Digital Supply Chain

Insights on Driving the Digital Supply Chain Transformation

12/10/2014

By Lora Cecere

Founder and CEO Supply Chain Insights LLC

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Contents

Report Overview

Disclosure

Research Methodology

Executive Summary

What Is Digital Business?

How to Get Started

Redefining Manufacturing

Process Factories

Discrete Operations

Recommendations

Conclusion

Other Reports in This Series

Appendix

About Supply Chain Insights LLC

About Lora Cecere

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Report Overview The Supply Chain Insights team focuses on bringing supply chain research to business visionaries.

This report starts with a definition of digital business and applies the concept to the creation of a

digital supply chain strategy. It then captures the highlights of a quantitative research study conducted

on digital manufacturing via 101 respondents during 2013-2014. While much has been written about

digital logistics, we find an absence of research on digital manufacturing. The goal of the report is to

help the Chief Supply Chain Officer align source, make, and deliver strategies for digital business.

This report is intended for you to read, share, and use to improve your supply chain decisions. Please

share this data freely within your company and across your industry. All we ask for in return is

attribution when you use the materials in this report. We publish under the Creative Commons

License Attribution-Noncommercial-Share Alike 3.0 United States and you will find our citation policy

here.

Disclosure Your trust is important to us. This report was 100% funded by Supply Chain Insights. In our business,

we are open and transparent about our financial relationships and our research processes; and we

never share the names of respondents and or give attribution to the open-ended comments in our

data collection.

Research Methodology While many companies have a digital supply chain strategy, the concepts are in their infancy. This

report is designed to help clarify the basic tenets of the digital supply chain for the supply chain

leader.

In this report, we share insights from a number of studies, but highlight recent findings from a survey

on digital manufacturing. In the development of this research, survey respondents were sourced from

social media—Twitter and LinkedIn—and a presence on the Supply Chain Insights website. Due to

the difficulty of sourcing respondents (based on the newness of the concepts), part of the survey

participants were sourced from a research panel.

In each study, the respondents were carefully screened against established criteria (see Figure 1).

We actively monitor and filter respondents to be sure we attract knowledgeable participants. In this

study on digital manufacturing, 56% of respondents were from discrete industries, and 44% were

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from process industries. The average company in the study operates 43 owned-and-operated

facilities. The respondents primarily work in supply chain or manufacturing roles.

Figure 1. Study Overview for Digital Manufacturing Study

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Executive Summary It started with the internet, and the drum beat continues. Mobile. Social. Cloud. Digital Products.

Telematics. The Internet of Things. The list of enablers is endless.

Over the last decade, digital marketing departments quickly took advantage of new technologies to

power marketing capabilities. As a result, companies have new products and services; but, over the

last decade there has been little change in supply chain processes.

There is a great divide in organizations today. There are digital teams in marketing while there are

traditional supply chain processes in operations. Many supply chain leaders are asking how they

digitize their supply chain practices. This report is designed to help. Here we share a five-step

process to get started, and we provide insights from recent research on how to transform

manufacturing processes.

What Is Digital Business? Digitization transforms businesses. A digital business model uses new forms of technology to create

new forms of revenue and business value. It is about the use of combinations of technologies to

sense changes in real-time and shape a meaningful output.

Digital business is about much, much more than the redefinition of business processes for B2B and

B2C. While e-business strategies are foundational, and necessary, it is about more than e-business.

In today’s supply chain, while B2C models are well defined and new supply chain models have

embraced and redefined e-commerce delivery, B2B processes lag B2C. Today, only 9% of B2B

commerce business flows through business networks.1 There are no digital B2B officers. Companies

have been slow to adopt new forms of B2B.

1 EDI the Workhorse of the Extended Supply Chain, Supply Chain Insights, January 2014 (http://supplychaininsights.com/edi -

workhorse-of-the-value-chain/)

“We have a massive supply chain. It includes over 250 factories, 100 distribution centers and over 90,000 people.

The CEO is very supportive. I just left a meeting in Silicon Valley to try to understand what d igitization means for our

supply chain. I am connected to our chief digitization officer and attempting to build it, but there are no clear

models. Where do I get the people? How do I get started?

