The term ​“dig­i­tal econ­o­my” has exist­ed for a num­ber of years now as a con­cept that is meant to empow­er both con­sumers and com­pa­nies to bet­ter con­nect and engage with each oth­er. At the cen­ter of that exchange is the sup­ply chain, which keeps goods mov­ing, glob­al economies bustling, and the world turning. 

As the busi­ness land­scape has been reshaped by a glob­al pan­dem­ic, this has caused sup­ply chains to either work over­time or come to a screech­ing halt. Now it is more impor­tant than ever for tech­nol­o­gy to play an essen­tial role in this essen­tial busi­ness function. 

We spoke to Richard How­ells, VP of solu­tion mar­ket­ing at SAP dig­i­tal sup­ply chain, about how a dig­i­tal sup­ply chain pow­ered by Indus­try 4.0 can help orga­ni­za­tions over­come chal­lenges and pre­pare for the future. ​“I’ve been at SAP for about 16 years and I’ve worked in the sup­ply chain and man­u­fac­tur­ing indus­tries for about 30 years,” he said. ​“There’ll always be a chal­lenge to over­come, but intel­li­gence makes it eas­i­er to deal with.” 

Sharon: Can you give us a high-lev­el overview of what a dig­i­tal sup­ply chain is?

Richard: First, a dig­i­tal sup­ply chain is con­nect­ed. That means it’s con­nect­ing peo­ple with­in your orga­ni­za­tion and con­nect­ing com­pa­nies with­in your net­work so that you can col­lab­o­rate across cus­tomers, sup­pli­ers, con­tract man­u­fac­tur­ers, logis­tics, providers, and so on. 

Sec­ond, a dig­i­tal sup­ply chain is auto­mat­ed. We now have access to tech­nolo­gies such as the Inter­net of Things (IoT), machine learn­ing, and arti­fi­cial intel­li­gence (AI), and this pro­vides access to real-time data across the sup­ply chain. It helps com­pa­nies lever­age that infor­ma­tion to dri­ve agili­ty and resilien­cy across the sup­ply chain. 

And third, a dig­i­tal sup­ply chain is intel­li­gent. With infor­ma­tion and intel­li­gence, you have vis­i­bil­i­ty across the end-to-end sup­ply chain, which means you’re able to pre­dict things that will hap­pen. I can pre­dict when a machine in my pro­duc­tion line will go out of cal­i­bra­tion and may need to be main­tained. I can pre­dict the qual­i­ty of prod­ucts and make changes dur­ing pro­duc­tion if nec­es­sary. I can pre­dict where vehi­cles are and if they’ll be on time or late based on traf­fic pat­terns. And I can also pre­dict whether the goods in that vehi­cle are of good quality. 

All those things — con­nec­tion, automa­tion, and intel­li­gence — are part of dig­i­tal sup­ply chains. The sup­ply chain fits in after the full prod­uct life cycle, from design through man­u­fac­tur­ing and logis­tics, to their oper­a­tion at cus­tomers’ loca­tions. And of course, the relat­ed plan­ning process­es that span the end-to-end sup­ply chain apply to the dig­i­tal ver­sion too. 

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Sharon: What are some of the chal­lenges sup­ply chains are fac­ing today and how would a dig­i­tal sup­ply chain help address those issues? 

Richard: Today is much dif­fer­ent than four months ago. We’re see­ing a very unsta­ble sup­ply of raw mate­r­i­al and inter­me­di­ate, as well as fin­ished prod­ucts, as man­u­fac­tur­ing and bor­ders shut down and start to reopen. 

At the start of the pan­dem­ic, we saw a lot of volatile demand for vital com­modi­ties such as bread, milk, eggs, hand san­i­tiz­er, and toi­let paper. They weren’t in the stores, or, if they were, they were at marked-up prices and avail­able in lim­it­ed quan­ti­ties. At the same time, nobody was buy­ing lux­u­ry prod­ucts or dis­cre­tionary items, and their demand dropped off. Volatile demand — whether that’s increased or decreased demand — is a sup­ply chain challenge. 

We also had con­straints regard­ing logis­tics capac­i­ty and the actu­al work­force being able to go to work. Even as facil­i­ties begin to reopen, it’s in a dif­fer­ent world where the health and safe­ty of every­one in the sup­ply chain are top of mind for com­pa­nies. This trans­lates to a reduced num­ber of employ­ees in a fac­to­ry or a ware­house, and more mon­ey spent to install plex­i­glass shields to sep­a­rate work­ers. It means more clean­ing in between shifts, as well as oth­er mea­sures. All of this has increased the need for improved plan­ning, sched­ul­ing, and envi­ron­men­tal, health, and safe­ty (EHS) processes.

Both of these chal­lenges can be addressed with a dig­i­tal sup­ply chain, which would pro­vide the vis­i­bil­i­ty and data to make informed deci­sions. A dig­i­tal twin, for instance, would allow a com­pa­ny to do sim­u­la­tions to see how what-if sce­nar­ios would help mit­i­gate these challenges. 

