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Digitalization strategy for the supply chain: Paths to transformation

by Editorial Office

Successful digitization is an essential prerequisite for any sustainable business – after all, automated processes increase resilience, security and flexibility along the entire value creation process. One of the decisive factors for the success of the transformation is the extent to which digitization is firstly understood as part of the corporate strategy and secondly strategically pursued within its implementation. So, what can such a strategy look like and what do supply chain and procurement managers pay attention to if they want to make their supply chain processes more digital? We explain which considerations are part of strategic digitization.

Companies with a digitization strategy have a key advantage

Particularly medium-sized companies, which already have a lot of catching up to do in terms of digital transformation, benefit from a digitization strategy. This was shown by a KFW study published in June 2022: Hence, companies that follow a digitization strategy are more active in pursuing their digitization and are also more successful than those that proceed without a holistic plan.

Selected results:

  • A typical medium-sized company carries out digitization projects – reorganizing workflows or digitizing products or services – about one third more frequently if it has a digitization strategy.
  • Companies with a digitization strategy use Big Data applications more than three times as often.
  • AI applications occur two-thirds as often in the transformation of strategically operating companies.
  • SMEs with a digitization strategy invest 50 percent more in their digitization than their counterparts without a strategy – this pays off in increased efficiency and future-proof processes.

The results also show: Smaller and locally operating companies – among medium-sized companies, the figure comes up to only 20 percent – rarely have a digitization strategy, even though they are already actively investing resources in digitization. But how can companies proceed more systematically to achieve their digitization goals?

The following points are crucial / decisive for a successful digitization strategy:

  1. Record current status, define goals
  2. Think in terms of data streams – across companies
  3. Define responsibilities, strengthen participation
  4. Do not look for tools, but for holistic solutions
  5. Implement smart, leverage synergies
  6. Collaboration is the answer: digitization with cloud & co.

1. Record current status, define goals

Whether it’s new business models, better monitoring of supply chain processes, greater efficiency or hedging risks – before companies push ahead with their digitization, they should be clear about their goals. These include short-, medium- and long-term considerations of the company’s desired development as well as possible business opportunities and market risks. Only when clear target plans have been defined can a decision be made about the strategic approach.

Before the path to the goal can be mapped out, an awareness of the current state must be created. This includes not only a survey of the systems, IT landscape and processes, but also an honest approach to the prerequisites: What is inhibiting internal implementation, what is already going well, what are we building on? A classic SWOT analysis at the beginning can help to become clear about strengths, weaknesses, opportunities and threats.


Two thoughts are central to this:

a) There is no universal template

Every digitization 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 along the individual goals and conditions. This is all the more true because a digitization project does not end at departmental or company boundaries, but should, if possible, encompass the entire value creation process.


b) Digitization starts with the structures, not the tools

Digitization plans often fail not least because new tools are established, but the structures remain unchanged. However, software and technologies are merely tools – the crucial point is to analyze processes and workflows at the outset and realign outdated structures. Which responsibility located is located where? Who has access to what? How should processes be designed and managed? Only then is a technology-supported reorganization possible.   


2. Thinking in terms of data streams – across companies

Digitization means not only automation, but first and foremost, it’s all about networking. It is only from networking that the multitude of benefits such as work simplification, process efficiency and rationalization arise. Particularly complex structures such as supply networks benefit significantly from the overview and transparency that digital technologies enable. This applies to everything from raw material extraction to production, transport, sales and disposal. The most significant raw material for a meaningful overall picture is: data.

The following therefore applies to an effective digitization strategy:

  1. Don’t lock data in silos, but ensure a free flow – internal and external processes should be thought of in an interconnected way. At the same time, regulations regarding data protection must of course be considered and complied with.
  2. The better the quality of the data, the more meaningful it is.
  3. Define exactly what employees of the company show know and how they acquire this knowledge
  4. Do not only collect data, but qualify and analyze it in a targeted manner.
  5. Truly think from start to finish – a product can theoretically be tracked throughout its value creation and lifecycle, the data collected can subsequently be analyzed in a variety of ways, and the insights can be used for ongoing optimization.
  6. Identify stakeholders – who is involved? The overview should include, for example, 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 is one, if not the decisive, point of successful digital transformation.


3. Define responsibilities, strengthen participation

Project and quality management: Complex and overarching projects such as digitization often fail due to insufficiently defined processes. For the success of a strategy, it is essential to have a clean process and project management on which the digitization project can build. Clear responsibilities should be defined in order to maintain an overview, identify progress and obstacles, and enable readjustment at a later date.

Companies can create a fundamental basis with project and quality management in accordance with ISO 9001.

Employee participation and transparency: A particularly important factor is the attitude of employees toward the planned changes. Digitization projects often entail a drastic restructuring – targeted consultation, open controversy, a transparent approach and, above all, participation can alleviate concerns and increase acceptance.


4. Don’t look for tools, look for holistic solutions

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. The selection of suitable technologies can therefore be a complex undertaking.

When it comes to decision-making, it’s not about choosing the best tools – it’s about choosing the right ones.

Decisive criteria in the selection:

  1. Extensibility: the systems and tools should be selected in such a way that they can be conveniently supplemented with additional solutions in the future.
  2. Connectivity: It’s all about networking. Tools and solutions are optimal when they can be connected 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 does not remain in one storage location, but merges with other data as widely as feasible and is as accessible as possible to all actors involved, while complying with data protection.

5. Implement smart, leverage synergies

Small and medium-sized enterprises in particular have a great deal of respect for the complexity, expected costs and time involved in cross-company digitization projects. In addition, in many cases there is an internal lack of specialists who could drive the implementation forward. These obstacles were mentioned by respondents of the BME study “Digitalization of Supply Chains” as well as the 17th Hermes Barometer “Collaboration in the Supply Chain”.

Lack of system compatibility is another issue that may hinder digitization projects. Especially in networks with many stakeholders, the following 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 players in the corporate network and to exploit synergies in this way.


6. Collaboration is the answer: digitization with cloud & co.

The ideal answer to how individual companies can collaborate transparently is collaborative, cloud-based platform solutions.

For example, a logistics company with smart supply chain solutions can contribute to a digitization strategy in supply chain processes or even represent the hub where data streams from the supply chain are bundled, evaluated and analyzed. Hermes International’s business customers 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 in a supply chain, logistics is ideal for collecting supply chain data and networking companies as well.

Supporting business customers in a needs-based and holistic manner through digital services has proven so successful that the targeted “Next Level” will further develop the transformation efforts in 2023 and thus strengthen successful collaboration in the supply chain.

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