Response to the Supply Chain Shaman Blog (http://www.supplychainshaman.com/)

Chief Supply Chain Officer, Manufacturing Supply Chain

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When executed correctly, digital business strategies are transformative. Here are five examples:

Digital Transportation and Logistics. Telematics and the use of Global Positioning (GPS) devices

have changed the life of the driver in the cab of an 18-wheeler. The driver can see real-time traffic

jams, sense shifts due to road closures, and quickly see the vehicle’s maintenance status. Likewise,

the dispatcher can sense the position of the truck and the expected time of arrival. Digital

transportation is rapidly changing logistics. Uber is an example of a digital business strategy in

transportation. While Uber is currently powering a network of taxi and car services, their ultimate

goal is to redefine the automotive supply chain. Their goal is to replace automotive purchases with

easy to use car services. Much like what happened in Performance-Based Logistics (PBL) in the

aerospace and defense industry, the concepts of collaborative sharing are permeating the industry.

Digital Process Manufacturing. Predictive maintenance in process manufacturing is based on

mean time between failure (MTBF) and the building of predictive schedules to perform maintenance

before equipment fails. Yet within the factory, sensors abound. Equipment purchased within the last

decade is run by a Programmable Logic Controller (PLC) that tracks the health of the machine—

pump pressure, motor temperature, oil viscosity, and temperature. The digital manufacturing

process senses the health of equipment, and services machinery when needed. It is about the

redesign of process manufacturing through mobility, the Internet of Things, and cognitive learning. It

was hard to find enough people knowledgeable on the subject of digital manufacturing to finish the

research. This gap is telling. In this report, we had 101 completes of a manufacturing study with 44

respondents from process-based industries, and 57 completes from discrete-based businesses.

Within the process industries only 16% are using mobility within manufacturing.

Digital Discrete Manufacturing. In discrete manufacturing, parts are made to order. Traditional

processes—milling, casting, and machining—utilize subtractive manufacturing (material is

subtracted as the item is manufactured). Digital printing, or additive manufacturing, changes the

equation. In additive manufacturing, often termed 3D printing, substrate is added to make the part.

Discrete items are made based on digital images. As seen in the research for this report, these

processes are early, but promising. Today, 16% of the discrete manufacturers are using 3D printing

for production-based processes (digital printing is being used more for prototypes).

Digital Agriculture. Traditional agriculture is based on well-honed methods for planting, harvesting

and food manufacturing. Digital agriculture is a step change. It is the reason that John Deere

tractors are now equipped with sensors to transmit moisture and temperature data of the field, and

why manufacturers like the Land O’Lakes dairies are investing in test beds to use sensing

technologies and advanced analytics to calculate yield based on soil, weather, crop, seed traits,

fertilizers, and additives. The testing identifies the best combinations to improve yield. It is a big

data opportunity to mine map data with weather data, seed trait information, and soil conditions.

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Digital Path to Purchase. In consumer packaged goods, there are four moments of truth in the

purchase cycle. The decision to put a product on the list, the choice to put the item in the shopping

basket, the opportunities to influence the shopper at check-out, and the ability to listen to customer

sentiment through the mining of unstructured text (rating and review feedback, Facebook posts,

blog posts, Twitter, etc.) This automation of the digital path to purchase is dependent upon having a

real-time database of purchase behavior that combines point-of-sale data, loyalty information,

weather, and store information. The sensing from these data pools requires the mining of structured

and unstructured data to yield insights. Today, roughly one in ten CPG companies has a cross-

functional team to build these processes. We find that most of these efforts are bogged down by the

concepts of traditional Customer Relationship Management (CRM) solutions and the lack of a basic

understanding of supply chain. Only 56% of retailers have a perpetual inventory signal, and too few

companies (22%) have invested in mining channel data through the use of a Demand Signal

Repository (DSR).2 Too few companies understand the differences between syndicated data

sources and the use of channel data. We are very early in our understanding of outside-in

processes.

Figure 2. Current State of Digital Path to Purchase Processes

2 What is the Value of Retail Scorecards, Supply Chain Insights, October , 2014.

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It is a clash of processes and technologies: a new state of normal. The roadmaps are not

evolutionary, based on best practices. Instead, they challenge existing paradigms.

Digital business flows are real-time and outside-in. Traditional supply chain processes are inside-out

and based on historic transactions. As outlined in Table 1, there are some important distinctions.

These are not trivial. They are transformational.

Table 1. Comparison of Traditional Supply Chain Processes and Digital Business

The gap between what we have today and what it could be is large. We live in a digital age in our

personal lives; however, this is not the case in our supply chains. Supply chain leaders express rising

frustration about the gap of what they see as possible in the digital age, and what they experience in

their day-to-day world in their offices. It is a conundrum.

