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The Digital Supply Network Explained

A digital supply network is a digitally interconnected grid of trading partners that allows participants to optimize their supply chains by enabling automated insights, transactions, communications, planning and negotiations. With a digital supply network, you can replace manual, human processes with digitally-enabled automation. There are plenty of benefits. You can update inventory levels as shipments are received, triggering re-orders at pre-set levels; supplier negotiation is automated, with supply chain systems automatically selecting the best vendor, rate, terms, carriers and routes; shipping data is digitized and optimized for speed, value and risk management; and information all across the digital supply network can be used to improve future performance.

In this article, we’ll break down the value of digital supply networks and the business case for why they’re worth the investment. We’ll cover:

  • The risks of manual supply chain processes
  • Potential benefits of supply chain connectivity
  • Key components of a digital supply network
  • Examples of a digital supply network in action
  • Types of digital supply networks
  • Challenges and considerations for implementation

Let’s dive in.

The Risks of Manual Processes

Without a digital supply network, manual processes happen at many touchpoints in a conventional supply chain. An employee enters inventory data into an Enterprise Resource Planning (ERP) system. Buyers negotiate contracts over the phone. Customers email purchase orders. Hundreds of other transactions occur—each typically with some human interaction. More potential for risk, delay, error, stoppage and waste is accepted than with a digital supply chain. But as supply chain technology and more progressive thinking proliferate, leaders and stakeholders across all industries are increasingly uncomfortable with letting these analog inefficiencies slide.

Potential Business Impact

Digital supply networks can strengthen practically every part of the balance sheet. Since each operation’s supply chain is unique, the potential benefits vary. But here are a dozen big-picture gains common among companies implementing a digital supply network:

  • Less administration
  • Lower operating costs
  • Lower working capital
  • Increased speed
  • Improved customer service
  • Greater organizational agility
  • Improved decision making
  • More operational scalability
  • Greater supply chain resilience
  • New business models
  • Greater profit-per-customer
  • Higher lifetime customer value

At the macroeconomic level, supply chain digitization and connectivity are beginning to have a major impact on global trade. By linking trading partners worldwide, digital supply networks reduce private-sector trade risk, create exponential capital and labor savings and improve supply-side resilience. Trading friction between nations can be reduced, and overall competitiveness can be increased—resulting in a more robust world economy.

Key Components of a Digital Supply Network

What are the three primary components to a digital network? 1.) the entities and transactions which are being connected, 2.) the methodology and supply chain technology used to establish or maintain these connections and 3.) the human planning, implementation, operation, optimization and assessment to make it all possible.

The entities being linked within your supply chains are generally the trading partners that it takes to aggregate resources, manufacture products, perform distribution and sell goods and services on the global market. These trading partners fall into four categories: suppliers, customers, carriers and other third-party service providers and facilities. All along the supply chain, value-added activities are performed that transform these materials, resources and components into a finished product ultimately delivered to the end customer. Within trading partners, specific transactions are mapped, digitized and automated—letting members of the network access insights, initiate transactions and make more holistic decisions.

Primary vs. Secondary Connectivity

Connectivity methods fall into two categories: primary and secondary. Primary connectivity methods include technologies such as physical sensors that fuel Internet of Things (IoT) visibility, data that’s collected when a customer signs for a delivery or a warehouse worker scans a barcode, or Global Positioning Systems (GPS) information. These technologies are actively generating raw data from the physical world with which to fuel your digital supply network. Some specialized software applications also fall into this category—transforming analog or physical information into digital data.

Secondary connectivity methods involve accessing existing data environments. This includes establishing connectivity between trading partners’ ERP systems, creating Electronic Data Interchange (EDI) capabilities, digital connection with third-party data environments, interconnected Supply Chain 4.0 platforms—any kind of integration which enables data-sharing with another digital system. As primary supply chain technology advances, secondary methods become more powerful. Progress in IoT applications, cloud computing, machine learning, blockchain, artificial intelligence, advanced modeling, augmented reality and more; it’s all serving to redefine what’s possible in a digital supply network.

As with any supply chain technology, people will still play a key role. On the front end, stakeholders must map out existing processes, identify technologies and platforms already in play, map key processes, prioritize areas of improvement, plan and perform implementations, monitor performance and more. So while fewer people will be required to perform manual tasks along the supply chain, there is plenty of room for human talent in terms of value-added digital supply network enablement. Only now participants will be able to apply teams against more strategic, and usually more interesting, tasks.

The Digital Supply Network in Action

Let’s take the example of an automaker that has invested in a robust digital supply network, and see a few tactical examples. Before anything is made, artificial intelligence and machine learning will have helped the company determine more accurate demand planning on the front end. Vehicle orders will be submitted directly through the system’s ERP, with no room for manual order entry errors.