Sharon: Let’s talk more about dig­i­tal twins. How can they help a com­pa­ny mit­i­gate risk to prod­ucts and brands, as well as employ­ees, dur­ing these unprece­dent­ed times? 

Richard: Let’s start by defin­ing dig­i­tal twin, which is a dig­i­tal rep­re­sen­ta­tion of a phys­i­cal thing, an area, or a process. It could be a dig­i­tal twin of a piece of equip­ment, a pro­duc­tion line, or an entire fac­to­ry. It could even be a twin of your sup­ply chain. The key is hav­ing vis­i­bil­i­ty through a dig­i­tal rep­re­sen­ta­tion at your fingertips. 

What we’re see­ing is, as the cost of sen­sors con­tin­ue to come down, it is more afford­able to put intel­li­gence into every­thing. And once we start get­ting smart prod­ucts and assets through­out the sup­ply chain, then you get what we call a dig­i­tal thread of that prod­uct through­out its life cycle — all the way from the time it’s designed through man­u­fac­tur­ing, through usage with cus­tomers, through ulti­mate­ly the decom­mis­sion of that prod­uct in a sus­tain­able envi­ron­ment. This could improve lots of things across the design-to-oper­ate process. You can improve per­for­mance, engi­neer­ing, and vis­i­bil­i­ty at any point in time. And a dig­i­tal twin can also dri­ve new busi­ness mod­els and improve cus­tomer service. 

Sharon: What is the Indus­try 4.Now ini­tia­tive at SAP and how will it play into con­tin­ued inno­va­tion with­in sup­ply chains? 

Richard: Indus­try 4.0 has been around for a while. It start­ed in Ger­many about a decade ago, and depend­ing on where you are in the world, it might have a slight­ly dif­fer­ent name. But ulti­mate­ly, it is about an indus­tri­al rev­o­lu­tion and the automa­tion of busi­ness. It start­ed with smart man­u­fac­tur­ing ini­tia­tives where we were putting sen­sors on the pro­duc­tion line, but it’s more than that now. 

I men­tioned ear­li­er the cost of sen­sors com­ing down, and that has led to devel­op­ing smarter prod­ucts and assets. Those intel­li­gent ​“things” are pro­lif­er­at­ing across the sup­ply chain. That gives us the oppor­tu­ni­ty to move Indus­try 4.0 from a fac­to­ry-focused ini­tia­tive to a com­pa­ny­wide sup­ply chain busi­ness strat­e­gy to dri­ve pro­duc­tiv­i­ty. It’s about lever­ag­ing that data across the sup­ply chain to make smarter deci­sions, to be more pre­dic­tive, to be more intel­li­gent, and to empow­er people.

Indus­try 4.Now is an SAP ini­tia­tive where we’re talk­ing about Indus­try 4.0 as an engine for pro­duc­tiv­i­ty. Because SAP can lever­age the intel­li­gence and data from sen­sors all over the sup­ply chain, it believes the time for Indus­try 4.0 is now, that the tech­nol­o­gy is ready, that com­pa­nies are ready, and SAP is ready. 

Sharon: What steps does a com­pa­ny need to take to become a dig­i­tal sup­ply chain? What’s required to get there? 

Richard: There are three dif­fer­ent things to focus on, start­ing with putting the cus­tomer at the cen­ter of your busi­ness. Cus­tomer-cen­tric busi­ness process­es were valu­able pre-pan­dem­ic, crit­i­cal dur­ing the pan­dem­ic, and will be a dif­fer­en­tia­tor post-pan­dem­ic. As the sit­u­a­tion has high­light­ed, if you don’t have an accu­rate view of actu­al demand, all oth­er process­es across the sup­ply chain are work­ing based on bad information. 

As con­sumers, we have focused less on lux­u­ry items and more on neces­si­ties, which has caused a very volatile demand pic­ture. We have thought less about per­son­al­ized prod­ucts and more about per­son­al safe­ty, which in turn means we care less about a great shop­ping expe­ri­ence and more about a great deliv­ery expe­ri­ence to our front door. And we were not think­ing in terms of ​“one-day deliv­ery” but more about deliv­er­ing as promised. But for­ward-think­ing com­pa­nies know that post-pan­dem­ic, we will again see the rise in per­son­al­iza­tion of goods. These com­pa­nies will con­tin­ue design­ing, man­u­fac­tur­ing, and deliv­er­ing prod­ucts in a more sus­tain­able man­ner, ulti­mate­ly becom­ing more customer-centric. 