While digital marketers wax eloquently on the future of business, be careful. In their world view, the

future is the coalescence of robotics, learning systems, and voice automation. It is a vision of the

world where everyone has more voice—expressions through social media—but everyone is heard

less. The prevailing view by the digital marketing world is of a supply chain where digital printing, a

collaborative economy, and automated systems merge and transform business. The portrait is a

world of no smokestacks and few workers. We believe that nothing could be further from the truth.

Digital business offers so much more opportunity. Our belief is that it’s a world of smart smokestacks

run by an educated worker. As a result, the successful digital business strategy hinges on building the

right talent.

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How to Get Started Digital business processes are now the buzz and have great sex appeal. On your journey, avoid the

hype and stay grounded. While supply chain professionals would like to embrace more advanced

concepts—and no one likes the systems and technologies that they have today—most supply chain

leaders feel stuck. It is an awkward feeling. They want to embrace the new, but they are unsure

where to start.

Figure 3. Digital Business Overview

Here are our recommended five steps:

Step 1: Exploit Technology Coalescence. As shown in Figure 3, the first place to start is to identify

the disruptive technologies and potential digital processes that can transform business outcomes with

the greatest impact. Map processes from the customer back. Focus on sensing market usage and

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orchestrating signals market-to-market.3

A good place to start is to implement social listening programs, and invest in unstructured text mining,

to hear the customer’s voice. It is ironic that the technologies to listen to digital customer sentiment

have never been so capable and full of opportunity, but based on qualitative interviews only 1% of

companies are investing in these systems. Today, the customer-centric supply chain is possible, but it

requires the investment in listening technologies and building cross-functional teams to use the data.

Step 2: Maximize e-Commerce. What a difference a decade makes in the definition of e-commerce.

While e-commerce at the beginning of the decade was relegated to retailers, today, it should be a

strategy for almost every manufacturer. Selling directly to the consumer is a powerful engine of

growth, but requires the redesign of logistics systems to embrace the 'each'. Many companies I work

with are quickly moving into 2-6% direct sales, but learning the hard way that it requires rethinking

warehouse and order management.

Dow Corning’s work on Xiameter is an example of an industrial company implementing a B2B

strategy on the back of a new business model. Their B2B e-commerce model is a very well-defined

pricing model based on customer needs and requirements. It is a good role model for companies

interested in building industrial B2B capabilities.4

Step 3: Power B2B Networks. To build Market-Driven Value Networks (MDVN), maximize the use of

B2B networks and exploit the capabilities of canonical integration structures. No doubt about it, these

many-to-many data models, and more advanced forms of integration, offer significant advantages to

the traditional EDI integration.

Break the model. Today, the primary technology for B2B networks is fax, email or the Excel

spreadsheet. For all, this is an opportunity. As can be seen in Figure 4, visibility is higher in

manufacturing within the enterprise than in the network. Most companies struggle to see source,

make, or deliver status within the first tier of their networks … much less second and third tiers.

Today’s systems are highly dependent upon spreadsheets, email and fax. In the words of one supply

chain leader, “The automation of B2B networks is a major opportunity to build the foundation for the

digital supply chain.”

3 Market Driven Value Networks, Supply Chain Insights, July 2012.( http://supplychaininsights.com/building-market-driven-value-networks/) 4 Bricks Matter, Cecere, Wiley 2012.

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Figure 4. Current State of Visibility in Extended Networks

Step 4: Explore New Forms of Analytics. In parallel to this report, we are also completing a study

on big data and advanced analytics for our January, 2015 newsletter. We now have 108 completes,

and found that only 22% of companies have a team focused on experimenting with big data analytics.

Data lakes, streams, and pools offer opportunities for all manufacturers to enable this transformation.

Step 5: Redefine Manufacturing. Whether you own your manufacturing processes, or outsource

them, manufacturing is at the core of the supply chain. Since the opportunities are limitless in

manufacturing, we devote the rest of this report to rethinking manufacturing strategies.

Redefining Manufacturing While 33% of respondents to our digital manufacturing study believe that digital manufacturing is

critical to becoming more agile, only 15% of companies have a digital manufacturing strategy.

Discrete manufacturing companies are more likely to have a digital manufacturing strategy than those

in process industries.

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Agility is a gap for many supply chain leaders. Companies that are the most mature in their definition

of supply chain agility are trying to implement digital manufacturing processes.

