Industry 4.0: The Five Steps Towards A Digital Supply Chain

by Stefan Schrauf, Philipp Berttram and Morten Grunwald

If the vision of Industry 4.0 is to be realized, most enterprise processes — manufacturing, product development, customer relations, and the workplace itself — must become fully digitized. A critical element will be the arrival of the digital supply chain.

The supply chain today is a series of largely discrete, siloed steps taken through marketing, product development, manufacturing, and distribution, and finally into the hands of the customer. Digitization brings down those walls, and the chain becomes a completely integrated ecosystem that is fully transparent to all the players involved — from the suppliers of raw materials, components, and parts, to the transporters of those supplies and finished goods, and finally to the customers demanding fulfillment.

This network will depend on a number of key technologies: integrated planning and execution systems, logistics visibility, autonomous logistics, smart procurement and warehousing, spare parts management, and advanced analytics. The result will enable companies to react to disruptions in the supply chain, and even anticipate them, by fully modeling the network, creating “what-if” scenarios, and adjusting the supply chain in real time as conditions change.

The key for a successful digital transformation of the existing supply chain, and therewith reaping the full benefits of DSC, lies in developing an orderly process for implementing and integrating the many technologies and capabilities required. In our experience, companies need to take five primary steps:

    1. Understand your starting position: Review your current maturity along the four stages of the maturity model and identify areas for improvement.
    2. Define your strategy: Determine your target maturity level and the supply chain vision that best supports your business strategy.
  1. Develop the appropriate road map: Settle on the necessary implementation steps and work them into a detailed road map.
  2. Deploy small pilots with end-to-end scope: Many applications that make up the digital supply chain represent a radical change for most organizations, so companies should first carry out smaller pilots that showcase benefits and help develop the right capabilities. These “lighthouse” projects should aim at testing the end-to-end flow for a specific supply chain, rather than implementing a limited set of technologies on a broader scale.
  3. Segmented rollout and capability development: After a successful pilot, the rollout should start with those supply chains where expected benefit is highest. This could involve key customers, key regions, or some other supply chain segmentation criterion. The capabilities required will need to evolve along with the rollout.

Industry 4.0: The five steps towards a digital supply chain

Companies that will succeeded in building a truly digital end-to-end supply chain will gain a difficult-to-challenge advantage in the race to Industry 4.0, and be able to set, or at least influence, technical standards for their particular industry. Moreover, the advantage will by no means be limited to the greater efficiencies. The real goal will be the many new business models and revenue streams the digital supply chain will open up.

First appeared at Fortune