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The digital supply chain – advantages and challenges in SCM
Unsplash/Samuel Bourke

The digital supply chain – advantages and challenges in SCM

by Editorial Office

Influenced by the disruptions of an increasingly VUCA (Volatile, Uncertain, Complex and Ambiguous) world, digital technologies are becoming ever more important for supply chain management. Consequently, many companies are repositioning strategically: Topics such as sustainability and risk management are increasingly coming into focus. Transparency and a detailed data overview form the basis for sound decision-making and optimized work processes. We discuss how digitization is helping to strengthen the supply chain and what challenges companies are facing in the process.

The new supply chain is complex and digital

Digital transformation has significantly altered supply chains: Strategic supply chain management supports companies with numerous technical solutions to optimize their increasingly complex logistics. Innovative tools access real-time data and offer the opportunity to automate processes, speed up operations and reduce errors. According to the 18th Hermes Barometer on “Trends in Supply Chain Management”, a large proportion of the German companies surveyed have already recognized the importance of digitalization for the supply chain and agree that digital technologies have a significant impact on supply chain resilience.

The digital supply chain encompasses various aspects, for example:

  • Transport and logistics management: With the use of telematics, GPS tracking, automated freight handling and route optimization, companies can improve transport processes, shorten delivery times, and save energy and costs. Through precise coordination, shipments are bundled and empty runs are avoided.
  • Procurement and supplier management: Procurement processes are streamlined, centralized and monitored through the use of e-procurement, electronic invoicing and digital supplier communication. This enables accurate demand forecasting so that the required quantity of products is available at the right time.
  • Production and manufacturing: Automation technologies, robotics and the Internet of Things (IoT) make processes transparent, enable real-time status tracking and ensure optimized, accelerated processes.
  • Planning and risk management: Data analytics, AI, and machine learning collect information from multiple sources and use it to create analytics and accurate forecasts – companies benefit from optimized production and procurement plans. The early identification of potential disruptions and risks is also facilitated by digital technologies.
  • Warehouse management: Stocks in the warehouse can be better organized with barcode or RFID technologies, real-time data and automated warehouse management systems (WMS), thus reducing lead times. Specialized software controls and optimizes all Warehousing Solutions processes, passes on orders and provides analyses for data-based decision-making.

Technologies that support the smart supply chain

The requirements of volatile markets are often changing rapidly: Thus, with digital technologies to support optimization and adaptation processes, it is easier for companies to remain competitive. In addition to SCM software and the Internet of Things, which enables the networking of physical devices and sensors, blockchain technology also plays an important role in digital supply chains, as sensitive data is well protected against forgery and manipulation by cryptographic techniques and encryption.

Artificial intelligence, in turn, can analyze large volumes of data, recognize patterns and make forecasts. In SCM, AI is used for inventory planning, route optimization and process automation, for example. Cloud computing creates location-independent access to the necessary infrastructure and forms an interface between devices, technology and data analysis. Further, ERP systems, sensor technologies and RFID are effective control tools that can be easily accessed by all delivery partners through a simple, intuitive handling.

Digital supply chains – the benefits for companies

Supply chains are complex networks in which numerous companies are usually intertwined worldwide. And yet, who exactly belongs to the supplier network, how do the individual players work, where do risks occur, and where have not all optimization potentials been exhausted? An individually designed, digitally controlled and thus highly transparent supply chain management serves as a precision tool from which companies benefit in many different contexts.

  • Transparency: The digital exchange of all relevant data along a supply chain as well as insight into the analysis improves communication and creates trust between the players involved. Real-time monitoring and status tracking also enable companies to track exactly which goods are where and thus react more quickly to delays or interruptions.
  • Efficiency: The automation of processes leads to a faster and more precise handling of work steps and shortens throughput times. Optimally coordinated processes, including transport or procurement management, increase cost-effectiveness in terms of time, personnel and financial resources.
  • Agility and flexibility: Companies must be able to respond quickly to changing market conditions or customer requirements, even outside times of crisis. An SCM that is tailored to individual circumstances through segmentation strategies identifies the need for action immediately through digital platform solutions, monitoring and real-time communication.
  • Sustainability: Ever more companies and consumers want to know where products come from and how they were made. Legal regulations such as the new EU CSRD directive also oblige companies to disclose certain information about sustainability efforts. All of this requires sophisticated changes that are supported by digital technologies and also become visible.

A strong supply chain resists disruptions through data analysis, holistic risk management and strategic measures. Therefore, the use of digital technologies also strengthens the resilience of a supply chain.

Mastering challenges with professional expertise

With the opportunities of a digital supply chain also come some challenges that need to be overcome. The transformation process, for instance, involves a variety of complex systems, platforms and technologies that need to be integrated so that all elements can work smoothly and synchronously with each other. For interoperability and standardization, it is helpful to develop strategic interfaces to enable seamless communication and collaboration between supply chain partners. In doing so, it is important to ensure that sensitive data is protected from cyberattacks: Companies should consider IT security from the very beginning.

Employees must also be able to use the new technologies, make data-driven decisions and adapt to changing processes. In order to acquire the necessary skills, comprehensive change management including training and continuous competence building are crucial. Logistics experts like Hermes International support these processes with the provision of digital offerings and accompany companies on their way to improved collaboration and more transparency along the supply chain. In a continuous process of further development, Hermes International is making itself even more future-proof and raising its supply chain solutions to a new level. After all, digital supply chains play a key role in enabling companies to reduce costs and increase efficiency – transparency creates trust and strengthens customer relationships in the long term.

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