5 essential elements of digital supply chain

5 essential elements of digital supply chain

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Introduction

The modern era of technology presents businesses with literally unlimited opportunities, but it comes with a price – companies must keep up with the pace of innovation, the speed of change and an ever-increasing competition. The latter, nowadays, became particularly challenging for many traditional businesses as competition often comes as a total surprise in the form of market disruptions from technology-driven startups. Recall what Amazon did to e-commerce, Uber to taxi business and Airbnb to the hotel industry.

While the key elements presented in this post are essential for digitizing any business model, they are particularly important for supply chain solutions as:

  • traditional end-to-end solutions are very fragmented and often consist of software from different
    vendors stitched together with rather fragile integrations
  • effective supply chain management covers not only business internal workflows but also communication and
    information exchange with vendors and partners
  • supply chain often is built on trust and personal relations, yet every participant tries to ‘hide’
    sensitive information and take advantage based on his unique knowledge or position in the market

This list can go on. While most of the market players expect major disruptions to come, and VC investors have poured many hundreds of millions into supply chain and logistic innovation startups in the recent years ( such as UShip and Transfix ), very few have a clear vision of the future supply chain solution which will help to overcome the modern challenges and be successful in the data-driven economy of speed.

Now, let’s talk about what are those vital elements of the digital supply chain.

Cloud

The first element is Cloud. It seems to be obvious and ‘cloud’ had turned from a buzzword into an everyday routine quite a time ago. Yet our experience shows that many traditional businesses do not have enough expertise in technology to realize cloud computing advantages to its full potential. 

Let’s start with the most basic definition of cloud computing. According to PC Magazine:“ In the simplest terms, cloud computing means storing and accessing data and programs over the Internet instead of your computer’s hard drive.”

Even in its simplest form, which can be achieved just by migrating your existing IT infrastructure, databases and applications to the cloud and providing your users access to it over the internet, your business can gain a lot of value:

  • reliability: fault tolerance, high availability and disaster recovery
  • safety: it may feel counterintuitive, but if implemented right, cloud-based IT infrastructure will better protect your data, thanks to multiple layers of protection, deep expertise of the cloud providers and tools and services they provide
  • availability: access from the internet allows users to work from almost any place including homes which is not  a luxury but rather a ‘must be’ reality as we all learned with COVID-19 pandemic ( though, there could be additional limitations related to user interfaces and technologies they are built on, more on it below ).

It is a great start, but unfortunately by itself it is not sufficient for today. The most successful companies are and will be those which embrace cloud technologies to gain an advantage from more advanced technical concepts, such as:

  • elasticity: ability to self-provision additional compute resource on-demand with efficient ‘pay-as-you-go’ cost model
  • dynamic scaling in and out: ability to scale out to accommodate peak loads and scale in to noy overpay for unused resource
  • infrastructure as code: automated and efficient IT infrastructure provisioning and configuration
  • continuous delivery and continuous deployment: a practice to release new features and versions of software in short incremental cycles in a reliable and fully automated way
  • serverless cloud-native applications: a way to design, build, deploy and operate software without managing servers,physical or virtual, hence eliminating any infrastructure-related overhead and focusing purely on delivering useful business features.

A quick note on user interfaces. Even if you moved your servers to the cloud, but users still have to use native desktop client applications pre-installed on the office workstations, it may become a business impediment in the economy of speed. Consider migrating your user interfaces to WEB and mobile applications, and keep in mind that they must be responsive and work on different devices, screen sizes and on a low network bandwidth.

Modular architecture with open API

Cloud computing discussed in the previous section provides a solid foundation, but in order to fully embrace it, your digital supply chain solution must have the right architecture. 

Hence, we call modular architecture with an open API the second essential element.

The concept of modular architecture in software development is best described these days as ‘microservice architecture’ and often contrasted with a more traditional ‘monolith application’ approach. Regardless of the exact terminology, this architecture style is based on the idea of building a complete end-to-end solution as a collection of smaller purpose-built software services working together to implement complex business workflows and processes.

