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What are the components of a digital supply chain?

A digital supply chain can help companies gain insight into their business processes and enable greater connectivity with suppliers. Here's a look at why you need one.

You may have heard the term digital supply chain and wondered whether this is just another buzzword coined by the media. It's not. 

Indeed, the digital supply chain is a radical transformative step based on huge changes as we migrate to smarter products; automatic identification, or auto-ID; location-based data streaming; location-aware devices on people and assets; and sensor-based networks connecting people and things in the supply chain. In addition, cloud technologies integrated with Web services are unifying information and processes to enable trading partner visibility and collaboration.

Since there can be a lot of confusion about just what the digital supply chain is, it can be helpful to define two terms that are being used and are closely related:

The term digitalization refers to the connectivity, integration and collaboration between trading partners to use systems rather than paper for all processes from planning to design. This enables product lifecycle information -- from design through service -- to be shared among those partners. The concept also includes auto-ID -- replacing manual data entry with scanning to ensure accurate product data and to see assets, products, and people in motion across the value chain. In essence, digitalization automates processes and tasks.

The term digitization means to transform the product or service from a physical product to a digital product: music from a physical LP to an MP3 and books to e-content. Digitization can also refer to using remote embedded sensors or GPS to monitor products by using Internet of Things, or IoT, technology. Digitization literally changes products -- expands the use case of products beyond what they were; we sometimes them call "smart products."

When we use the term digital supply chain, we're referring to the process of the supply chain. The question is: Does having a digital supply chain matter? To answer this question, let's look at a few rhetorical questions:

Which company is likely to avoid disputes with customers? The one whose parcel content matches the purchase order or the one whose shipment contents and purchase order does not match? Hint: The first company does complete scanning at each stage of its operations and uses a few key electronic data interchange (EDI) transactions or required customer protocols. The answer to this question is simple, of course, but thousands of companies don't automate shipping verification or more advanced EDI.

Which company is likely to get the online sale? The one who can provide split second responses to product, price and availability, or the one who says, "We have to backorder that," or, "A salesperson will call you?" Hint: Even if both companies have a nice e-commerce front end, the first company can connect to its suppliers to locate inventory stocks and that can then be promised.

Which company is likely to avoid cancelled orders? The one that can schedule the required services precisely to the customer's desired delivery window while that customer is still shopping, or the company that uses a standard parcel schedule? Hint: The first company is connected to carriers and can confirm the delivery slot in a route before the checkout button pops up.

Which company is likely to have the least markdowns and out-of-stock inventory? The one who has visibility to channel shelf stock, or the one who only knows the outbound shipments they sent? Digitally connected supply chains have already demonstrated sales uplift, with fewer out of stocks, replenishing precisely due to more accurate inventory data across the chain.

These are day-to-day examples where being digitally connected across the supply chain can make a huge difference in responsiveness, cost of sales and profit.

At its most realized, a digital supply chain allows ultra-smart processes that monitor real-time inventory stocks, customers' interactions with products, carrier locations, and equipment using IoT technology, and using this information to plan and execute at increased levels of performance. Companies with a digital supply chain are dynamically moving resources, assets, people and inventory to where it is needed now and reducing costs by proactively responding to transportation and manufacturing risks.

Next Steps

Selecting a supply chain analytics system

How to streamline the supply chain

Case study in improving supply chain logistics

Dig Deeper on Supply chain planning and execution

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