Figure 5. Improving Supply Chain Agility through the Redefinition of Manufacturing Processes

Figure 6. Improving Supply Chain Agility through the Redefinition of Manufacturing Processes

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The journeys are different for process and discrete industries, but each is attempting to pass digital

messages bidirectionally with their suppliers. As shown in Figure 6, the work with suppliers is a critical

and active piece of a digital manufacturing strategy.

Process Factories While many companies think of digital and automatically think of 3D printing, it is much, much more.

For the process manufacturer in the chemical, consumer products, food and beverage, and

pharmaceutical supply chains, the convergence towards digital is in the redesign of outputs to

improve processes using cloud, mobile, predictive analytics, and the Internet of Things. The most

frequent areas of focus in qualitative interviews are on the improvement of quality, the redefinition of

maintenance, and improved production scheduling. New capabilities include serialization of

pharmaceuticals, track-and-trace capabilities in food and beverage, and more reliable production of

custom products.

Digital manufacturing in process industries will redefine production planning from the plant floor up,

giving new levels of visibility and reliability for supply chain leaders. As shown in Figure 7, 14% of

respondents are planning to invest in mobility, with 16% using it now in manufacturing operations.

Figure 7. Use of Mobility in Digital Manufacturing in the Process Industries

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Discrete Operations There are many applications for 3D printing—printing medical device components, manufacturing

tumor cells to test custom drugs, printing Maintenance and Repair parts in Operations (MRO) and

rapid prototyping. Today, the technologies are evolving, and are used most often in building

prototypes of production runs of a quantity less than five. We are still very early, but the processes of

adaptive manufacturing are very promising.

In our survey, 47% of respondents expect 3D printing to play a major role in future processes. In just

three years we will see the adoption of 3D printing for new applications and driving new business

models. The options are endless. However, it is not a panacea. It will not solve all manufacturing

issues. As a result, we find that while 3D printing is promising, it is often overhyped. As can be seen

in Figures 8 & 9, companies are rapidly adopting the concepts.

Figure 8. Importance of 3D Printing to Operations

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Figure 9. Current Use of 3D Printing Today

Recommendations What should you do? In short, get started. Use our five-step process to decide where to focus.

Identify the coalescence of the technologies that have the largest opportunity for you and modernize

your vision. Determine what a fad is and define what drives real value. While 2015 is a year for belt-

tightening and cost-cutting, find money in your budget to provide innovation spending for digital

business and the building of the digital supply chain.

Here are our recommendations:

Brainstorm the Future Cross-Functionally. Schedule some time with your digital marketing teams

and brainstorm how their efforts and yours could coalesce. Focus on how the supply chain can be

the engine of growth through the use of concepts from the collaborative economy, test-and-learn

strategies, or e-commerce. Think through what the future of the channel means to your supply

chain. Before you have the meeting, educate yourself. Check out Jeremiah Owyang's podcast on

the Collaborative Economy. Jeremiah is a thought leader in digital marketing and is currently driving

new research on the growth of new business models like Uber and Airbnb through the collaborative

economy movement.

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Fund New Forms of Analytics. One of the issues in today's supply chain is that we cannot get to the

data. In our investments over the last decade, we have successfully put data into systems, but

companies are unable to get data out and use it successfully in analytics. (One of my clients uses

the analogy of "Hotel California." It is their belief that data checks in, but cannot check-out.)

Manufacturers are behind other sectors like insurance and banking. There are many reasons—lack

of clear analytics strategy, belief that it is an add-on from an ERP vendor, and lack of funding

(manufacturers are cheap when it comes to spending on analytics). In a recent webinar on the

Race for Supply Chain 2020, Marty Kisliuk, Global Operations Director at FMC, said the following

when he heard Chris Clowes', Supply Chain Manager at Costa Enterprises, presentation on the

automation of coffee machines using the Internet of Things at Costa Coffee: "Maybe, we should

give funds to our 30-year old team members to experiment." Many in the audience laughed, but I

think there is wisdom in Marty's statement. New forms of analytics—QlikView, Tableau, and

Spotfire—are easier to expense and faster to deploy than the more conventional analytics from

traditional analytics vendors. Why not let the younger members on the team experiment with new

forms of analytics? In 2015, why not put aside some money for testing? I love the insights

from Fran O'Sullivan, General Manager of IBM. The IBM Corporation has done a great job of

empowering cross-functional teams to experiment with analytics in a test-and-learn environment.

