It is overly simplistic to believe that a digital control tower will be the answer to improving supply chain resilience and agility — especially for organizations that have not outsourced all physical operations to third parties.
Control towers improve integration between enterprises across supply chains, but only up to a point. The depth of integration into operational functions is limited and few if any control towers integrate across the end-to-end supply chain.
Supply chains move material, parts and goods from points of supply to points of consumption. They also move people, parts and equipment to enable the ongoing operation of many things — including the technology hardware that powers digital services.
Extracting, harvesting, processing, transporting, receiving, storing, handling, manufacturing, assembly, packaging, picking, loading, shipping, delivering and servicing products still requires people and assets. There are physical and operational constraints that limit how quickly and how much a supply chain can flex and respond. For companies that operate factories, distribution centers or stores, investing in physical assets such as equipment could be a better use of budget and resources than digital projects.
Consider Amazon. Although it has well-recognized digital capabilities, it still must invest in physical assets and people. In 2020, Amazon will increase the number of fulfillment centers by about 30%.[i] It will also hire more than 75,000 workers to fulfill orders.[ii]
Decisions concerning physical and digital budgets are not binary, but the funding must be allocated based on the lessons learned and new realities facing each supply chain organization. Here are a few examples of when investments in physical assets are as (or more) important than digital investments.
- Consumer products manufacturers with increased direct to consumer fulfillment will need to invest in distribution center operational assets and personnel to support more volume and different handling and fulfillment requirements. For many manufacturers this will require new or more material handling equipment such as picking systems.
- Manufacturers of surgical masks that faced a surge in demand that peaks but stabilizes at levels that exceed existing capacity must invest in manufacturing plants to increase capacity.
- Manufacturers of transparent plastic sheets or shields being installed in retail stores and restaurants that face increased demand from existing and new customers will need to invest in production assets.
- Grocery retailers that experienced double-digit direct-to-consumer and buy online pickup at store will need to upgrade or expand fulfillment capabilities in distribution centers and stores. For example, retailers that want efficient flexibility across fulfillment channels might need to redesign store layouts and turn a portion of the store into a miniature fulfillment operation.
- Food and beverage manufacturers supplying consumer and food service customers that were unable to pivot capacity from one channel to another will need to invest in equipment. For example, buying new or upgrading packaging equipment to enable them to shift volumes more easily.
Software vendors, consultants, academicians — and even Gartner — offer numerous articles, reports and webinars about digital supply chain. The problem is that “digital” has been used loosely and applied to physical objects that move or manufacturer parts, materials or products such as autonomous trucks, collaborative robots, drones, automated picking and autonomous delivery robots. All these examples have software and sensors (digital), but they are all physical objects.
Consider our Supply Chain Hype Cycles as evidence and indicators that digital is not the only or complete solution to supply chain resiliency and agility in a post-COVID world. The required technologies are not really required to enable the type of control tower that many say is needed in a volatile and uncertain work.
- Hype Cycle for Supply Chain Strategy: Machine learning, Internet of Things (IoT), prescriptive analytics, predictive analytics and end-to-end supply chain risk management are all in the trough of disillusionment. Artificial intelligence has not yet reached the peak of inflated expectations and will not reach the plateau of productivity for at least 10 years.
- Hype Cycle for Supply Chain Planning Technology: Multiple digital technologies including digital supply chain planning, IoT, machine learning and data lakes are all sliding down the trough of disillusionment. Resilient planning, which has supply chain control tower attributes, is at the innovation trigger portion of the hype cycle and will not reach plateau for at least 10 years.
Supply chains are complex networks of physical, financial and digital flows. Improving resilience and agility must consider all three elements. Until there is a device that can break down any item into digits, transport it electronically and reassemble it somewhere else, supply chains will be governed by physical constraints. Some might say a 3D printer is an example of a device that exists today that converts physical to digital and back again. True, but a 3D printer is still a physical thing — an asset — and it cannot print everything and it cannot print cost-effectively on a large scale for most items.
Supply chain leaders will need to battle for budget through the end of this year and in 2021. They will need to build CFO-worthy business cases that analyze a range of options — not just the digital one. For those who operate supply chains, digital control tower or “digital” alone is not the solution.
Gartner Supply Chain