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The Four Stages of Digital Adoption in Supply Chain

Where is your procurement organization on the supply chain digital adoption curve? A new industry report helps companies answer that question and more.

As more companies adopt digital business strategies, many of those approaches are being used to improve supply chain efficiency, transparency, and sustainability. These strategies directly impact procurement, which is steadily shifting over to a more digitalized, automated mindset year over year.

According to a new report from the Material Handling Institute (MHI), most of those transitions are based on a four-step process outlined in “2019 MHI Annual Industry Report: Elevating Supply Chain Digital Consciousness.” “As the pace of supply chain innovation escalates, so does the price of inaction,” MHI CEO George Prest points out in the report. “Leaders will outpace their competitors faster than ever.”

Calling digital adoption an “evolutionary process of implementing digital technologies and capabilities from the ground up, building on a foundation of data that can be analyzed and leveraged to drive business decisions,” MHI says that this evolution occurs naturally as supply chain organizations integrate new digital technologies in their operations.

Of course, it takes more than just “natural motion” to impact major changes, and especially for companies where activities like procurement have been handled the same way for years (or even decades). Breaking down digital adoption into four distinct phases, the association says the process kicks off with the collection of data through digital connectivity and then moves into creating improved supply chain value and insights from that base data—an activity that in the digital world incorporates automation, advanced analytics, and—ultimately—artificial intelligence (AI).

Here’s how it breaks down the digital adoption process and a look at where companies are right now on the curve, based on MHI’s survey:

Wanted:  Digital Connectivity

The process of collecting, cleansing, and organizing data from multiple points and sources throughout the supply chain—including supplier and other partner data that helps enable real-time, end-to-end visibility—digital connectivity serves as a strong foundation for the digital supply chain. It essentially “primes the pump by taking the digital information that is now so readily available and converting it into a more usable form,” MHI states, noting that in most cases this stage involves collecting data from cloud computing and storage; sensors and automatic identification; the Industrial Internet of Things (IIoT); and blockchain and distributed ledger technologies. According to a recent MHI survey, 70% of organizations are already using at least one of these four connectivity-related innovations in their operations.

Automating Key Processes

This is where companies start using automated systems, robotics, and augmented technologies to perform repetitive, resource-intensive supply chain tasks—all with a goal of streamlining operations and making them safer, quicker, and more reliable. MHI points to robotics and automation; autonomous vehicles and drones; wearable and mobile technology; and 3D printing. Currently, more than 53% of companies that MHI surveyed say they’re using at least one of these automation innovations in their operations. “This majority adoption rate of automation-related technologies reflects a slow but steady increase over the past six years,” the group states, “as supply chains have positioned themselves to address constant cost pressures and the chronic workforce shortage.”

Leveraging Advanced Analytics

This stage is all about converting mountains of data into valuable nuggets of insight using inventory and network optimization tools and both predictive and prescriptive analytics. At this point, MHI says that just 30% of its survey respondents are using predictive or prescriptive analytics in their operations. The good news is that while adoption rates for this stage are not currently as high as for the first two stages,” it says, “supply chain executives do value advanced analytics and 87% plan to put it into practice within the next five years.”

Around the Next Corner: Artificial Intelligence

Decision-making that’s enabled by machine learning—where computers learn from data, rather than being pre-programmed to follow a fixed set of rules—AI takes the digital information from the first three stages of digital adoption and then uses it to generate smart insights. Along the way, AI also learns from the patterns, behaviors, and feedback collected through various digital and human interfaces. According to MHI’s survey, 79% of companies believe AI will be a core business competency in less than three years, and 88% believe it will be instrumental in managing risks and improving predictability. MHI sees demand forecasting; supply chain planning; warehouse management; inventory management; and logistics, shipping, and transportation as the key supply chain areas where AI will have the most applicability in the future.

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