Each module, or service, exposes well defined API endpoints which can be invoked by other services, or even by external systems or integration interfaces. In fact, in this approach the difference between some application service or an external system becomes vague, as at enterprise level a solution can be built as a ‘mix and match’ from in-house developed components, software form 3rd party vendors, consultancy agencies or even 3rd party services provided as SaaS (software-as-a-service).  And ideally, your supply chain solution architecture must have another property – be event-driven.

Why is this so important? A simple answer is to be able quickly and with minimal efforts (meaning, investment), adjust or enhance your existing business workflows or implement new ones to respond to changes on the market or to try new business ideas.  So it does not just improve your digital solution resilience and ability to scale, but may be an enabling factor for business innovation.

Focus on partnership and networking

The next essential element is the focus on partnership and networking.

Let’s briefly look back at the evolution of business automation software. 

First developed software programs were focused on automating time-consuming routines replacing expensive and error prone manual labor in the operational context of a single company.  And they did such a great job, that they defined the vision and the mindset for computer-based business automation for many years. And this type is still dominating in the world of enterprise and business software. For example, we still use Microsoft Word and Excel, not even speaking about more specific purpose-build business applications.

Development of communication technologies and rise of the internet, enabled a second wave of software programs aimed at communication and collaboration. An email client could be a good example, and for a number of years, supporting some form of data sharing and collaboration has been considered as a ‘must have’ feature for many business applications. Mentioned above Microsoft Word and Excel evolved into Office 360, a great tool for team work.  But still mostly used by people within a single company. Email still remains a major tool to communicate with customers, vendors and partners. At best, most of the modern business solutions can automate sending emails. 

But simple communication and even collaboration with your established counterparts, how it is supported by the current supply chain solutions, will not be sufficient in the future. Perhaps very near future. The next generation digital supply chain will have to explore complex professional networks of suppliers, producers, forward agents and all kinds of carriers to discover new  business opportunities and exploit them for optimizing cost or speed up time-to-market. Think about personal social networks. Facebook or LinkedIn are pretty good in suggesting potential connections. The value is fairly limited in case of personal networks, but can be tremendous for businesses in the scope of the supply chain optimization problem. 

To achieve that, your digital supply chain solution must be connected to some larger ecosystem. Both: VC investors and current logistic market players have recognized the opportunity and for a number of years have been investing in various projects aimed at building such ecosystems. And while those are still mostly fragmented and cover some narrow sub-domains (a certain geographical region, or a specific market segment), the very fact provides a clear indication of the future industry direction. The next step will be consolidation and integration. 

What does it mean for you? You need to start re-thinking your digital supply chain solution to prepare it for integrating into a larger ecosystem. Implementing modular event-driven architecture with open API, described in the previous section, can be a good start. 

AI ready

While a claim for ‘AI first’ may be a bit aggressive, ‘AI ready’ makes perfect sense to be considered as an essential element of any digital business, including supply chain management solutions, our-days. 

If required, please read one of our previous posts ‘What is AI?’ for a quick and human friendly introduction into the topic of AI (artificial intelligence). Perhaps you will be surprised to learn that even your current supply chain solution already benefits from some algorithms or techniques which generally belong to the AI domain, such as constraint satisfaction solving methods used in planning and optimization. 

First, let’s deal with the terminology. 

‘AI first’ is a concept emphasizing the priority of AI technologies at the very core of your digital business. If, for example, your current solution captures the data and makes it ready for reporting and analytics to support your decision making process, the ‘AI first’ solution will capture the data and, first of all, use it to train machine learning models.  Moreover, when a human user will request some information from the system, the system may infer the user’s intentions and return results according to that, or provide some additional information or make some suggestions based on the context, available data and other various factors.

Technology innovation companies such as Google and Microsoft have announced their strategies as ‘AI first’. For others, more traditional businesses, it can be a bit too early to make such an aggressive move. AI is a rapidly developing space, and for those who are rather AI-technology consumers than providers, a more practical approach is to get ready, watch closely and look for opportunities to explore different AI technologies and techniques to solve specific problems for your business. This is what we call to be ‘AI ready’. 

To better understand, what exactly does that mean ‘to get ready’, let’s look at how AI will transform the B2B world.

