Analysis

The rise of the digital supply network

Industry 4.0 enables the digital transformation of supply chains

Supply chains traditionally are linear in nature, with a discrete progression of design, plan, source, make, and deliver. Today, however, many supply chains are transforming from a staid sequence to a dynamic, interconnected system that can more readily incorporate ecosystem partners and evolve to a more optimal state over time. This shift from linear, sequential supply chain operations to an interconnected, open system of supply operations could lay the foundation for how companies compete in the future.

We call this interconnected, open system a digital supply network (DSN). DSNs integrate information from many different sources and locations to drive the physical act of production and distribution. The result can be a virtual world, which mirrors and informs the physical world. By leveraging both the traditional and the new, such as sensor-based data sets (such as unstructured data), DSNs enable integrated views of the supply network and rapid use-case-appropriate latency responses to changing situations.

Many organizations already on the path to creating DSNs are shifting their focus away from managing and optimizing discrete functions, such as procurement and manufacturing. Instead, they often use DSNs to focus more holistically on how the full supply chain can better achieve business objectives, while informing corporate, business unit, and portfolio strategies. Indeed, DSNs increasingly allow supply chains to become an integral part of strategic planning and decision making. To this end, organizations can develop and leverage multiple DSNs to complement different facets of their strategy and more effectively target specific needs.

Historically, supply chain professionals managed the "four Vs" (volatility, volume, velocity, and visibility) as they attempted to optimize results across a series of objectives that include total cost, service, quality, and support for innovation. These traditional priorities are not likely to change, but going forward, supply chain decision makers should be able to achieve higher levels of performance with supply chain capabilities developed with new digital technologies. Additionally, supply chain professionals can help create new sources of revenue by providing new and faster access to markets, and supporting the production of smart products. Such opportunities would add revenue to the existing list of objectives for the supply chain.

Change is often hard, but the digitization of information and the application of advanced innovative technologies present the opportunity to drive business value throughout the supply chain. Moreover, digital disruption can change supply chains in any industry. To avoid becoming a victim of disruption, it helps to understand these shifts and adapt accordingly. In this report, we explore and analyze the next stage of growth for supply chains in DSNs by:

  • Tracing the technological evolutions that enable the rise of the DSN
  • Defining what the DSN is, along with its role within a wider business strategy
  • Examining the trade-offs inherent in a typical supply chain, and identifying the characteristics that can mitigate those trade-offs
  • Considering how to build a DSN
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