The next part is to ensure vis­i­bil­i­ty across the net­work. This is crit­i­cal because in today’s busi­ness, most com­pa­nies focus on their core com­pe­ten­cies and out­source the rest. We rely on a net­work of sup­pli­ers, logis­tics ser­vice providers, con­tract man­u­fac­tur­ers, and oth­er trad­ing part­ners. Hav­ing the right infor­ma­tion in the hands of the right peo­ple, at the right time, and at the right lev­el of detail is key to respond to shift­ing con­di­tions, min­i­mize risk, and iden­ti­fy oppor­tu­ni­ties. This requires data from process­es, peo­ple, trad­ing part­ners, prod­ucts, and assets to deliv­er an inte­grat­ed end-to-end dig­i­tal twin of your sup­ply net­work. This is what is need­ed to dri­ve advanced deci­sion-mak­ing and pre­dic­tive ana­lyt­ics all the way from design to full-scale deploy­ment and operations.

The third area is to improve pro­duc­tiv­i­ty through automa­tion, and this is where Indus­try 4.0 plays a vital role.

Sharon: What are some of the trends/​lessons learned that you’re see­ing com­ing out of a COVID-19 busi­ness land­scape as it relates to the sup­ply chain? 

Richard: One of the lessons learned is that we need to bal­ance cost and risk. Over the past 10 to 15 years, every­thing has been out­sourced because it was cheap­er to make it some­where cheap­er. COVID-19 showed us the inher­ent risk this could bring. When Chi­na, which has a huge per­cent­age of goods going through it, shut down, so did many sup­ply chains. So, we know that we need to think about alter­nate sourc­ing strate­gies as a key risk-mit­i­ga­tion strategy. 

Anoth­er les­son is around inven­to­ry opti­miza­tion and plan­ning. I think some com­pa­nies will move from ​“just-in-time” man­u­fac­tur­ing to a ​“just-in-case” strat­e­gy. Inven­to­ry opti­miza­tion means keep­ing the right inven­to­ry at the right quan­ti­ty at the right place in the sup­ply chain. For exam­ple, keep­ing key com­po­nents and parts close to the man­u­fac­tur­ing facil­i­ty. We’re see­ing lots of pop-up ware­hous­es appear­ing at dif­fer­ent com­pa­nies for that very rea­son, to hold the inven­to­ry clos­er to where it’s needed.

And the last les­son learned is that sup­ply chains need to be much more resilient. That part­ly means hav­ing risk strate­gies in place, but also hav­ing the abil­i­ty to take action when some­thing hap­pens. It’s the abil­i­ty to sense — or, even bet­ter, pre­dict — when something’s going to hap­pen, but also be able to respond to it in a time­ly manner. 

Sharon: What are three pre­dic­tions you can make about sup­ply chains and tech­nol­o­gy in a post-COVID-19 world? 

Richard: I pre­dict that sup­ply chains will become more resilient. They are all now oper­at­ing in the new nor­mal and must be able to respond to change. 

The sec­ond is sus­tain­abil­i­ty. It was a huge issue pre-pan­dem­ic, and it has not gone away. Unfor­tu­nate­ly, and right­ly so, it has tak­en a back seat in the past few months because, quite frankly, we’ve had much big­ger short-term chal­lenges to take care of. But the real­i­ty is that the pan­dem­ic has actu­al­ly had pos­i­tive impacts from a sus­tain­abil­i­ty stand­point. It has shown that we can make a dif­fer­ence when we reduce man­u­fac­tur­ing or trans­porta­tion emis­sions. We’ve seen the air qual­i­ty improve. I read recent­ly that the Cen­tre for Research on Ener­gy and Clean Air report­ed that car­bon diox­ide emis­sions in Chi­na reduced by 25%. That just shows that we can make a dif­fer­ence, and so I believe sus­tain­abil­i­ty will be huge mov­ing forward. 

And the third pre­dic­tion is that the sup­ply chain will have a seat at the table in the board­room. It is prac­ti­cal­ly a pres­i­den­tial top­ic at the moment, and I don’t think I’ve heard the sup­ply chain men­tioned as much as it has in just the past few months. Sup­ply chains have long been con­sid­ered a way of reduc­ing costs, but now I believe we have to bal­ance the cost and risk con­tin­u­um. I also think that with all of the data now avail­able across the sup­ply chain, sup­ply chains will also become an area of busi­ness inno­va­tion and rev­enue growth. 

Sharon: What would you like ASUG mem­bers to know? 

Richard: I think sup­ply chains have been crit­i­cal dur­ing the response phase of COVID-19, and they will be equal­ly crit­i­cal in the recov­ery phase and in help­ing com­pa­nies reimag­ine their busi­ness­es mov­ing forward.

Join ASUG on May 11 and 12 for ASUG Best Prac­tices: SAP for Sup­ply Chain. This vir­tu­al event will fea­ture cus­tomers, experts, and thought lead­ers dis­cussing how the last year has chal­lenged and changed sup­ply chains, and what tech­nolo­gies com­pa­nies are using to bol­ster their sup­ply chains. Reg­is­ter to attend now.