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Introduction
Companies in various sectors throughout Europe are investing heavily to digitalize their
business models in general and their supply chain management (SCM) in particular. Take major
logistics service providers such as DHL, which has announced that it will rely increasingly on
big data to minimize risk, while trials it has conducted with employees using data glasses for
picking processes have increased productivity by 25 percent. Logistics provider DB Schenker is
investing in a digital mobility lab, and airlines with a strong cargo business, such as Lufthansa
and Emirates, are expanding their paperless e-freight offering, which includes data cleaning for
customers. Ocean carriers and forwarders, such as Kuehne + Nagel, use INTTRAs ocean freight
platform for e-payments, and global retailers Amazon and Alibaba have invested in robotics for
goods handling, drones for deliveries, and new apps for optimizing own asset-light delivery
services in cities.
What can be observed with logistics service providers and retailers is also notable in manufacturing companies as they digitalize their SCM. Automaker BMW is working on achieving a fully
digitalized factory and on a more dynamic, data analytics-driven supply-chain segmentation for
inbound parts. Referring to the 15th International Trade Fair for Logistics, Mobility, IT and Supply
Chain Management in Munich that ended in May 2015, head organizer Stefan Rummel told
industry journal DVZ: Where logistics people meet, they almost always talk about digitalization.
This seventh edition of A.T. Kearneys European Excellence in Supply Chain Management
study also focuses on digitalization. Conducted jointly with the Khne Institute for Logistics
Management at the German business school WHUOtto Beisheim School of Management, it
delves into the ways that digitalization in all of its formats impacts SCM, based on feedback from
60 industrial and commercial companies throughout Europe (see sidebar: About the Study).
This report summarizes our findings and explores in detail what SCM digitalization means for
business, how it affects investment in IT and analytics, and the areas where it will have the
greatest benefit.
Figure 1
Digital enablers and select implications for supply chain management
3D printing, microwave,
laser-based production
technologies
New production
locations
New supplier
configurations
New production
materials
Multivariate regressions,
predictive analytics,
large-scale
scenario analysis
Demand forecasting
Capacity planning
Sensors
and
geolocation
Nanotech
and 3D
printing
Strategy
Robotics
(Un)loading
UI and
display
innovation
Cloud
services
Advanced procurement
with collaborative
optimization
Augmented reality,
customer self-service
scanning, in-store
navigation
Glasses-based picking
in warehouse
Routing optimization
Contracted and flexible
contracted versus
spot-capacity purchase
optimization
Picking
Palletizing
Digital
technology
enablers
Big data
Safe to operate in
close man-machine
environment, cheaper,
more flexible (including
flexible renting and
leasing schemes)
Displays on packaging
Proliferation of interactive
shelf displays
Displays on products
managed by the
manufacturer
Note: GPS is global positioning system, GSM is global system for mobile communications, SCM is supply chain management, UI is user interface, and CKD
is completely knocked down.
Source: A.T. Kearney analysis
A.T. Kearney has observed a number of general digital business trends not only with direct
effects on SCM, but also with much larger implications for manufacturing and retailing
companies overall business models (see figure 2). Obviously, each industry and company will
face different opportunities and challenges, even going so far as to completely question the
current business model or product configuration.
Figure 2
Select digital business trends and supply chain management implications
Digital business
trends
Description
Distributed resourcing
and growing customer
buying power
Micro customization,
matching micro
demand and supply
Complemented
reality-driven
productivity
Mounting digital
risk exposure
Sharing economy
From physical
product transactions
to consumption
Figure 3
Digital supply chain framework
Connected
products
Embedded
services
Shared products,
product as
a service
Omnichannel
distribution
Digital
planning
Digital
supply
Digital
manufacturing
Digital
logistics
In terms of the key dimensions for digital supply chain management, we differentiate between
digital planning, digital supply, digital manufacturing, and digital logistics. While this study
largely focuses on digital logistics, all aspects of digital supply chains are taken into account.
Key levers for digital SCM listed in figure 4 have been tested empirically as part of our study to
establish what supply chain managers will focus on and what investments they will make in
the next three years.
The SCM function is not digitalizing in a vacuum. While some elements of digitalizing the
SCM function are exclusively within the purview of the SCM departments, such as replacing
paper freight documents with digital ones, the overall digital transformation of the business
model can be thought of as a second dimension of digital outside of its control (see figure 5
on page 6). SCM decision makers who clearly understand the dynamics in this dimension as
well will be better able to address the challenges posed in each dimension. The extent to
which the SCM must transform itself will also depend on whether the company has entered
the market with a digital business model from the beginning as a digital native, or has
adopted it later on as a digital migrant.
Figure 4
Areas of digitalization and supply chain management levers and challenges
Areas for
digitalization
of the
business model
1
Connected
products
2
Embedded
services
Areas for
digitalization
of supply chain
management
A
Supply chain
integration
Shared
products,
product as
a service
Supply chain
automation
Omnichannel
distribution
Supply chain
reconfiguration
Supply chain
analytics
Notes: SCM is supply chain management, and GSM is global system for mobile communications.
