Digitalization Strategy for the Supply Chain: Paths to Transformation

Especially medium-sized companies, which already have a backlog in digital transformation, benefit from a digitalization strategy. This was shown by a study published in June 2022 by the KFW study: Companies that follow a digitalization strategy are more active and also more successful in implementation than those that proceed without a holistic plan.

• A typical medium-sized company carries out digitalization projects – reorganization of workflows or the digitalization of products or services – about one third more often if it has a digitalization strategy.
• Companies with a digitalization strategy use big data applications more than three times as often.
• AI applications occur two-thirds as often in strategically acting companies during the transformation.
• Medium-sized companies with a digitalization strategy invest 50 percent more in their digitalization than their counterparts without a strategy – this pays off in increased efficiency and future-proof processes.

The results also state: Smaller and locally operating companies – among medium-sized companies, only 20 percent – rarely have a digitalization strategy, even though they are already actively investing resources in digitalization. But how can companies proceed more systematically to achieve their digitalization goals? These points are crucial for a successful digitalization strategy:

1. Capture the current state, define goals
2. Think in data streams – and across companies
3. Define responsibilities, strengthen participation
4. Do not look for tools, but for holistic solutions
5. Implement smartly, utilize synergies
6. Collaboration as an answer: Digitalization with cloud & Co.

Whether new business models, better monitoring of supply chain processes, higher efficiency, or risk mitigation – before companies advance their digitalization, they should be clear about their goals. This includes short-, medium-, and long-term considerations regarding the desired corporate development as well as potential business opportunities and market risks. Only when clear objectives are defined can a strategic approach be decided. Before the path to the goal can be mapped out, an awareness of the current state must be created. This includes not only an assessment of the systems, IT landscape, and processes but also an honest approach to the prerequisites: What hinders internal implementation, what is already going well, what do we build on? A classic SWOT analysis at the beginning can help clarify strengths, weaknesses, opportunities, and risks. Two thoughts are of central importance: a) There is no template Every digitalization project is as unique as the company itself. There is neither a general set of procedures to follow nor a standardized list of tools whose implementation guarantees success. It is therefore essential to align the strategy with individual goals and conditions. This is even more true because a digitalization project does not end at departmental or corporate boundaries but should ideally encompass the entire value creation process. b) Digitalization starts with structures, not with tools Digitalization plans often fail not least because new tools are established while the structures remain unchanged. Software, tools, and technologies are merely instruments – the crucial point is to analyze processes and workflows at the beginning and realign outdated structures. Where does which responsibility lie? Who has access to what? How should processes be designed and managed? Only then is a technology-supported reorganization possible.

Digitalization means not only automation but primarily networking. Only from networking arises the multitude of advantages such as ease of work, process efficiency, and rationalization. Particularly complex structures like supply networks benefit significantly from the overview and transparency that digital technologies enable. This applies from raw material extraction through production, transport, sales, to disposal. The necessary raw material for a meaningful overall picture is: data. For an effective digitalization strategy, the following applies:

1. Do not lock data in silos, but ensure a free, simultaneously data protection-compliant flow – internal and external processes should be thought of in conjunction.
2. The better the quality of the data, the more meaningful they are.
3. Clearly define what who in the company should know and how.
4. Not only collect data but qualify and analyze them purposefully.
5. Think truly from beginning to end – a product can theoretically be tracked throughout the entire value creation and lifecycle, the collected data can be analyzed in various ways, and the insights can be used for ongoing optimization.
6. Identify stakeholders – who is involved? This includes relevant departments such as purchasing, warehousing, and sales, as well as suppliers, customers, raw material suppliers, waste disposal companies, and logistics service providers.

The smart handling of data material is one, if not the decisive point of successful digital transformation.

Project and Quality Management: Complex and cross-cutting projects like digitalization often fail due to insufficiently defined processes. For the success of a strategy, clean process and project management is essential, on which the digitalization project can build. Clear responsibilities should be defined to maintain an overview, identify progress and obstacles, and allow for later adjustments. A fundamental basis can be created by companies with project and quality management according to ISO 9001. Employee Participation and Transparency: A particularly significant factor is the attitude of employees towards the planned changes. Digitalization projects often bring about drastic restructuring – through targeted consulting, open controversies, transparent approaches, and above all participation, related concerns can be alleviated and acceptance strengthened.

Robotics, sensors, and the Internet of Things (IoT), 3D printing and artificial intelligence (AI), as well as virtual & augmented reality, blockchain or edge applications, warehouse solutions, e-procurement, goods and supply chain management – there are countless solutions on the market for every need. Therefore, selecting suitable technologies can sometimes be a complex undertaking. When making decisions, the following applies: It is not about selecting the best tools – but the right ones. Decisive criteria for selection:

1. Scalability: The systems and tools should be chosen so that they can be comfortably supplemented with additional solutions in the future.
2. Connectivity: The goal is networking. Tools and solutions are optimal when they can connect within the company but also across company boundaries with the systems of other departments, suppliers, or business customers.
3. Permeability: The solutions should ensure that data do not remain in one storage location but flow together as broadly as possible with other data material and are made accessible to all involved actors as much as possible while complying with data protection regulations.

Above all, small and medium-sized enterprises (INTERNAL LINK /digitalisierung-kmu/) face cross-company digitalization projects with great respect for the complexity, expected costs, and high time expenditure. In many cases, there is also an internal lack of specialists who could drive implementation forward. These obstacles are mentioned by respondents in both the study “Digitalization of Supply Chains” by BME and in the 17th Hermes Barometer “Collaboration in the Supply Chain”. The lack of system compatibility is also an issue that hinders digitalization projects in the eyes of those responsible. Especially in networks with many stakeholders and actors, questions may arise: How do we connect the individual companies, and who provides the necessary technology? One solution may be to rely on existing partnerships with actors in the corporate network and thus utilize synergies.

The ideal answer to how the transparent collaboration of individual companies succeeds is collaborative, cloud-based platform solutions. For example, a logistics company can contribute to a digitalization strategy in supply chain processes with smart supply chain solutions or even serve as the hub where data streams from the supply chain are bundled, evaluated, and analyzed. The business customers of Hermes International have long benefited from the fact that supply chain solutions and digital platforms or services for freight management, risk management, or sustainability monitoring are also part of the service offering. As a link between the individual companies of a supply chain, logistics is ideal for collecting supply chain data and networking companies. Supporting business customers in a needs-based and holistic manner through digital services has proven so effective that with the targeted “Next Level” the transformation efforts will be further developed in 2023, thereby strengthening successful collaboration in the supply chain.