures

In many cases, digital supply chain transformation reports to the IT organization. This is a mistake. Why? Digital transformation needs to be owned by the business. When the digital transformation reports to IT, the program often becomes a new budget for existing spending.

3. A Sole Focus on Innovation

In most organizations today, there is a strong bias to drive continuous improvement of the current process. The focus is on incremental improvement. Digital supply chain transformation is disruptive. It will never be driven through continuous improvement initiatives. Instead, the best efforts start with a focus on solving problems or driving greater value for the customer. In driving digital supply chain transformation, start by a look at the customer and ideate a new business model. I was working with a client last week that started an innovation lab, and wrongly believed that he could drive digital transformation through existing innovation processes. As a result, this department became encumbered with over eighty projects that were all focused on improvement of the current processes. Companies that drive digital innovation start with a small scrappy team focused on solving a problem.

4. Partnering with Current Technologists

Many companies wrongly believe that they can drive digital transformation by partnering with current technologists. In my experience as an analyst, I have only seen 1% of co-development projects with large technology firms drive success. The problems are many. It is hard for a large technology company to focus on co-innovation in the face of driving code for future releases, and business leaders lack the skill level to adequately define requirements. As a result, I see the best results when companies partner with new innovative companies. The challenge for most is getting outside of traditional procurement processes to be able to partner.

5. Driving a Fixed ROI

In driving digital innovation, you have to be open to the outcome. There is no fixed Return on Investment. Focus on solving a hairy problem and the opportunity will happen. However, if you force-fit an ROI, there is a risk of destroying the potential of the project early.