Digital transformation is the lynchpin of today’s most important supply chain technology trends, and it’s accompanied by its own host of challenges and opportunities in the CPG industry.
To understand how it impacts consumer goods companies, it's helpful to first define digital transformation and explore a variety of examples.
What is digital transformation in supply chain?
“Digital transformation” broadly refers to an organization’s process of embracing digital technology to improve existing operations — or add some new ones. Digital transformation in supply chain involves creating a more connected ecosystem, and its impacts run the gamut from more data-driven decision-making to increased automation, to improving communication and collaboration efforts.
Ample opportunities also exist in digitally transforming supply chains to supercharge sustainability and reduce the environmental impact of manufacturing consumer products. All in all, experts agree the supply chain has caught the spotlight of late, making it fertile ground for these transformations to take place.
However, supply chain leaders cannot entirely rely on digital transformation to solve their problems. Ultimately, a new tech integration is only as useful as the buy-in it receives from the people using it. According to a recent Gartner report, only 25% of the supply chain workforce is fully engaged with their work while only 16% is willing to go “above and beyond” in their work.
“Introducing new technologies, especially of the magnitude of AI or smart robots, would come with implementation challenges at any time,” said Thomas Pocock, senior director, advisory for Gartner’s supply chain practice. “Any new technology introduced in this environment is likely to be met with elevated levels of mistrust and change fatigue. It’s clear there needs to be a new strategy to make such integrations work for all sides.”
In order to be successful, any supply chain transformation roadmap should be accompanied by a healthy dose of strategic change management.
What is the impact of digital transformation on supply chain performance?
A more connected ecosystem equals a more resilient ecosystem. To create a high-performing supply chain, leading CPG companies are channeling efforts into strengthening the links between different touchpoints, all of which tie back to the impact of digital transformation on supply chain performance.
Automation allows companies to work smarter, not harder, and supply chain transformation includes such technologies as artificial intelligence and machine learning – powerful tools that can analyze vast amounts of data at a rate humans could only dream about. Surveying the market more broadly, it might be quicker to list the companies that aren’t investing in boosting their supply chain performance through digital transformation.
Mattress company Serta Simmons is just one example of this strategy in action. Taking inspiration from leading car manufacturers, the consumer goods company has transformed its production and raw material sourcing process, leveraging artificial intelligence and machine learning to provide prescriptive recommendations, improve forecast accuracy, and offer greater visibility into inventory management efforts.
Garrett Brands, which includes such food brands as Garrett Popcorn Shops and Frango Chocolate in its portfolio, is leveraging AI-based planning tools to help to increase growth and maintain product freshness and customer satisfaction. The company has invested in technology that uses a built-in probabilistic forecast to understand inventory demands based on market uncertainty, in turn impacting demand forecasting and planning, replenishment, and inventory optimization. It expects the technology to expand digitalization efforts to fuel organizational growth.
What is an example of digital transformation in supply chain management?
Digital transformation in supply chain management has many applications. A recent Blue Yonder survey shows supply chain execs are actively exploring opportunities for strategic investments to enhance their ability to proactively manage unavoidable disruptions. These include investments in warehouse management systems (44%), order management systems (39%), supply chain visibility tools (36%), and transportation management (30%).
Take supply chain visibility, for example. With the consensus being more is more when it comes to data analysis, specialty gaming manufacturer USApoloy was charged with the challenge of identifying the most efficient and cost-effective methods for data collection, all while determining the appropriate amount of time that data-gathering should take.
“Anytime you work with data, it’s 80% front-end work to get the data to a position where you can actually analyze it, and 20% analyzing and making business decisions based on what the data is telling you,” says Eric Richardson, USAopoly’s manager of forecasting and data analytics.
In the end, the company digitally transformed its demand and inventory analytics capabilities, integrating sales data from both retail and e-commerce for their game brands with their internal inventory and supply chain data. By automating demand forecasting, USAopoly has gained greater visibility into operations but is also able to respond and execute on plans much faster.
Why digital transformation of supply chain is important
As a system vulnerable to disruption and volatility, the supply chain’s adoption of digital technologies is not an option – it's an imperative. Supply chain disruptions were among the top three external forces to dampen company growth in 2022, according to Rockwell Automation’sState of Smart Manufacturing Report.
Mike Graziano, consumer products senior analyst with RSM US, points to ongoing global uncertainty as reason enough to digitally transform: “Geopolitical risks will always be a concern for companies and the best way to mitigate that risk is to diversify supply chains away from a single source to ensure any unforeseen impact to one manufacturing hub doesn’t shut down the company’s operations.”