Technology is rapidly changing the landscape of most consumer-oriented businesses in a fundamental way. Consumer buying behaviors and demand patterns are being significantly affected by high Internet penetration, extensive information availability, and rapidly growing social networks. This has a significant impact on consumer-oriented industries such as music, publishing, consumer electronics, retail and financial services.
But will this technology adoption by consumers have any major impact on the supply chains in traditional industries which continue to produce physical goods? Traditional supply chains rely on a mix of electronic and paper-based processes and documentation.
The organizational structure is often characterized by functional and geographic silos which do not share information openly, thereby leading to sub-optimal performance. Digital supply chains have the capability for extensive information availability and superior collaboration that result in improved reliability, agility and effectiveness.
Table of Contents
- What is Digital Transformation?
- A Framework to Digital transformation
- Digital transformation of Supply Chain
- Digitalization of Supply Chain
- Digital Transformation of Supply Chain case
5.1 Case study of Avaya
Digital transformation is the profound transformation of business and organizational activities, processes, competencies, and models to fully leverage the changes and opportunities of a mix of digital technologies and their accelerating impact across society in a strategic and prioritized way, with present and future shifts in mind. A digital transformation strategy aims to create the capabilities of fully leveraging the possibilities and opportunities of new technologies and their impact faster, better and in a more innovative way in the future. A targeted digital transformation strategy can literally revolutionize business activities.
Digital transformation helps an organization to keep pace with emerging customer demands now and, if sustained, in the future. Digital transformation enables an organization to better compete in an economic landscape that’s constantly changing as technology evolves. To that end, digital transformation is necessary for any business, nonprofit or institution that seeks to survive into the future. Sooner or later, Businesses that will refrain from digital transformation, will collapse. Thus, following the doctrine of “prevention is better than cure”, businesses should immediately adopt digital transformation.
Digital transformation frameworks are what separate successful digital transformation efforts from the unsuccessful. Because despite increasing talk and attention around the benefits of digital transformation, many companies don’t adopt a common business-focused digital transformation framework. IT can be found to be working in the direction of digital transformation one way, but the business does things another way and the organizations suffer severely as a consequence just on account of non-compliance of digital transformation.
Successful organizations operate with a clear vision of where the business is going, what it needs to achieve and how it intends to get there. A Business model, operating model, and digital transformation roadmap are vital for all companies, along with the ability to solve problems, defend against threats and exploit opportunities through the innovative integration of digital technologies. A common digital transformation framework helps them do this.
This post introduces a digital transformation framework that organizations can use to develop their digital transformation journey. The framework known as THRIVE is made up of six digital transformation guiding principles, which every organization needs to consider when embarking on digital transformation.
THRIVE is an acronym made from six words which are: Transformation, Holistic, Response, Innovation, Value, and Enterprise. THRIVE is not related to any one technology or industry. It is a way of thinking and approaching digital transformation from a business perspective. It helps leaders approach business transformation from all angles, and not be blinkered by digital marketing hype or specific technologies.
The word ‘Transformation’ is fundamental to the THRIVE digital transformation framework because leaders first need to recognize the fundamental difference between change and transformation before they can lead their companies on a journey of legitimate business transformation via digital transformation. While ‘change’ is required to maintain and modernize an organization, this is not enough to sufficiently elevate both its internal capabilities and external offerings.
The word ‘Holistic’ is integral to the THRIVE digital transformation framework because unlike business process re-engineering which focuses on business processes, or app development which focuses on technology, or projects which focus on producing outputs, digital transformation of business process requires an integrated and holistic approach.
The word ‘Response’ remind organizations why and how they need to respond strategically to the opportunities and threats they are presented with both inside their organization, and externally in the market.
Cloud, mobile, Internet of Things and Robotics, etc. will bring about the most rewarding business transformation when strategic digital transformation techniques are implemented. Only through the innovative convergence of digital technologies can companies truly transform through new business models and ways of working.
Plugging in individual digital transformation solutions in non-innovative ways soothes companies into thinking they are transforming, when in fact they are merely updating their technology and changing nothing fundamental about their business. This only achieves change, while business transformation should be the goal. They are merely updating their technology and changing nothing fundamental about their business. This only achieves change, while business transformation should be the goal.
The external value represents the benefits that digital transformation can create for its customers, while internal value represents the benefits delivered into the business as a result of transformation investment. External value is generated through digital business models shaped by strategic responses to what is happening in the market.
This enables companies to tap into the known and unknown needs of its current and potential customers, in ways that create competitive advantages and seize market share. These models can also be used to reclaim market share after a disruption and protect a company’s position in the market.
Transformation must encourage, embrace and educate people from across the enterprise and build a collaborative culture of new capabilities and mindsets. CEOs need to foster a transformation mindset among their executive teams, which is aligned with the strategic aims of the company. This transformation mindset then needs to shape the company’s culture at every level, to create an environment within which innovation and digital business transformation can thrive.