Source: A.T. Kearney analysis
High
Figure 5
Interdependence between digitalization of business model and supply chain management
Current state
Future state
Co
mp
s
nie
nd
Ba
C: D
al
igit
ts
ran
mig
Low
Low
High
Figure 6
Digital levers worth investing in for the supply chain
% of respondents expecting
significant, high, or very high
improvement (20152017)
IT integration across all
areas of own company
82%
IT integration
with SC partners
48%
68%
37%
43%
45%
43%
27%
40%
22%
13%
35%
33%
33%
3D printing and
additive manufacturing
53%
72%
Robots and
autonomous vehicles
70%
77%
% of respondents planning
relevant and high investments
(20152017)
15%
8%
25%
17%
20%
18%
15%
3%
Significant improvement
High improvement
Very high improvement
7%
7%
Relevant investment
High investment
Note: SC is supply chain, SCM is supply chain management, and GSM is global system for mobile communications.
Source: European A.T. Kearney/WHU Logistics Study 2015
chain at ABB, states: As a rule, our internal IT systems are managed locally. The objective has to
be a unified product base thats identical in every country.
In addition, some businesses remain cautious about IT integration with suppliers and
customers. The potential benefits of streamlining their IT may be clear, but a number of
respondents state that they lack a sufficiently trustful relationship with SCM partners to
engage in more intensive data sharing. Alexander Moldenhauer, chief supply chain officer
at Avanco GmbH, explains: Many of our raw material suppliers have started downstream
activities and turn into competitors, so sharing data calls for a special degree of trust.
Moving forward, the larger companies intend to invest more heavily in IT integration along
the supply chain than the smaller companies. This is hardly surprising, given that they are in a
better position to set standards within their supply chain and thus extend IT integration
outside their own organization. Expected benefits are first and foremost substantially lower
inventory levels and more flexible delivery times and batch sizes.
Digital Supply Chains: Increasingly Critical for Competitive Edge
Figure 7
Implications of digitalization on supply chain IT systems
Degree of change
caused by digital
Demand forecasting
and planning
Very high
Inventory planning
and management
Very high
Warehouse management
High
Very high
Transport management
High
High
Very high
High
High
Figure 8
Investment in IT systems
% of respondents stating this system
is part of current supply chain
Demand forecasting
and planning
58%
Electronic interfaces
with carriers
38%
63%
Warehouse
management system
57%
52%
Inventory planning
and management
Transport
management system
% of respondents planning
significant investment by 2017
37%
72%
35%
40%
32%
52%
43%
42%
32%
30%
20%
chain partners are tied into the system yet, but the company is one of just a few to have deployed
a fully integrated solution of this kind. Under Nico Weidel, the management team member
responsible for supply chain management at CHRIST, the company has developed its own
forecasting system and integrated it into its existing ERP system.
Advanced big-data data analytics will be a hot topic in SCM
Seventy-two percent of the surveyed companies say that big data is capable of delivering
strong improvement effects in SCM over the next three years, as we saw earlier in figure 6.
Companies making more than 80 percent of their products to stock see significantly
greater effects (20 percentage points) than companies making more than 80 percent
of their products to order, underlining the high importance of big-data analytics for
make-to-stock businesses.
goal with big data is to achieve the required transparency to expose process disruptions and
enable changes to be implemented quickly.
What supply chain managers expect more than anything through big-data analytics is substantial
reductions in outbound inventory: Fifty-two percent of respondents see clear or even very clear
effects here, versus 40 percent for inbound inventory. Forty-five percent expect improvements in
optimization of batch sizes, and 43 percent expect to reduce SCM risk (see figure 9).
Figure 9
Expected effects of investing in big-data analytics in supply chain management
% of respondents seeing clear or very strong effect by 2017
52%
45%
43%
42%
40%
33%
18%
17%
15%
15%
However, several of the supply chain managers expect big data to also give rise to major
challenges such as the need for culture change (as a consequence of putting faith in data
without necessarily striving to understand causalities) and the creation of capabilities to
network and evaluate the data effectively.
E-platforms, smart tagging, and 3D printing: Few companies confirm high SCM optimization
potential during the next three years
Just 40 percent of the surveyed companies currently use transport management systems and
software to optimize their transport networks and routing. The picture is similar with respect to
using software for electronic management of freight documents.
In transport sourcing and routing, as well as in optimization of mode selection, considerable
differences are evident between very large enterprises (such as those with revenues of more
than 10 billion) and others. Among the former, the share of those expecting advantages from
big data is almost twice as high.
Only a third of respondents see potential to deliver significant efficiency gains in the three years
ahead by attaching GSM or radio transmitters to products, packaging, or containers to improve
tracking. Insufficient IT integration with other partners in the supply chain, directly or over a
Digital Supply Chains: Increasingly Critical for Competitive Edge 10
shared platform, and the lack of a clear business case for the investment are explanations.
Torben Weilmnster, director of supply chain management for the pharmaceuticals and
consumer division at Merz, acknowledges the advantages of radio-based tracking but
adds: Radio/GSM tagging isnt business-critical. The technology cant generate higher
sales as such. The ability to locate goods precisely at any given time does not yet offer
anyone within the supply chain a sufficiently valuable information advantage to warrant
the higher expense.
