Trade terms are disrupting digital supply chain investments

The investments companies are making in digital supply chain technologies have yet to pay off. Yet the digital transformation of supply chains, including the adoption of cloud applications and other technologies such as advanced analytics, is needed at a time of severe supply chain disruption.

That’s one of the findings of the recently released “PwC Digital Trends in Supply Chain 2022” report by the global accounting and professional services firm.

In the report, 80% of respondents said that investments in digital supply chain technologies have not yielded the expected results. Respondents were 244 operations and information technology managers directly involved in supply chain operations, including supply chain managers and directors.

The report shows that digital supply chain transformation projects are hampered by budget constraints and high employee turnover, and struggle to develop the talent needed to digitally transform supply chains. The report also shows that while digitization is important, keeping the lights on is even more critical right now.

Unprecedented changes in supply chains

While companies may struggle to realize the expected benefits from investments in supply chain technologies, the need to implement these technologies is critical due to rapidly changing business conditions, according to Matt Comte, Head of Operations Transformation Practices at PwC.

It’s an unprecedented environment we’re seeing, and there are geopolitical developments that are changing the way we think about supply chain.

Matt CountyOperations Transformation Practice Leader, PwC

Supply chains have been refined over the years to be linear and just-in-time, and have existed in a world largely unaffected by inflation, Comte said. These linear, just-in-time supply chains are now trying to exist in a different world, one of rising inflation and disruptive global events.

“It’s an unprecedented environment we’re seeing, and there are geopolitical developments that are changing the way we think about supply chain,” he said.

Companies are making decisions to change supply chain practices, including reshoring, offshoring and improving manufacturing and distribution networks, Comte said. However, there is no single answer that fits all businesses.

“We’re starting to see four or five different archetypes coming out of different choices,” he said. “We are seeing a very dynamic supply chain environment.”

Efficiency, cost control trump modernization

As companies realize the need to modernize and digitize supply chain systems, economic conditions over the past two years have led them to prioritize keeping business running over adding new ones. digital applications to improve supply chains.

The PwC report indicates that increasing the efficiency of supply chain operations for the next 12-18 months was a top priority for 63% of respondents, while managing and reducing costs were cited by 59%.

These two priorities outweigh those involving greater digitalization of the supply chain, including the automation of processes and analytics (21%); increase resilience and responsiveness (21%); upskill employees for digitization (19%); increasing sustainability (19%); digitization and automation of manufacturing (16%); and transforming procurement practices and operating models (16%).

“This suggests that many companies are more focused on short-term results, but have yet to focus on some of these potentially transformative actions,” the report said.

Matt County

This goes against what was expected before the survey was carried out, according to Comte.

“I thought we would hear more active investment in digital talent, more active implementation of AI and analytics, more dedication to functional industrial applications that drive the point solutions needed to run the plant and integrate into the supply chain,” he said. “But we haven’t heard that. Instead, we’ve heard from the scale that our customers are focused on two things today: increased efficiency and reduced costs.”

Getting results can take time

According to the report, when it comes to digitally transforming the supply chain, there are a variety of investments in emerging technologies for supply chain operations.

The cloud is leading the way, with more than a third of respondents indicating that their companies are planning at least $1 million in the cloud, while other technology investments include third-party analytics, scanning and intelligent data capture, RFID and IoT.

These investments in supply chain technology have had some benefits, but 80% of respondents said they have not fully achieved the expected results, including diversification of the supplier base, better valuation of supplier risks and greater responsiveness to changing business conditions, according to the report.

That doesn’t mean results will never be achieved, though, and companies will need to ensure they’re ready to leverage technologies and be clear about business needs and requirements, according to Comte.

“But it won’t be easy, and from the start of the project you need to be very clear about what the technology does and where the investment is needed,” he said. “You also have to think about the investment of time and resources, because sometimes we underestimate the cost and we overestimate the speed.”

Supply chains must transform to meet new challenges

Industry experts believe that supply chains must undergo digital transformations to meet the challenges of the post-COVID-19 economy and global instability.

Mike Jette, Head of Telecommunications, Media and Technology Industry, GEP WorldwideMike Jette

Going forward, resilience must be at the heart of supply chain design, said Mike Jette, head of media and telecommunications technology industry at GEP Worldwide, a company based in Clark, NJ, which provides software and consulting services related to the supply chain. .

The supply chain disruption caused by the war in Ukraine and other events should provide evidence that more investment in digital supply chain technologies is needed, Jette said.

“Supply chain professionals are a little overstretched and have over-emphasized multi-layering, [seemingly] hyper-efficient supply chains,” he said. “We need to rethink with resilience as one of the tenets, not just lowest cost in a perfect world, and that lowest cost dream usually doesn’t come true because the world isn’t perfect. .”

Events like the war in Ukraine and the COVID-19 pandemic have provided a unique opportunity to step back and assess known weaknesses in longstanding supply chain practices, according to Simon Ellis, practice director at IDC.

“On some level, it’s good to see that supply chains have been able to respond as well as they have. [to disruptions]”, Ellis said. “But in other ways, it’s disappointing that there were a lot of things that we recognized as problems but didn’t do anything about them.”

Practices like just-in-time worked well in an era of unconstrained supply chains, when materials were readily available and companies didn’t have to keep a lot of inventory.

“It works really well until the world does a collective face factory, then suddenly having extra inventory on hand is really helpful,” Ellis said. “So it’s a thing that [supply chain professionals] need to think about: Does the inherent efficiency of just-in-time justify the problems when a lot of things go wrong? I don’t think anyone knows the answer to that question – the answer is per individual company.”

Jim O’Donnell is a TechTarget News Writer who covers ERP and other business applications for SearchSAP and SearchERP.

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