Im agine What the Supply Chain Can Be. Free yourself from today's paradigms. To help you, we are

working on a series of webinars and research projects. In the first quarter of next year, we will be

publishing a number of articles on Big Data, Digital Manufacturing, Mobility, Digital Path to Purchase

and the Internet of Things. This is a countdown to our Supply Chain Insights Global Summit on

September 9-10, 2015 at the Phoenician, in Scottsdale, AZ. At this conference, we will challenge

supply chain leaders to rethink business models and break traditional paradigms. I hope to see you

there!

Build Organizational Muscle. Our recent research studies show that we are losing the battle on

talent development. More and more companies are rating themselves lower on their ability to hire

and train supply chain talent. Check out the research on talent, and start to focus on how to build

that mid-management muscle and enable it through digital business. We were asked the question

of how to build this talent on a webinar the other day, and our answer was, “Build your own

programs that focus on the work that you are doing on cloud, mobile, analytics, telematics, robotics

and the Internet of Things.” Bring your experts together to train talent on the individual initiatives,

and then ask the participants to give you their ideas. The second approach is to actively network

with others who are building digital supply chain strategies. The list is not a long one. We will be

asking some of these supply chain leaders to join us in our upcoming webinar series.

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Figure 10. Current State of Supply Chain Talent

Conclusion Digital business opportunities, and the redefinition of business processes, are a major opportunity for

those that can think past the conventional definitions and see new opportunities. Take small steps

today, through the empowerment of cross-functional teams and embracing experimentation, to

leverage the coalescence of new technologies to drive new capabilities.

Other Reports in This Series: Readers may gain added value by accessing complimentary reports on the Supply Chain Insights

website:

Imagine the Supply Chain of the Future

2014 Research in Review

Can You Afford the Risk?

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Appendix In this section, we share the demographic information of survey respondents as well as additional

charts referenced in the report to substantiate the findings.

The participants in this research answered the surveys of their own free will. With the exception of

respondents from the research panel, there was no exchange of currency to drive an improved

response rate. The primary incentive made to stimulate the response was an offer to share and

discuss the survey results in the form of Open Content research sharing at the end of the study.

The names, both of individual respondents and companies participating, are held in confidence. We

never share the name of the respondents. In this section, the demographics are shared to help the

readers of this report gain a better perspective on the results. The demographics and additional

charts are found in Figures A–G.

Figure A. Overview of Respondents in the Survey

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Figure B. Respondents by Role

Figure C. Reporting Relationships

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Figure D. Overview of Manufacturing

Figure E. Reporting Relationships

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Figure F. Presence of a Digital Manufacturing Strategy

Figure G. Importance of Digital Manufacturing to Improving Supply Chain Agility

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About Supply Chain Insights LLC Founded in February, 2012 by Lora Cecere, Supply Chain Insights LLC is focused on delivering

independent, actionable, and objective advice for supply chain leaders. If you need to know

which practices and technologies make the biggest difference to corporate performance, turn to us.

We are a company dedicated to this research. We help you understand supply chain trends, evolving

technologies and which metrics matter.

About Lora Cecere Lora Cecere (twitter ID @lcecere) - In February 2012, I started Supply Chain

Insights. My goal is to provide thought-leading supply chain research for the early

adopter seeking first mover advantage. My first book, Bricks Matter, was published

in December 2012 and now has 17 five-star reviews posted on Amazon.com. I am

anxiously awaiting the release of Supply Chain Metrics that Matter on December

15, 2014.

Research and writing are passions. During the month, you can access my monthly

columns in CGT Magazine and Supply Chain Management Review. I am a frequent contributor for

Supply Chain Brain, CIO Magazine, and the CSCMP Quarterly. I am also the author of the enterprise

software blog Supply Chain Shaman, and contribute frequently as a LinkedIn INfluencer and a Forbes

blogger. As an enterprise strategist, I focus on the changing face of enterprise technologies for the

supply chain professional.

Previously, I spent 9 years as an industry analyst with Gartner Group, AMR Research, and Altimeter

Group; 10 years as a leader in the building of supply chain software at Manugistics and Descartes

Systems Group; and 15 years as a supply chain practitioner at Procter & Gamble, Kraft/General

Foods, Clorox, and Dreyer’s Grand Ice Cream (now a division of Nestlé).

My education includes a B.S. in Chemical Engineering from the University of Tennessee, an MBA

from the Wharton School of Business at the University of Pennsylvania, I will graduate with a DBA

from Temple in 2016, and I have completed post graduate work in organizational development at

Georgetown University. Certifications include APICS, CIRM and CPIM and I am a past teacher of

effective marketing concepts for software executives in the Pragmatic Marketing program.