Traditionally,  logistic and supply chain business is built on personal relations. Each company has its own database and some business intelligence solutions used by humans to make decisions. In this scenario a personal human experience, supported by data, plays a significant role.

Now, let’s imagine how the decisions will be made and executed in the ‘AI first’ B2B world.

We can notice two key differences:

  • intelligent agents are introduced in business workflow at first, to assist, and eventually, completely replace humans 
  • the intelligence of an AI agent directly depends on the amount and quality of data, hence data play crucial role

To start transition toward an AI ready state, the very first step is to realize the value of data and become a data-centric company. More data you have today, the more intelligent your digital business will be tomorrow. There is an interesting study on the Value of Data by Wendy C.Y. Li , Makoto Nirei , and Kazufumi Yamana for more insights on this topic.

So, first, your digital supply chain solution will need to collect and process a vast amount of data at large scale. And the key to that challenge is the first essential element  which is Cloud. It can provide various cost efficient data store technologies, as well as literally unlimited on-demand scaling to support your business growth.

Second, your digital solution will need to integrate intelligent AI-driven agents (which are just programs, or services backed by AI technology) into your business workflows. And this brings us back to the second essential element – modular event-driven architecture with open API.

And, finally, in order to do so, you will need one more essential element, which we will discuss in the next section.

Technology expertise

You need to have expertise, or at very least, awareness in modern IT technology, and there is no way around it. Not surprisingly, Andreessen Horowitz VC firm’s (one of the best known venture capitals in Silicon Valley) motto is ‘Software Is Eating The World’.  The only choice we all have is to stay ahead of ‘being eaten’. 

For traditional businesses, and especially mid and small size companies, who cannot allocate huge IT budgets or maintain internal IT departments, it may sound completely utopian, but fear not. Thanks to yet again cloud providers, such as Google and Amazon, and their on-going innovation and competition, even such complex technologies like AI and machine learning are effectively commoditized and offered as services with APIs available for integration for almost any modern programming language or platform. 

Another practical approach is to find a reliable partner to get quick access to IT technology expertise. But anyway, we would highly recommend that you start educating yourself and your employees, it will definitely not hurt. 

Consider the following pieces of advice.

Don’t bind into a year-long project with a million dollar budget. Develop your digitalization strategy but start with small practical goals achievable in relatively short periods of time, like 1 or 2 months. Many software development companies aim at releasing new features every two weeks. Even if you hire a 3rd party firm there is no reason to not get some incremental but practical results every month at least.

Go out and learn of what other companies do and what solutions they use to transform their businesses. There are great IT technology conferences taking place at all parts of the world. They usually have multiple parallel tracks where some of them are very technical and focused on IT professionals, but others are a good fit for business-minded people working at various management levels. They present interesting IT solutions and real life case studies from various industries and can serve as a great source of knowledge and inspiration. It can be an eye-opening experience.

Just a few examples:

QConn

https://qconferences.com/

AWS summits

https://aws.amazon.com/events/summits/

ThoughtWorks Technology Radar

https://www.thoughtworks.com/radar

Don’t wait and be determined in embracing IT technology. As Nassim Taleb describes in his famous book ‘Antifragile’, exposing yourself to some uncertainty and volatility every day, and perhaps making small mistakes and learning from them will increase your ‘antifragility’. Hiding and shielding yourself from the change will accumulate the risks leading to a huge distraction threatening your very existence. 

Conclusion

In this post we discussed 5 essential elements of modern digital supply chain management solutions.

Cloud computing with its on-demand elasticity, cost efficient ‘pay-as-you-go’ model and various value-added services and technologies provides a solid foundation to build your digital business.

Modular event-driven architecture allows exploiting cloud benefits to its full potential and helps your business to be agile in the economy of change.

Your digital supply chain solution must focus not only on the internal corporate workflows, or automating communication with your existing customers, suppliers and partners, but also enable business innovation and drive new business opportunities.

AI ready means recognizing the value of data and becoming a data-centric company. Modular architecture will enable integrating intelligent agents to make and execute more efficient decisions.

To achieve it, you need to acquire and maintain IT technology expertise. Remember, ‘technology is eating the world’. 

 

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