Although supply chain managers do not expect e-platforms to drive a marked shift in the
purchase of logistics services toward direct carrier selection and transactions in the next few
years (only 10 percent of respondents support this notion), 45 percent see e-platforms as
becoming of high significance in the optimization of their supply chains.
Only a small group of respondents expect to see appreciable improvements result from
automation technology, in particular through greater use of robots or self-driving vehicles.
Figure 10
Impacts of digitalization on supply chain management
% of respondents seeing clear or very strong effect by 2017
Increase JIT sourcing, reduce order-to-stock
43%
30%
28%
27%
25%
23%
22%
20%
20%
18%
17%
17%
10%
10%
Overall, supply chain managers see greater transparency and, thus, better SCM decisions as being
the foremost benefit that the digital levers can deliver, and 65 percent of SCM leaders expect
to see a clear or very strong benefit in terms of SCM flexibility from digitalization in the next
three years (see figure 11). This comes as no surprise to one experienced supply chain manager
in the mechanical engineering sector who took part in the survey: The more transparent a supply
chain, the greater the number of options that can be explored in the decision-making process.
Today, few companies actually have the transparency to see how much vendors charge on
various routes. I think there are sizable savings to be found here.
Figure 11
Positive impacts of supply chain digitalization
% of respondents seeing clear or very strong positive impact from digital levers
Better overall SCM decisions
thanks to greater transparency
70%
65%
52%
48%
45%
42%
38%
38%
32%
32%
23%
While 61 percent of companies that market their goods primarily through intermediaries see
digitalization offering a clear benefit in terms of an increase in product and service quality, the
same is only true of a third of companies that generate more than 80 percent of their revenues
through selling directly to end customers.
SCM departments expected to shrink as a result of digitalization
While only one participating supply chain manager expects a revenue decline for his company
when comparing 2017 with 2013, 23 percent expect overall SCM costs to go down during this
period. And although one-third of participants expect their companys revenues to grow by 10
to 25 percent during this period, less than half see an increase in SCM costs in the same range.
Forty-three percent of supply chain managers polled expect digitalization to lead to a reduction
in SCM headcount in the next three years (see figure 12). By contrast, only 15 percent expect the
headcount to increase.
Figure 12
Impact of digitalization on employment in supply chain management
Distribution of responses
Supply chain strategic and tactical planning
Transport and logistics procurement
In-house transportation service execution
(for example, own drivers)
10%
60%
18%
30%
72%
22%
25%
27%
10%
5%
73%
58%
17%
Operational SCM
28%
28%
62%
30%
57%
2%
71%
54%
18%
10%
13%
47%
5%
48%
43%
42%
Decrease
No change
15%
Increase
The larger the company, the higher the expectation that staff will be cut: close to three-quarters
of the companies with annual revenues of more than 1 billion anticipate making workforce
reductions because of digital trends. Employees working in transport and logistics administration functions will be affected the most. In this segment, 47 percent of the companies
expect cuts. The situation is similar in the customs and shipping processing functions.
In contrast, strategic and tactical supply chain planning is becoming more important: it is the
only area in which many companies are planning to increase headcount. As one respondent
explains, Many of the processes directly involved in SCM can be automated and greatly
simplified. Parallel to this, strategic SCM activities will gain greater importance and play a key
role in creating a competitive advantage.
entire supply chain, and through big-data analytics, which has climbed very high on the ranks
of importance for supply chain managers.
However, it seems no revolution is in sight for the digitalization of supply chains. Supply chain
managers do not plan on transacting directly with carriers rather than using freight forwarders,
and there are no major moves either to eliminate stages in the selling chain to the end customer
or to significantly change batch sizes at each processing stage. Over the next three years,
neither the self-declared SCM leaders nor the SCM followers are planning to make significant
changes to the number of logistics partners they work with. Three-dimensional printing, a
potentially disruptive technology that could change supply chains entirely by printing parts
at the point of need, is expected to only play a minor role until 2017.
The pace for digitalization may increase significantly as cross-industry initiatives aim to better
connect supply chains among companies to achieve next-level cost and delivery speed optimization. Linking customer data, sales forecasts, historic differences between plans and reality, and
forward-looking SCM data can create much-improved supply chain planning. On the other hand,
linking the transport and logistics procurement systems enabled for collaborative optimization
with operational systems will be one of the tasks that go largely unsolved. Linking virtual production simulation to SCM simulation is another item that goes unchecked on many action lists.
The degree of transformation for supply chains will depend on the industry sector and company,
but we expect it to create significant productivity benefits overall, both within the next three
years and beyond. We strongly believe that companies may achieve exponential gains by acting
on some of the supply chain digital levers not presently judged as creating revolutionary change
over the next three years. In manufacturing, many companies that make smart investments in
disruptive supply chain configurations will be able to create a competitive advantage for the
entire business model; 3D printing will be one of them. For the short term, laying the IT and data
groundwork, this study shows, is the highest priority.
A.T. Kearney
Lukas Einmahl,
research associate, Dsseldorf
lukas.einmahl@whu.edu
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