Digital transformation is the automation of existing manual and paper-based processes enabled by the digitization of information from an analog to digital format. Over the next five to 10 years, supply chains will change dramatically. Today’s supply chains are a series of discrete, siloed steps involving marketing, product development, manufacturing, distribution, and eventually customers.
Digitization will change that, bringing down walls and creating a completely integrated ecosystem that is fully transparent to all the players involved. This ecosystem will depend on several key digital technologies including logistics platforms, analytics, robots, and even 3D printing. Those who move quickly to digitize their supply chain will gain efficiencies, develop new business models and revenue streams, and create competitive advantage.
There are many examples of digitization in enterprises today, as there have been for many decades. Converting handwritten or typewritten text into digital form is an example of digitization, as is converting the music from an LP or video off of a VHS tape.
A supply chain is the network of all the individuals, organizations, resources, activities and technology involved in the creation and sale of a product, from the delivery of source materials from the supplier to the manufacturer, through to its eventual delivery to the end-user. In Supply Chain Management, digitization happens at the time when documents or invoices are shared among two parties taking part in the exchange of goods or services. There are many tools available for digitization which helps to make the supply chain management easier and smoother.
In the enterprise context, digitization is important both for dealing with analog information as well as ‘paper-based’ processes where ‘paper-based’ is nothing more than a metaphor for analog. It’s important to remember that it’s the information you’re digitizing, not the processes and that’s where digitalization comes in.
In an article published in the Harvard Business Review, it was stated that “within five to ten years, the supply chain function may be obsolete, replaced by a smoothly running, self-regulating utility that optimally manages end-to-end workflows and requires very little human intervention.” The authors call it “The End of Supply Chain Management”.
“Digitalization is the use of digital technologies to change a business model and provide new revenue and value-producing opportunities.”– Gartner
Supply Chain 4.0 denotes the application of the Internet of Things, the use of advanced robotics, and the application of advanced analytics of big data in supply chain management which purely signifies placing sensors in everything, creating networks everywhere, automating anything, and analyzing everything to significantly improve performance and customer satisfaction.
Industry 4.0 creates a disruption and requires companies to rethink the way they design their supply chain. Several technologies have emerged that are altering traditional ways of working. On top of this, megatrends and customer expectations change the game. Besides the need to adapt, supply chains also have the opportunity to reach the next horizon of operational effectiveness, to leverage emerging digital supply chain business models, and to transform the company into a digital supply chain.
Managers begin by determining whether they must prepare for Digital Disruption. Digital Disruption ultimately destroys and replaces physical businesses with purely digital solutions. Management’s primary task, therefore, is to change the mix of business to compete effectively in a purely digital world. A holistic DT, on the other hand, merges the best of digital and physical worlds into Digital innovations that create wholly new sources of value.
One of the cases of digital transformation in Supply chain management is the transformation of high-tech giant Avaya. The company trusted in the transformation when they decided to radically change up how it manages its supply chain. These efforts made them become one of the best in the business supply chain from a self-proclaimed worst-in-class supply chain. The rewards were well worth the efforts they put into this transformation.
By digital transformation, Avaya reduced supply chain expense by 50% and decreased cash tied up in net inventory by 94%. At the same time, a 224% improvement in inventory turns could be seen and pushed on-time shipments to a record best 97% on-time. At the same time, a 224% improvement in inventory turns could be seen and pushed on-time shipments to a record best 97% on-time.
They achieved this because they had perseverance, patience, and a clear vision to exceed employee and customer expectations while fueling profitable growth. The company also made substantial investments to attract, train and retain top talent, while building a corporate culture that engages those willing to contribute to Avaya’s success. Avaya also measures and reports on more than 100 metrics, each aligned with the company’s four pillars: customer satisfaction, employee satisfaction, cash-to-cash, and supply chain expense. Rigorous tracking of these metrics helps Avaya feel confident it’s on track to realize success.
Supply chains are extremely complex organisms, and no company has yet succeeded in building one that’s truly digital. Indeed, many of the applications required are not yet widely used. But this will change radically over the next five to 10 years with different industries implementing Digital Supply Chains at varying speeds.
Companies that get there first will gain a difficult-to-challenge advantage in the race to Industry 4.0 and will be able to set, or at least influence, technical standards for their particular industry. The advantage will by no means be limited to the greater efficiencies. The real goal will be the many new business models and revenue streams the digital supply chain will open up.
Reference: Think Digital, Think Heptagon
Schrauf, Stefan; Berttram, Philipp; Industry 4.0 & How digitization makes the supply chain more efficient, agile, and customer-focused
Raab, Martin; Digital Transformation of Supply Chains