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What’s the difference between a supply chain and a supply network?

Innovations in supply chain management, advanced technology and progressive business thinking are moving the industry past the linear supply chain as we know it and into the era of the intelligent, distributed digital supply network. But what’s the difference? And why is this evolution happening?

Traditional supply chains are interconnected processes linking producers to consumers. They represent the aggregate flow of raw materials, components, labor, services and other resources as these things make their way through manufacturing, sales and distribution to end users.

Though the term itself may be relatively new, the concept of the supply chain hasn’t changed much since the Industrial Revolution. But recent decades have brought about an evolution in how value-added processes are managed throughout their lifecycle. Enter the digital supply chain network.

A digital supply network represents the next generation of value-added thinking—with an emphasis on systems integration, real-time data analysis, digital collaboration, transaction automation and applied intelligence. The supply network is more like an ecosystem than a chain, with each connected trading partner working to optimize buyer, supplier and carrier transactions.

A Closer Look at Traditional Supply Chains

The primary components of your everyday supply chain, more or less in order of aggregate workflow, include:

  1. Sourcing and Procurement:
    Managing the procure-to-pay cycle in its entirety.

  2. Manufacturing:
    The production process used to turn raw materials into finished products.

  3. Supply Chain Logistics:
    The transportation of goods from one point in the supply chain to another. This can include trucking, shipping, warehousing and distribution.

  4. Wholesalers, Brokers and Retailers:
    Organizations that sell the end product to customers.

  5. Invoicing and Collections:
    Managing the accounting follow-through of the order-to-cash cycle.

Pretty basic stuff, though the scale and complexity can be exceptional. Consider, for example, that your average mobile phone has thousands of parts. A manufacturer can have hundreds of Tier 1 suppliers, and so many suppliers in general, that no single person or part of the organization may even know who they are, much less if they’re delivering value. Manufacturers of airplanes or automobiles may have more than 15,000+ suppliers.

Trading partners within a traditional supply chain generally plan, organize, execute and analyze transactions independently and within siloes. Information is asymmetrical and visibility outside of each enterprise is often limited. Interactions are also often phase-gated, with one thing happening and then the next thing in sequential order.

Why is This Model Evolving?

Four trends have intersected to transform traditional supply chains:

  1. More progressive industrial tools and technologies
    Industry has become a lot more capable, from the dawn of the Industrial Revolution to the latest Industry 5.0 thinking. Successfully applied technologies from advanced analytics to machine learning, blockchain, robotics, the Internet of Things (IoT) and artificial intelligence are combining to make the old ways obsolete.

  2. Repeated pressure testing of global supply chains
    From COVID-19 to extreme weather to scandals, wars and unforeseen bottlenecks, global supply chains have been pressure-tested many times in recent decades. By the time new technology and processes were possible, the market was ready for change. Today, many enterprises are hedging their bets by bulking up supply chain networks from a global perspective, with 51 percent of global supply chain leaders increasing the number of network locations in the past two years. In addition, costs are rising. For example, sending a shipping container from Shanghai to Rotterdam costs around €13,000—up from around €2,500 pre-COVID.

  3. Continued corporate pressure for capital optimization
    As the 1987 Oliver Stone film Wall Street proclaimed, “Money never sleeps.” The pressure is always on to leverage supply chains to help generate premium returns on capital, whether the issue is optimal inventory investment, streamlining logistics, locking in customer confidence or adding value through supplier collaboration.

  4. Globalization meets global disruption
    The past century has seen industry become increasingly globalized, with suppliers down the street competing for business with suppliers on the other side of the world. At the same time, disruptions such as weather events, geopolitical instability, technical failures and other potential disruptions mean that supply chains need to be more agile than ever. In fact, supply chain disruptions lasting a month or longer now occur around every 3.7 years on average.

Exploring the Digital Supply Network in Detail

A digital supply network refers to the interconnected collection of all the suppliers, manufacturers, warehouses, and other entities involved in the delivery of a product from the raw material stage through to the end customer.

It is larger in scope than a conventional supply chain, and more focused on transaction efficiency than asymmetrical leverage. Rather than acting as numerous entities cycling through a linear progression of individual transactions from their own limited perspective, the digital supply network is a more complex and integrated structure.

A digital supply network allows for improved visibility, better forecasting and planning, streamlining and automation of processes and increased connectivity. Improved visibility into material and stock levels, orders, logistics and other aspects of the supply chain provide businesses with better insights and more comprehensive data to make smarter decisions. Improved forecasting and planning allows businesses to anticipate customer and market demands more accurately and adjust accordingly. Automating and streamlining processes, such as order placement and tracking, improves productivity and decreases costs. The structure makes it easier and more efficient to share data and coordinate operations, bringing:

  • Improved flexibility, with the ability to pivot on the fly

  • Strengthened QA/QC with automated verification of quality checks across the supply chain

  • More trading partner depth—reducing stockout and disruption risk and improving operational resilience

  • Greater supply chain sustainability, planning more efficient operations and logistics for a small carbon footprint

In a digital supply network, an auto manufacturer doesn’t have a single provider of wiring harnesses whose shipment is at great risk of arriving short or with incorrect parts. Instead, the plant is connected to dozens of wiring harness providers that have been pre-qualified and digitally integrated. When the plant’s inventory hits a trigger level, a request for quotation (RFQ) is automatically sent to multiple vendors—from which winning suppliers are selected based on price, delivery, specifications, etc. The order is submitted to the vendor’s back-office in real time. Optimal shipping is automatically negotiated and executed. A time slot is digitally selected to ensure there is no wait time for delivery at the plant. The correct wiring harnesses arrive on time and with little-to-no costly human errors.

The cost savings enabled by this kind of structure is worthy of emphasis. Reducing supply chain costs from around nine percent to four percent can actually double profits. Anticipated savings can be much higher for enterprises such as an industrial supplier, which has relatively high supply chain costs.

Conclusion: Digital Supply Networks as Strategic Advantage

Traditional supply chain management has helped deliver vast efficiencies to enterprises around the world in the last century. But new tools, technologies and challenges are taking contemporary industry past the supply chain and into the age of the digital supply network.

Interconnected and collaborative by nature, this new structure is helping organizations upgrade KPI performance, slash costs, reduce risk and have more confidence in their operations and business. Rethinking supply structures and the continued pressure to optimize capital while improving resilience will mean a total transformation of the way materials, components, products, capital, talent and information flows around the world.