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Digital supply networks may be the next step in the evolution of supply chains.
The promised benefits of digital supply networks (DSNs) over traditional supply chains include better visibility into processes, improved collaboration between supply chain participants and the ability to respond quicker to changing market conditions.
However, while it appears organizations are interested in digital supply networks, few are in the process of implementing them. Organizations need to address issues such as security, data integration and change management before digital supply networks are adopted more widely.
What are digital supply networks?
The concept of digital supply networks relies on advances in technology such as greater computing horsepower, IoT sensors and emerging cognitive technology. Used together, these enable intelligent and interconnected networks to support real-time decision-making -- in theory. Because the concept is just emerging, there are limited tests of the concept in practice.
Unlike the typical linear supply chain, digital supply networks tap into emerging technologies to create integrated, end-to-end networks. DSNs deliver a continuous flow of information that dynamically links the digital and physical worlds across multiple supply chain partners. Then, advanced analytics can generate insights that fuel real-time decision-making.
The combination of technologies is meant to enable partners to meet changing customer and market demands and help them to identify and resolve problems, while also optimizing sourcing, manufacturing and logistics operations, said Stephen Laaper, a principal at Deloitte Consulting LLP.
"Many companies have spent the last two or three decades building supply chains in a linear fashion based on the SCOR [supply chain operations reference] model and creating departments, processes, systems and careers that have all been siloed into these verticals," Laaper said. "The reality is, given the demands of today's supply chain and the agile organization of the future, this model isn't going to work anymore."
Digital supply networks for greater agility
Agility -- something that's hard to come by with a traditional supply chain -- is the promise of digital supply networks.
While tradition supply chain networks are well equipped to handle transactions such as processing invoices and purchase orders, DSNs are designed to ingest and analyze much more granular and frequent data flows.
One of the key benefits of the DSN approach is agility, as companies ideally should be able to instantaneously share data across all facets of the supply chain.
"Today's environment connects data from one part of the supply chain to the other, but you have to be intentional about it. If the connections aren't built, you're talking about three to four weeks [to pass the information along]," Laaper said. "With a DSN, all nodes are working together, which reduces the latency of data connection and transference from weeks down to zero."
Connecting supply chain partners
Interest in DSNs is on the rise, but adoption is still in the early stages, and reports differ on the number of actual implementations. A study conducted by Deloitte and the Manufacturers Alliance for Productivity and Innovation found only 28% of respondents have begun implementing DSNs.
However, a 2018 IDC Manufacturing Insights survey revealed more momentum for digital supply networks, with companies taking steps that may set the stage for DSNs. For example, the report indicated that 85% of survey respondents are already participating in some form of a multi-enterprise supply chain business network, said Simon Ellis, supply chain vice president for IDC Manufacturing Insights.
Obstacles to digital supply chain networks
Despite some upsides, obstacles to widespread use of digital supply networks abound. For example, a DSN success rests on good data, and companies still have plenty of work to do to get their data house in order, including ensuring accuracy and widespread availability through data governance initiatives. Organizations may also have issues with sharing data with other participants in the network. Security is another hurdle, as the shift to the cloud opens up a wider attack surface.
"As supply chains automate more functions and leverage the IoT, there are more points of vulnerability, and data security becomes a challenge," Ellis said.
Digital supply networks may gain traction in the transportation and logistics sector or in industries with commodity products, he said. There is less opportunity for DSNs in instances where there are direct supplier relationships that place a value on one-to-one relationships.
As is the case with many technology projects, the biggest hurdles to DSN implementations are organizational and cultural, Laaper said. Companies making the leap also need to get comfortable with shifting data to the cloud, which remains uncomfortable for many in the manufacturing industry, he said.
The biggest upside to these new supply chain networks is the multi-enterprise engagement, Ellis said.
"The gradual replacement of one-to-one relationships with networks is the game changer," he said. "That's what allows us to be faster and more nimble, while potentially being less expensive. Depending on the business, the prevalence of these networks may be higher or lower."