What Is Supply Chain 4.0 and Where Does It Drive Value?
Many industries face dramatic changes as their business models are brought up-to-date with an increasingly digital world. Considering the turbulent times we live in, companies and entire verticals need to reevaluate their global supply chain approach to accommodate new demands.
In the supply chain industry, traditional linear supply chains are becoming a thing of the past, as the sector gradually transforms to a novel digital supply chain, or supply chain 4.0.
What Is Supply Chain 4.0?
Supply chain 4.0 can be defined as the new generation of supply chain operations, working through a connected, integrated digital ecosystem. Many current trends fall under the supply chain 4.0 umbrella, like IoT, AI, blockchain, cloud computing, and smart devices.
These digital technologies enable intelligent supply chain management, converting from a linear model to one in which data flows in numerous ways from a centralized platform or a control tower.
The digital supply chain involves real-time information and simultaneous connectivity across all parts of the chain. It enables flexibility and agility, improves a business’s forecasting capabilities, automates operations, allows the reduction of costs, and enhances customer experience.
Two key drivers that motivate organizations to switch to digital supply chains, according to Gartner, are the needs to cut costs and improve customer satisfaction. Over the next several years, more than 80% of companies expect to establish the capabilities for a digital ecosystem.
How Is the Digital Supply Chain Model Different from the Traditional One?
Historically, supply chains have evolved rather predictably, starting with the manufacturer or supplier and ending with the end customer. As a result, the typical supply chain is characterized by many disconnected planning cycles and is defined as a linear “plan and control” approach. It suggests a stage-after-stage process with little flexibility and poor transparency across the supply chain.
In the digital ecosystem, innovative technologies are reorganizing the old paradigm, modifying how information moves within the ecosystem, and assisting in achieving higher economic success. In the digital supply chain, the data is distributed in real-time from a central hub across all process parts.
Primary Benefits of Supply Chain 4.0
A connected digital ecosystem implies many benefits to the supply chain and businesses, from timely and actionable data to a sharper decision-making process and improved relationships with stakeholders, partners, and customers.
End-to-End, Real-Time Visibility
The latest digital supply chain model not only allows collecting data from more sources and devices; it interprets and shares it in a timely and effective manner. Through integrated and connected data exchange, supply chain executives can access information across any sector and part of the supply chain, improving accuracy, traceability, and operational efficiency.
Gathering more data through connected devices enables companies to uncover new trends and tendencies, and make more holistic business decisions. According to Gartner’s Supply Chain Survey, 59% of participants had partially or fully used IoT across their company’s supply chain.
But most importantly, the visibility obtained through data centralization reduces the time involved in the entire order-to-cash cycle and results in a faster, agile, and more resilient supply chain.
Predictability, Planning, and Forecasting
Digital supply chain management, according to the Boston Consulting Group, allows for a 25% quicker reaction to market demand changes. The number of planning cycles and frozen periods is reduced, and planning becomes a continuous process that may respond dynamically to changing requirements or restrictions.
As one digital ecosystem handles process management, supply and demand planning, cash flow, and other underlying supply chain operations, it is easier to plan and forecast for the future. As supply chain 4.0 involves the use of predictive analytics, algorithms can reduce forecasting errors by 10% to 20%.
Eventually, predictability helps greatly with managing risks and exceptions. According to Gartner, 53% of enterprises have a reactive approach to emerging risks. Through strategy adjustments and valuable insights into supplier networks, smart solutions support agile and enhanced decision-making.
Faster and Better Supply Chain Management
As all the parts of the supply chain become powered with advanced technology, there is a tremendous potential for optimization at every stage, whether that be warehousing, procurement, order fulfillment, tracking, or transportation.
The range of data includes everything from synthesized top-level KPIs to highly detailed process data like the specific location of vehicles in the network. For all levels of seniority and functions in the supply chain, this set of data provides a common information base.
The integration of data from suppliers, service providers, and other stakeholders enables all parties to go in the same direction and make decisions based on the same information.
Trusted Partnerships and Collaboration
The global nature of collaboration in the digital supply chain makes it easier to build trusted relationships with key stakeholders and customers through shared data infrastructure. Partners can handle supply chain responsibilities collaboratively to save on administrative expenditures while also using best practices and sharing knowledge.
Multi-tier connection is another important benefit of digital supply chain collaboration. While some industries, like automotive and agriculture, have already begun to collaborate throughout the full value chain, others still have a long way to go.
Through the exchange of reliable planning data from the raw materials supplier to the end customer, stakeholders can react quickly to disruptions anywhere. Eventually, collaboration across the value chain will allow for much lower inventories, lead time reduction, and global awareness of what’s going on in a particular supply chain ecosystem.
Where does supply chain 4.0 drive value?
The digital supply chain enables enhanced analytics, forecasting, relationship management, increased agility, and much more. But there are specific areas that supply chain executives are interested in, and where the 4.0 model can drive value: reducing costs.
Where can supply chain 4.0 drive value for cost-efficiency? Data-backed predictions from McKinsey point to the following reductions:
Operational costs by 30%
Lost sales by 75%
Inventory expenses by up to 75%
Ultimately, the digital environment holds benefits for all parts of the supply chain, especially for strategy, planning, collaboration, order and performance management, and physical flow.
Final Thoughts
Companies who continue to use a traditional supply chain strategy are putting their business at risk. At every touchpoint, disruptive forces and ever-changing customer expectations are affecting the industrial supply chain. Adopting a supply chain strategy that is responsive to these pressures and capable of accelerating value generation in real time will only become more important.
According to the Hackett Group study, 94% of supply chain leaders agree that digital transformation will radically change supply chains; however, only 44% have developed a roadmap for the transformation.
Supply chains will continue to evolve, so an investment in technology to automate operations will provide a more flexible supply chain and the potential to make predictive analytics a reality.
According to the Kenco Group report, supply chain executives are ready to invest in their companies’ digital transformation: 39% of respondents said they would invest 10-20% over their current supply chain spend, with 31% willing to spend more than 20% of their spend.
Accelerating Your Supply Chain with Agistix
Agistix is a global supply chain visibility platform provider that enables businesses to keep a finger on the pulse of their supply chains, reaching true visibility through data centralization.
Agistix’s solutions support the requirements of today’s quickly evolving data interfaces and formats, enabling a non-disruptive and efficient change for businesses.
Learn more about Agistix’s sophisticated and practical solutions here.
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Author
Trevor Read
Trevor Read is the founder and CEO of Agistix, with over two decades of experience in SaaS, global supply chain, and logistics technology. Trevor is a results-driven entrepreneur who is passionate about leveraging big data to create scalable, fast-deployment solutions that empower businesses to optimize operations and seize new opportunities in complex, ever-changing markets.
