Opinion: How the digital supply chain increases profits

3 min read

Those with a digital supply chain will be reaping bottom-line benefits and realising new revenue streams whilst the rest scramble to catch up, says Martin Ackroyd, co-founder of automated component supplier Accu.

Digital transformation is, quite literally, changing the world. But when it comes to the often-cautious manufacturing industry, uptake on digital processes – including the supply chain – is relatively slow.

When we consider that digital transformation has the power to deliver staggering improvements in operational performance – and therefore, profits – it leaves us asking the question, why aren’t manufacturers taking up the available technologies at a speedier pace?

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In truth, the stubbornly slow uptake is not due to ignorance, nor the lack of knowledge or funds. In fact, in a 2019 report, 81 per cent of manufacturers said they are ready to invest in new digital technologies to boost productivity.

Often, hesitancy around implementing a digital supply chain is down to the barriers faced by change.

But that is not to say that an inherently traditional manufacturer would not reap the benefits of a digital supply chain. A study by PwC found that companies with highly digitised supply chains and operations can expect efficiency gains of 4.1 per cent annually, while boosting revenue by 2.9 per cent a year.

Those who adopt now, will gain huge advantage, whilst those who do not, will be left behind.

In a traditional supply chain, there are multiple, time-consuming supply decisions to be made. This internal process is crucial for the smooth operation of any company that manufactures or distributes anything – it knits the organisation together. The problem is that humans are imperfect, and mistakes can be made.

When this process is digitised, the system is automated from end-to-end by technology. It is overseen by a network of technologies and led by data – there are zero human touchpoints.

81 per cent of manufacturers are ready to invest in new digital technologies to boost productivity

External suppliers can integrate with the system, look at the buying patterns of a particular part, monitor internal stock levels, predict how many will be required within a specific period and directly trigger an order.

This level of integration allows both customers and suppliers – up and down the chain – to plan collaboratively, and the workflow can be modelled to provide fast, reliable information to stakeholders.

It offers a new degree of resilience, responsiveness and the unlocking of profitability – whilst providing high levels of ROI.

The removal of human intervention is beneficial in several ways. As already touched upon, humans are prone to making mistakes – whether it is keying in the wrong product code, or ‘clocking off’ five minutes early and missing an order. These seemingly small, inconsequential errors add up over the course of a day, a week, a year. Customers rely on an efficient, transparent service for their own production planning, so the removal of mistakes allows them to wholly rely on their suppliers, which increases trust, customer service and builds brand loyalty – reducing client turnover and, essentially, boosting the order book.

This reduction in errors also leads to cost savings. Making mistakes is an expensive business, with incorrect orders requiring refunds, and products either going to waste or being returned – which cost time and money to be processed and restocked. In a digital supply chain, manufacturers can focus on a ‘first time right’ strategy and either eliminate, or hugely reduce, mistakes. Any errors can then be analysed, and corrective actions can be put in place.

This neatly leads to efficiency – another key benefit of a digital supply chain. When processes are digitised and there is a reduced need for human input, throughput is increased. Previously slow, antiquated practices – which may have taken three hours for an employee to complete – now take minutes, saving capital which would have been spent on laborious wages, for profit-making areas of the business.

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A workload reduction also has the potential to reduce bloated supply chain and procurement departments – and therefore cut the monthly payroll. Of course, technology does not – and should not – completely replace humans, but reducing numbers, and therefore overheads, can make the difference between a profitable and a non-profitable organisation.

There is also the added value that comes with an integrated supply chain. When organisations – both upstream and downstream – are interconnected, business networks can collaborate, allowing heightened visibility of demand, inventories, capacity and potential bottlenecks. This level of connectivity provides fast, reliable and transparent forecasting information about when products can be delivered to customers, reducing lead times and vastly improving inventory management – playing into the hands of the just-in-time (JIT) inventory system and Kanban scheduling.

With a host of benefits of its own, JIT reduces wastage and the need for large, onsite stores. As we know, space is money, so helping customers to diminish these inventory costs opens manufacturers up to new, previously ‘unlocked’ areas of a market.

At Accu, we developed our whole business on the idea of being ‘digital-first’, including employing ex-Google talent to build our own, intuitive platform which makes the lives of our customers easier – we literally ‘plug in’ to our manufacturing partners’ data, triggering hundreds of orders per day.

Very few companies have a fully digital supply chain – but over the next five years, this will change. Those who get there first will already be reaping the bottom-line benefits and realising new revenue streams, whilst the rest scramble to catch up.

Martin Ackroyd, co-founder of automated component supplier Accu