As organizations move forward with digital transformation strategies in 2019, some of the biggest investments revolve around functions that are ‘invisible’ to customers but extremely crucial to bolstering customer experience. Supply chains stand as one of those crucial back office functions in the immediate crosshairs for transformative action.
According to IDC analysts, digital supply chain improvements are one of the top five areas of digital transformation spending. Last year organizations spent $101 billion on digital supply chain optimization and $93 billion in logistics automation. Anecdotal evidence also continues to mount to support those numbers, with big brands increasingly focusing on transformative investments in their supply chains. Just in the past month, three major enterprises have all publicly touted their initiatives to bolster supply chain management with new technologies, processes, and personnel.
Intel manages a massive supply chain that fulfills 1 million orders and ships 1 billion units a year. The ecosystem has the chipmaker wrangling 19,000 suppliers across 600 facilities worldwide. This month, Intel’s IT experts offered a look at how they’ve worked to tame the process through AI and advanced analytics that optimize parts delivery across businesses and suppliers. As a result, Intel has managed to reduce bill of materials costs for new systems and boards by $23 million in the past year. Additionally, its automated forecasting has helped it reduce time to decision by six-to-one and increase savings by about $58 million. The company says the supply chain transformation efforts have improved warehouse space planning to a 95% forecast accuracy.
In preparation for rolling out 5G communications nationwide, Verizon must engage in a balancing act that many wireless providers hunting 5G supremacy face today. Namely, deploying working 5G networks as quickly as possible without letting the cost of that innovation balloon out of control.
In order to help keep costs down without impeding the progress of 5G innovation, Verizon executives reported this month that they’re revamping the firm’s supply chain by greatly simplifying its procurement technology. The company is undergoing a five-point plan that will take 14 different outdated supply chain systems and condense them into a single system.
“All of that requires management, orchestration, data management and integrity; it also requires that we embrace the new technology around blockchain and bots for automated procurement,” said John Vazquez, senior vice president and chief supply chain officer for Verizon at a recent conference.
Verizon has already reaped bottom-line benefits from the program, recapturing $1 billion in inventory stored in warehouses through the visibility afforded by better supply chain technology.
This month Macy’s also announced it would create the new role of chief supply chain officer. The company recruited IT and supply chain veteran Dennis Mullahy from craft retailer Michaels Stores to fill the post. The move was sparked by Macy’s investment in supply chain transformation, which was detailed by the company’s executives in an earnings call earlier this year.
“We are looking to transform the entire supply chain,” said Macy’s CFO Paula Price on the call, explaining that the company will continue to lean on technology to optimize inventory through improved technology like data analytics.
Macy’s CEO Jeff Gennette explained in the call that one example of how this transformation will improve the business is a “hold and flow” supply chain workstream that the company piloted last year and is in the process of scaling out after that pilot helped the company improve gross sales by 15%.
“This approach allows us to provide our stores with an initial allocation of inventory and then to dynamically reallocate in-season to stores needing it most, reducing markdown risk out of stocks and helping to drive fashion and newness,” he told investors.
Digitization of supply chain processes is hardly a new phenomenon, but many experts agree that a confluence of emerging technology and business trends are driving a renaissance in supply chain management. It’s no longer a matter of taking an existing model and streamlining it with technology. Instead, supply chain operational models are being upended as businesses altogether reimagine processes in light of new technological capabilities.
“As companies seek to exploit the benefits of greater levels of digitalization, new and innovative technologies, such as blockchain and artificial intelligence (AI)/machine learning, can potentially and significantly disrupt existing supply chain operating models,” says Christian Titze, vice president analyst for Gartner.
Gartner recently reported that there are eight technology trends that are coming together to change the face of supply chains in the coming year: artificial intelligence, advanced analytics, internet of things (IoT), robotic process automation (RPA), autonomous things, digital twins, immersive technology, and blockchain.
Of course, it’s not just the tech trends that are driving supply chain transformation, but also the business context in which enterprise operate. Experts explain that not only is the growing global economy opening up cross-border supply chains, but businesses are increasingly federating their sourcing.
“Today, companies are networks; they focus on core competencies in-house to boost their competitive advantage and outsource the rest to specialists,” wrote Martin Verwijmerin, CEO of MP Objects, in a recent Forbes article. “As a result, a far greater percentage of the supply chain’s added value is created by an enterprise’s network of partners.”