Why supply chains of producing / manufacturing corporations seem to fail to realize benefits from their “digital operations” initiatives. And how a different mindset could help to unlock the vast potential tied up in digital supply chains.

Why we fail

In my view, there are four central mistakes about how corporate supply chains act about digitization right now

Before starting out, I want to make clear, that in my view, digitization is definitely “for real” and will transform the way corporations do business in the future. I am just not convinced, that the approaches taken today – especially when it comes to operations – deliver reasonable value for the money and time invested.

Observing the degree of digitization I witness nowadays in corporate supply chains of producing companies – almost 5 years after the digital hype took off – is sobering. I rarely came across a major company from the manufacturing / producing sector that can rightfully claim that even a decent part of it’s supply chain is truly digitized. Most of the supply chains are still based on manual exchange of emails, faxes and phone calls. Planning is done in Excel sheets and under configured SAP modules. Data exchange between supply chain functions is minimal and often based on personal relationships rather than a truly unified dataset.

Independent of the efforts undertaken in the digital space, most companies face the same struggle: A lot of good ideas, some “speed boat projects” that show some promise in their little space, but absolutely no scalability.

Why is that so? Why do major corporations, with billions of dollars in budget struggle to achieve what startups in silicon valley seem to be doing without effort? Why do they spend huge sums for “digital hives”, “incubators”, “blockchain pilots” and similar initiatives and yet fail to generate any tangible benefits?

In my experience, the manifold reasons can be grouped into four “wrongs”:

  • Wrong expectations and ambition as to what digital can do for a producing corporations supply chain
  • A wrong approach
  • A wrong understanding on what drives digitization and digital value
  • Wrong leadership mindset

Wrong expectations and ambitions

Acting out of “fear” to be disrupted, instead of vision to transform

Although only few leaders would admit, digitization for many is a reminder on how they failed to grasp the concept of “the internet” in the tech boom years of the 2000s. It reminds us of how well established companies and industries like the music and newspaper industry got washed away by the torrent of technological innovation and how retail got severely punished by allowing the rise of Amazon. Then later, it was the Ubers, and the AirBnBs which again completely changed the way industries were working and got a lot of businesses into serious trouble. Nobody wants to be the next “Quelle”, or Sony Music.

Now digital evangelists and consultants, never cease to tell everyone in rosy words, how “digitization will disrupt everything” –  despite failing to see what that disruption would be for their business (just like maybe the Sony Music CEO did back in 2000), leaders rather listen and want to make sure, that this time they are not left out.

Everyone therefore expects the big “digital disruption”. It is not going to happen in manufacturing and production industrie’s supply chains. I am not saying it will not have significant impact. I only see no disruption.

When looking at which companies, and which elements, were truly “disrupted” (with disruption being defined as “a process or business model being completely replaced or destroyed by a fast growing innovation”), we rarely see any companies that produce physical goods. Nearly all “disrupted” industries were “broker” type of companies, selling what others created and delivered. The music industry was nothing but a distribution channel for art others created (who were severely underpaid for their product). Amazon is a trader, that brokers products others produce. I cannot think of a single manufacturing industry that was “disrupted” by digital products.

There is a reason for this, and looking at the massive struggles Tesla has to scale its production, tells you the story. There is more to producing top class products and selling them on the world market at scale, then to build a great digital model.

Thus, I conclude that the perception of digitization as a risk, and the ambition to “transform” or “disrupt” processes and (manufacturing) operations with it, is just the wrong way / mindset to approach the topic from a supply chain perspective.

Digitization of operations processes is not a revolution, but an evolution. And actually, it has always been there. From the pocket calculator, to the PC, from the first IBM AS/400 machines to SAP, into the cloud. It is an evolution that has been going on for decades. What might have changed though, is the speed with which the transformation is becoming possible.

In my view, thinking more about transforming to build supply chains of the future, is a much better approach than “fearing” to miss the rapid digitization train. This should lead to a more oriented mindset which will likely help to take more rational decisions, potentially increasing the return on invest.

Wrong approach

Focusing on “religious” startup symbols, instead of the true value and meaning of transformational technology

All the digital evangelists, consultants and preachers keep looking at startups as “idols” and “role models” for how the digitization process will have to work. The silicon valley mentality is what needs to be infused into our 200 year old 20, 30, 40bn USD companies. Only then digital will take off and transform you into new heights of facebook and google like share prices.

Wait a minute.

A startup is a very simple thing. An idea, a green field. Rarely any legal, workforce or legacy constraints. Most Silicon Valley startups are also focussed very much on “data work”, so no production plants, no procurement, no quality reviews – no “Supply Chain”.

Well, this is all things that global corporates supply chains have to deal with. Grown infrastructure, fragmented IT landscapes, a diverse workforce through age, gender, education. Huge exposure to capital markets, expecting quarterly results (and for sure not accepting a huge deficit for “a couple of years until we find a way to commercialize”).

Building a 500k garage and buying some bobby cars and super soaker guns will not wash away these facts.

Your digital advocates, angels, pioneers, or whatever ridiculous name your company gave them won’t solve the issue either. These might be great for coming up with good ideas, maybe even to set up some nice “speed boats”. But once it comes to scaling – it will fail. Since in a corporation with all the interconnected processes, systems, geographies and people – rarely anything is ever “simple”.