The company’s major parts suppliers will be connected to its ERP environment, enabling visibility into required parts and materials to ensure production continuity and automated negotiation of pricing and terms. Real-time status for all supplier orders will be provided. As parts and materials are received at the plant, interconnected carrier systems will negotiate specific time slots for delivery—avoiding potential transportation wait fees, plant traffic or delays. In addition, automated cross-checking will translate supplier part IDs into the company’s part IDs to avoid confusion.

Digitized quality assurance checks will ensure all of the inputs are up to standards, centralizing all quality documentation. Sensors and interconnectivity with manufacturing robotics will distribute real-time data so that when the company runs low on something, predetermined inventory levels will trigger automatic reorders. Buyers can see where their order is at every phase of production.

When it’s time to deliver vehicles for retail, the system will query dozens of carriers—automatically selecting the best vendor, pricing and terms for each delivery. Real-time delivery data will be aggregated and shared across the supply chain. After delivery, if consumers flag a problem with the car, everything can be tracked back to a specific supplier, batch and part.

Types of Digital Supply Networks

Digital supply networks can be created using a variety of connectivity structures. In a basic linear supply chain model, each transaction is phase-gated so the next processes cannot typically start without the absolute completion of the previous phase. Resources flow from raw goods and materials to end products and then distribution—with significant potential for bottlenecks along the way.

A collaborative digital supply network uses a variety of methods to create digital connectivity between partners. Once various partners are connected, they form a digital trading and data environment allowing for real-time or near-real-time visibility, transactions and collaboration. In a collaborative supply network, trading partners across the supply chain are able to work together to perform mission-critical tasks that create value—despite their disparate technology environments. Rather than a linear process, collaborative digital supply networks deploy interconnected and automated supply chain functions such as planning, negotiation, procurement, logistics and others. This takes a much larger degree of trust and transparency than an analog-digital model.

Another evolution of this model is the platform-based digital supply network. In this approach, all trading partners connect to a shared end-to-end platform that digitally links stakeholders across the supply chain and facilitates collaboration, visibility and analytics. Rather than a hodgepodge of different environments, a shared platform helps organizations digitize and automate business processes, streamline operations and reduce costs. Supply chain platforms are designed to be scalable from the start, so they can accommodate large, complex supply chains more seamlessly and with better inherent risk management. In contrast, collaborative supply networks built from scratch may employ a variety of platforms, technologies, data formats and processes—potentially creating a lack of compatibility, scalability or economic value.

Some digital supply networks are created solely for the purpose of visibility. Others are created with automation in mind. Their capabilities range from relatively simple logistical information to encompassing millions of global transactions across countless business functions, processes, languages, time zones, currencies, facilities, companies and policy environments. Implementation time and complexity vary depending on the individual supply chain. It’s worth the focus, however. Because the benefits of a digital supply network are such that the phenomenon has migrated from a progressive concept embraced only by global market leaders to a mandatory requirement for any organization wishing to remain competitive in today’s economy.

Digital Supply Networks: Business Advantages

Supply chain digitization creates tremendous efficiency and increased agility for your business. Manual tasks become digital, and then automated. Process cycle times fractionalize across business functions. Redundancies are eliminated and procedures are refined. This is all reflected on the balance sheet. By streamlining the supply chain, businesses can reduce costs associated with labor, inventory, transportation and other expenses. This can translate into increased profitability and overall enterprise competitiveness.

Resilience is also improved. Pre-COVID-19, lean manufacturing and just-in-time inventory methods meant many supply chains were unable to withstand significant disruption. Inventory levels reached stock-out quickly. Suppliers weren’t able to deliver. And an economic domino effect paralyzed entire market segments. Digital supply networks have helped bolster business resilience post-pandemic. Interconnected trading partners aren’t just focused on lowering operating costs; they’re also now more focused on supply chain continuity. Inventory levels are more aggressively monitored. Alternative suppliers are at the ready. Digital negotiation and real-time supplier performance monitoring are bringing new confidence to supply chains worldwide.

These interconnected supply networks also bring new levels of visibility and accountability. Materials, components and feedstocks used to manufacture any end product can be instantly traced back to specific suppliers and batches. Quality documentation is automatically aggregated, organized and, if necessary, flagged. And the data environments of third-party facilities can be used to deliver a more complete operational and logistical landscape.

Supply chain digitization and connectivity also lead to better decision-making. Supplier decisions such as sourcing, inventory, invoicing and more can be made more advantageous. Customer decisions can better support buyer needs and preferences through more clarity and collaboration. Carrier decisions can automatically optimize every transaction, and keep everyone informed along the way.

In addition, digital supply networks help protect your most important assets—customer relationships. They help deliver strong business execution, living up to customer commitments and resulting in more profit-per-customer, greater lifetime customer value and stronger brand loyalty. In old-school linear supply chains, you might not be aware of a problem until the customer complains: an order is late, there’s a quality problem, the order was incorrect, etc. Digital supply networks give you a chance to potentially address issues before the customer comes into play.

