Rise of the Machines: How Digital Transformation Has Brought Supply Chain to the Forefront

Automation and AI were popular topics pre-pandemic, however, with Covid-19 highlighting fragility and flaws in supply chains across the world, urgency to implement them significantly increased as the world came out of lockdown.

In this article I explore the transition the supply chain has had from being in the background to a central role of business, and the potential impact digital transformation, AI and automation have on the function.

Re-prioritising Supply Chain 

Supply chain has changed as a function; the transition began before the pandemic but was certainly accelerated by it. 

The supply chain was commonly considered a support function, rather than a strategic one. It was seen as a purely tactical function that operated in the background, without much attention from top management and operating in silo from other business functions like marketing, sales, finance or R&D. 

Pre-pandemic, supply chains were designed around predictable demand patterns and operated just-in-time (JIT) inventory practices to minimise costs attributed to holding inventory. 

However, a surge in geopolitical tensions, extreme weather events and an increase in unpredictable world events has brought the supply chain to the forefront – even attracting public and media attention. 

Now, rather than being seen solely as a support function, supply chain has become an organisation’s competitive advantage. Whilst supply chain leaders used to be in the background, they now play a critical role in the boardroom and sit alongside – if not above – sales teams.

The Dawn of the Digital Supply Chain 

The supply chain model used to be linear, designed to move products from the point of origin to the end consumer in a step-by-step process. The linear model is no longer fit for purpose to address the ever-changing needs of today’s global economy. 

Instead, an interconnected supply chain is needed to enable an organisation to see everything that is happening – and might happen – that will affect it. 

In a market that is dictated by real-time changes in customer sentiment and world events, demand in less predictable and supply is less dependable. Whilst the supply chain was previously dictated by sales, it now needs to be aligned to a significant number of internal and external factors. 

To keep up with both customer demand and competition, companies are starting to stand up and lead based on efficiency and optimisation of their supply chain. By adopting new technologies and embedding AI, companies are able to become more flexible and responsive to the ever-changing environments they operate in.  

Building a Digital Supply Chain 

Digital transformation and the adoption of new technologies – from AI to robotics – into a supply chain brings with it significant benefits. Supply chains can use data and analytics to make better informed decisions and deliver products on-time-in-full (OTIF). AI-powered solutions can also empower supply chains with reduced downtime, inventory levels and error. 

Whilst the digital supply chain is still a relatively new model, there are industrial manufacturing organisations transforming their supply chains through the implementation of new technologies. 

Predicative AI 

Siemens has implemented AI-driven predictive maintenance across its manufacturing facilities. By analysing data from machinery, Siemens has reduced unplanned downtime by up to 20% and has increased the lifespan of critical equipment by as much as 25%. 

AI-powered analytics have also enabled Caterpillar to reduce excess inventory levels by 15-20%. 

Internet of Things (IoT) 

Johnson & Johnson is developing a new technology stack that will both improve customer experience and highlight new business opportunities. Central to their new stack are open-source IoT platforms that are increasing agility across their supply chain processes. Since launching the new tech stack, Johnson & Johnson has reduced product release times from an average of 35 days to just two hours. 

Caterpillar are using AI in predictive maintenance. Powered by IoT data, it has led to a reduction in machine downtime of 20-25%. It has also reduced maintenance costs by 10-15%, as parts are only replaced when necessary, rather than on a previously fixed schedule. 

Machine learning 

General Electric’s Predix platform, which incorporates AI and machine learning, has been used to monitor and optimise the performance of their industrial assets, reducing maintenance costs by up to 20% and decreasing downtime by 30%. 

Robotics 

BMW has introduced cobots (collaborative robots) intro several of its manufacturing plants, resulting in a 10% increase in production efficiency.  

Siemens operates a fully automated digital factory where robots and AI systems handle the production of programmable logic controllers. The defect rate of the factory is 0.001% due to the precision and consistency the robotic systems provide. 

The New Faces of Supply Chain 

Digital transformation of the supply chain brings with it new talent requirements. 

Whilst traditionally IT professionals were brought in to support the management of a supply chain, organisations now need a blend of traditional supply chain management skills and new competencies related to digital transformation. New skills supply chain leaders need to have include: 

• Digital literacy, including an understanding of emerging technologies and proficiency in data analytics.
• Strategic vision and innovation, including the ability to design and implement digital transformation strategies for their supply chain.
• Digital change management, so that they can successfully guide supply chain teams through phases of digital transformation and foster a digital-first culture.
• Technical understanding, including familiarity with digital supply chain platforms, e.g. ERP, CRM, and SCM systems. 

The Evolving Role of the CSO 

The elevation of supply chain within an organisation has in turn also evolved the role of the Chief Supply Chain Officer. Because a supply chain now has touchpoints in many areas of an organisation, the CSO needs to be a more strategic leader and manage broader programs and teams. 

Previously a CSO mainly oversaw logistics and procurement, however, digital transformation has introduced real-time data insights across the supply chain, from suppliers to manufacturing to customers, and the CSO now needs to oversee the manufacturing operations as well. To successfully do so, a CSO needs to develop the following skills and knowledge: 

• Technical and digital proficiency: specifically a working understanding digital transformation strategies, as well as of industrial IoT, robotics, automation, AI, machine learning and data analytics.
• Operational excellence, including knowledge of lean manufacturing, Six Sigma and other process improvement methodologies.
• Financial acumen, especially with regards to cost of goods sold (COGS), capital expenditures and ROI for new technologies. 

Conclusion 

With the benefits of a digital supply chain prompting more organisations to evolve their existing function, there is a growing demand for leadership talent that can successfully implement and manage the digital transformation. 

One route an organisation might take is to bring in a consulting company, however, they are an expensive solution and only support with the digital transformation in the short term. Once the company has delivered the new solution, an organisation is left without the talent in-house to manage it. 

Instead, an organisation should build in-house capabilities and bring in talent that has the experience and skills necessary to deliver a digital supply chain. 

Proco Group partners with industrial manufacturing organisations to source in-demand, digital talent into critical roles across their supply chain. Our extensive, global network of supply chain leaders enables us to find the right people to deliver success for the organisations we partner with. 

For a conversation about your digital supply chain strategy and the talent needed to deliver it, please don’t hesitate to get in touch. 

Tim Essex

Senior Partner | Industrial Markets | North America

T: +1 778 251 1085

E: tim.essex@weareprocogroup.com

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