Digitalizing the Supply Chain: How are we doing? How do we get better?
A recent study by McKinsey & Co had some interesting findings about the supply chain. Companies that aggressively digitize their supply chain can boost EBITDA by 3.2% per year and revenue by 2.3% per year. Yet, the average supply chain has a digitization level of only 43% (the lowest of five business areas studied), and only 2% of executives said that the supply chain is a focus of their digital strategies.
SAP also found that supply chain performance has not improved in the last 30 years, with Days Inventory Outstanding (DIO) globally deteriorating by 8% since 1987. Supply chains are having greater capital requirements and putting more financial strain on the enterprise.
Why is Supply Chain performance poor?
Despite all our digitization efforts, it is curious why we are still performing so poorly in a critical function like the supply chain. The studies I mentioned point to two reasons. First, with globalization and digitalization, the supply chain is getting more complex, not less, with more geographies and time zones to cover, and real-time fulfilment to manage.
The second reason is simply a lack of prioritization. The supply chain isn’t something that is visible and often gets less attention in digitization efforts than areas like customer experience where results can be seen. Perhaps this is why only 2% of executives focus on the supply chain in their digital strategies. Yet, it is often how work well we do our work in the back office that moves the needle for our businesses.
I offer a third reason why our supply chain performance remains poor. It is the fact that supply chains take a long time to build. This includes the know-how, the continuous improvement and the eco-system of suppliers and partners. And it gets increasingly difficult in our fast moving world where we have to move more and more rapidly with less and less time to develop our competences.
How then can we move ever more quickly and leapfrog our competition?
SAP Ariba and SAP Ariba Snap as accelerators for Supply Chain performance
One way is to “plug and play” into an existing system built with a certain level of supply chain performance in place, i.e., with the best practices and technology infrastructure needed. Better yet, if this system comes with a network of suppliers in a marketplace where one can immediately start buying and selling. This means no need to spend time sourcing.
I am happy to say that this solution exists in SAP Ariba and their latest offering SAP Ariba Snap. While it is not yet a magic pill that solves all supply chain problems instantly, SAP’s efforts to enable their solution with Intelligent Technologies for analytics, on their Cloud Platform, and with a ready Ariba Network of suppliers, is among the most effective ways to transform your supply chain. Indeed, we are seeing increasing interest from finance and procurement executives because the solution is easy to use.
In vVolve’s years of helping clients digitize their supply chains, we have seen how, combined with our supply chain expertise and SAP implementation experience, this solution can make a huge difference in an organization’s performance.
Raghuprakash Ramaraj is Founder and Partner at vVolve Management Consultants