Rise of digitalization in the supply chain

edited by Cristina

The conflict in Ukraine and the consequent rise in commodity prices, the rising cost of transporting goods and that related to inflation, with the concomitant threat of economic recession, are continuously reshaping the global supply chain scenario. Demand volatility and a macroeconomic environment that has never been so unpredictable have unhinged the industry, putting companies around the world on edge: according to Deloitte's report "Meeting the challenge of supply chain disruption”, 80 percent of organizations have experienced at least one supply chain disruption in the past 12 to 18 months with 50 percent saying they have experienced significant impacts on business productivity and profits. The challenge for the future is to figure out how to rebuild a new supply chain model that is more resilient, data driven, based on intelligent workflows and, of course, sustainable.

Technology is the focus

According to the MHI Annual Industry Report 2023, 74 percent of companies will increase their investments allocated to technology (of this percentage as many as 90 percent said they will budget more than $1 million in the next two years) leading to major global growth in the digital supply chain sector. In fact, according to Allied Market Research, the sector was worth more than $5 billion in 2022 and will reach $13.67 billion in 2030 with an annual growth rate of 13.2 percent. "Only through digitalization of all stages of the value chain is it possible to create a procurement system capable of dealing with new market disruptions. Data quality and governance will take priority because they will enable companies to improve the electronic exchange of information by increasing efficiency and speed”, explains Luca Musso, Chief Technology Officer of Primeur Group, a leading Italian multinational data integration tech- nology company present in 28 countries worldwide.

Data management

In what areas will technology go to build the supply chain of the future? Solutions for new tools for optimizing inventory and the logistics and distribution network (again according to the MHI report) are the area where the main investments will take place, given that within the next 5 years these programs will have an 87 percent adoption rate; they are followed by cloud technologies with 86 percent and automatic identification tools (such as RFID and barcoding) with 84 percent. Falling behind are more re- nowned technologies such as artificial intelligence and blockchain, which will be used by 73% and 68% of companies within the next 5 years, respectively. Proper retrieval and use of data will play a crucial role in harmonizing all new technologies and having constant information flows for the creation of an integrated end-to-end supply network. To improve the electronic exchange of information both within the organization and with business partners (suppliers, logistics and transportation companies, recipients who may adopt different standards), technology is needed to centralize and monitor the transformation of information and convert it into the most appropriate format for the business function that will need to use it. "Data integration will be a fundamental part of the supply chain of the future. Companies are faced with having to manage data that comes from heterogeneous sources as each entity involved uses its own applications and therefore produces or needs to receive data in a certain format. Just think about the fact that, according to the State of Supply Chain Management 2022 report, 80 percent of companies fail to digitally track the movement of their goods: it is clear that a new approach is needed to accelerate the digital transformation of the supply chain”, Luca Musso continues.

Goals, concerns and critical issues

In an ever-changing scenario full of unknowns, it is not surprising that the top priorities of supply chain companies are short-term. According to the PwC Digital Trends in Supply Chain Survey 2022, increasing efficiency (63 percent) and reducing supply chain costs (59 percent) are the items that garnered the most preference over other longer-term work organization issues such as digital reskilling of the workforce (19 percent) and corporate social responsibility and sustainability initiatives (also at 19 percent). On the concern front, 46 percent of respondents admit that it is shipping costs that are most alarming to operators (according to the Deloitte report, they increased 77 percent from January 2021 to August 2022) followed by problems related to suppliers who are struggling to meet order demands (43 percent). These problems in turn translate into outbound challenges: 31 percent of respondents cited the inability to fulfill ongoing contracts as a major operational concern. While digital technologies are an enabler for supply chain resilience goals, they also present challenges: again according to the Deloitte report, 88 percent of companies have concerns about cybersecurity issues (data or intellectual property theft, security of legal and financial information) due to the fragility of the supply chain security ecosystem. "The security of data movement and processing," says Musso, "is a critically important issue. In this context, data integration is essential because it allows for harmonized data integration among the entities involved in the supply chain, making information exchange more efficient and ensuring control, quality and security of processes”.

The trends of the future

Let's see what the seven trends of this industry will be in the future, according to an analysis conducted by Espresso Communication for Primeur on major international newspapers: Bullwhip Effect: also called Forrester effect, it indicates an increase in demand variability at the base of the supply chain: indeed, it only takes a small change at the beginning of the chain to cause an amplified effect at the other end. The price fluctuations had on raw materials and difficulties in order management could have an amplified effect during this year.

Servitization: the shift from product to service will also reach the supply chain: new digital technologies will enable the enhancement of the service component by offering a higher value product for the entire supply chain. Implementing this change, however, means modifying internal corporate organizational processes, and only through digital transformation can corporate business evolve toward new goals.

Data Integration: according to IBM's research "The resilient digital supply chain”, companies recognize data integration technology as the first priority action to build an increasingly smarter supply chain. According to 73 percent of organizations, integrating data from different sources is the main aspect of building a data-driven mindset for the entire supply chain.

Light blue collars: thanks to new technologies, supply chains are becoming increasingly innovative but also more complex. This is why the line between blue and white collar workers is becoming increasingly blurred: manufacturing and supply chain operations require both physical and technological skills, and digital transformation cannot stand alone and needs trained and skilled workers.

Cybersecurity alert: in 2023, cybercriminals will use more sophisticated strategies to infiltrate supply chain systems. As reported by Deloitte, 88 percent of companies have concerns about cybersecurity issues, and the supply chain offers several opportunities to break into the network via warehouse equipment or through Internet of Things (IoT) devices.

ESG on the launching pad: according to the Pwc report, 66% of respondents consider regulations and regulatory changes in different countries to be the most important ESG (Environmental, Social and Governance) challenge at the heart of the supply chain in the coming years. In addition to this, are cited the supplier-related risk (environmental pollution, corruption, etc.) with 58 percent and the creation of reliable ESG reports (with 54 percent).

Friend Shoring: geopolitical tensions have seen nations become more skeptical about international cooperation. Given the shortage of raw materials several nations are exploring national self-sufficiency in material supply and production. The term "friend-shoring" refers to building trade ties with like-minded and geographically close countries.

(Source: Espresso Communication for Primeur)