This does not have to be a disadvantage. It gives stability. Something that startups very much lack. It gives you a huge fundus of experience on how “the business works”, what your customers need. And last but not least, something that every Mate tea drinking startup hipster (sorry, could not help myself…) secretly will envy you for – A product that is of high quality and can be sold on a global scale – with profit.

So while having a think tank here and there (a couple of years ago these were just called “process excellence teams”, or “centers of expertise”) will surely help. But digitizing a global supply chain will not happen from “the hive”, it will also not “fail fast, scale fast”.

It requires understanding of where your supply chain is going, planning, and long, hard, serious work, if you really want to make transformation happen.

You need to integrate your existing expertise into this process. Your business needs to drive the innovation. In the past, there was the saying “technology follows process”. In my view, the extremely tech focussed idea of digitization turned this upside down, bringing a couple of tech savvy people in to drive “business innovation” over the heads of your true experts is probably not the right way.

By the way: Do you really thing Bill Gates would have built MS-DOS in a garage, if he had had a proper office? I doubt it. Don’t make the startup symbols (which actually reflect the lack of cash and profitable business) the icons of your digitization.

Wrong understanding of digitization drivers

Planning the engine (tools) without thinking about the fuel (data)

If all digital applications and successful startups have one thing in common, it is data. Interestingly enough, the big techs business models (e.g. Facebook, Google, Twitter) are all based on “collecting” / “creating” a lot of data, and then driving intelligence and money out of it. They built their data from nothing. All the fancy things like IoT Sensors, blockchains, etc. do nothing but collect, organize and exchange data. So I think it is fair to say that data is the “fuel” of digitization.

Now, big corporations today sit on tons and tons of data already. They sit in their ERPs, their LES, their MES, their Customer Service centres. Data is everywhere. Even in digital form.

It might not be all in one place, but it is there. The gold of the 21st century. You don’t need the newest cloud application, or AI or anything. Just grab it.

The problem is, data is treated like waste in operations. It is not connected, master data is not clean. No one takes real effort to maintain properly, and if we can find an operational shortcut that will mess up data even more – great.

Now putting on a new AI, or bringing all that crappy processes and data into the cloud will not fix anything. It will still be the same wrong data if you do not start to treat data as what it should be. Namely – the fuel that will truly digitize you.

The old saying of “shit in, shit out” still counts. Even in a digitized world. There might be some little digital helpers, but essentially this holds true. This lack of data consciousness and valuation is in my views also one of the biggest reasons for disillusionment regarding digitization. Companies invest huge amounts in data lakes, AI and blockchain, only to realize that they do not get the results out of it since the underlying data is just not of good enough quality to deliver reasonable results.

So before thinking about investing in brilliant AIs, blockchains, clouds and data lakes – make sure you have the right data quality mindset in your organization. Make sure people understand the value of data.

Wrong leadership mindset

Valuing efficiency and short term gain over improving data quality

Which leads me to my last, and probably most important point. As publicly listed companies today struggle month by month to meet efficiency targets, squeeze their workforce ever further to find every last cent to please their shareholders, operational efficiency has become the mantra.

Now maintaining the new “data gold” does not come for free. Especially in areas with physical operations (like supply chains). Somehow data needs to be captured. Either manually (which takes time and effort) or in a digital form with sensors (which again cost money).

So getting good quality data is something that needs investment. And likely substantial investment.

In the last years, all too often I experienced situation in “digitization” themed projects, where adding some vital and highly relevant data into a process (capturing it from the head of an employee into a system) would have cost some additional seconds in the process. More often than not, leadership decided rather not to mess with the process, and to accept the fact that data fields were not filled or filled with dummy values that essentially were of no value from a data perspective.

Leadership – and this needs to start from the very top – needs to adopt a “data is the new efficiency” mindset and needs to start to accept that creating good data is almost as valuable as saving some time or even producing some more product. Only once this has settled throughout the organization, companies will start to build a basis for digitization.

The good thing here is, you can start this right away. Not digital lab. No rapid speedboats. No brilliant ground-breaking ideas required. It is about you and your leadership teams to bring this mindset.

You will be amazed how “analytics driven” a classic SAP system can be, if only fuelled by proper master data and clean operational records.

… and what we can do about it

Digitizing corporate supply chains is no “quick fix” – it is hard, but necessary transformatinal work. Get going

As I already stated in the beginning of this article, I am by no means advocating against digitization and new technologies. I am convinced that it is of vital importance for the operations of big corporations (also in the manufacturing & producing space) to digitize themselves. But it is for other targets than the big disruption.

In my view, for manufacturing corporations, digitization is an efficiency evolution step. A big part in the “how to increase margin” puzzle and on how to remain competitive in a world that will increasingly dominated by Chinese producers. It will help to reduce operating costs, while potentially also enabling a higher upside by offering additional services to existing products. Failing to win in this game will result in competition overtaking you in margin growth, will put your share price under pressure and finally will definitely put your company at risk. But this will happen over time, not in a rapid big bang transformation that you are right now missing.

This is good news, since the digital transformation of corporate operations is by no means a “quick exercise”. The struggle for digitizing a billion dollar company, is with the words of Winston Churchill nothing but “blood, toil, tears and sweat” (well, let’s hope there will be no blood). But same as for Churchill, there can be only one policy in this space, and that is “victory”. Failing to digitize will sooner or later result in your operations no longer being competitive.