Lastly, there is the matter of more profitable capital allocation. Considered individually, being able to right-size a particular inventory order, avoid an international customs fee or renegotiate a vendor contract might not seem like much. But over time, and at scale, these digitally enabled supply chain optimizations allow your business to significantly improve capital allocation. Connecting just one part of your supply chain can mean millions of dollars saved and redeployed at a higher rate of return. The impact can be astonishing, which is why so many Fortune 500 companies have invested in a race to build out their digital supply networks.

Challenges and Considerations

According to a recent survey, 75 percent of global manufacturing and retail executives think supply chain digitization is important. Yet 48 percent still admit traditional trading methods such as phone and email are the dominant ways they conduct business. So why the gap? If digital supply networks can redefine not just supply chain performance but also overall competitiveness, why aren’t all of the world’s leading corporations buying in?

The world’s leading companies are buying into the digital supply chain—it just takes time and most industries are experiencing the implementation gap right now. And while a majority of executive leaders agree that it’s important, only around 27 percent of corporations have figured out a clear pathway to a streamlined digital supply network. Many corporate leaders and supply chain stakeholders foresee a massive digital transformation taking place over just the next five years. The global supply chain technology market is set to top $6T USD by 2025 across a variety of sectors. But change isn’t easy. Investment in supply chain technology and infrastructure is happening, but such at-scale investments don’t happen overnight.

Concerns about data security and privacy also create friction. While every digitally connected trading partner represents potential efficiency, it also represents a potential security risk. Responsible risk management in a digital supply chain means trading partners must understand the security protocols of every third-party service provider and, in turn, their third-party providers. Data storage service partners must be audited and monitored. Each platform, software, network and hardware along the way needs security consideration. And then there is the social engineering aspect—people—including protocols for compromised hardware, former employees and intentional bad actors. None of these concerns is insurmountable, especially given advances in blockchain and other technologies. But to finish hardening the supply chain, you first have to get started.

It also just takes time to execute complex data integration at scale. For the Elemica platform, supply chain technology consultants engage with customers to help identify processes and technologies in play, prioritize aspects of implementation and map out a pathway to connectivity. Complexity varies by supply chain. However, the actual technology typically isn’t the biggest hurdle. What obstacle typically takes the longest time to bypass? The natural human resistance to change.

People are resistant to change, especially at scale, because it can require them to step outside of their comfort zone and adapt to unfamiliar situations. It can also cause uncertainty and insecurity, as people may not know how a change will affect their supply chain environment in general, and their professional performance in particular. It’s often comfortable to do things the same way they’ve always been done, even if that process is broken or wasteful. People can also be resistant to change because it can require a lot of effort and hard work, and they may be unwilling to put in that effort even if they see the long-term benefits.

There is also a cultural perception that automation of business processes means removing humans from the work. This is a falsehood, however. Eliminating manual processes through supply chain digitization isn’t the same as eliminating people. It simply means the people can add greater value—spending their time asking customers how they can better help them, rather than performing tedious data entry, for example. Everywhere you look across the supply chain there is an opportunity to eliminate a manual process through automation; and an opportunity for those freed-up people to add more strategic value.

Conclusion: Trading Partners are Connecting

The interconnectedness of today’s modern economy means that supply chains dictate the fates of not just corporations, markets and economies but also many lives and nations. Every day, innumerable trade variables create ripples across countless supply chains as events impacting producers, operators, transporters, distributors, retailers and buyers propagate around the world. As dynamic as modern supply chains are in nature, few changes are creating more of a transformative impact than the digital supply network.

The basics include which entities are being connected, how you’re connecting them and the planning and strategies it takes to get there. Numerous touchpoints ranging from advanced field technologies to specialized software that integrates emails or documents into ERP data can be used to fuel a digital supply network. These networks can be organically collaborative or built around a single trading platform. Once implemented, digital supply networks can radically improve efficiency, visibility, resilience and overall economics. The result can have a major impact on not just supply chain efficiency and effectiveness but overall business performance. That’s why investment in supply chain technology is predicted to increase. In fact, Pitchbook estimates that the global supply chain technology market is expected to top $6 trillion by 2025 across just freight, warehousing & fulfillment, enterprise supply chain management (SCM) and last-mile delivery.

The race is on. According to a recent report by MHI and Deloitte, almost 80 percent of supply chain leaders say they have accelerated digital supply chain transformation due to the pandemic. Two out of three companies surveyed will invest more than $1M over the next two years—and some will invest more than $10M in these initiatives. From inventory and network optimization to robotics, and automation and beyond, leading corporations across practically every industry are investing in digital supply networks to create more operational efficiency, deliver better corporate performance and out-maneuver competitors. And as advancement in supply chain technology continues apace, the pressure will be on to rethink how supply chains work—and what we can expect them to do for our business interests both now and in the future.