Digital supply chain – only something for corporations?

SMEs can also benefit from the digitalization of the supply chain

A quick look at the current business press may not be representative, but it still proves the high relevance of digital transformation in supply chain management. We explain why the digital supply chain is also exciting for SMEs.

Amazon Robotics LLC has been replacing order pickers with robots for several years now, and Mercedes-Benz is building the “Factory 56” with a volume of 730 million euros, in which 400 driverless transport systems, RFID and pick-by-light are being used in an attempt to come a big step closer to the goal of unmanned material supply on the line. These are just two examples of many in which corporations are investing in digital transformation. Can such projects only be implemented economically at large companies? Or to what extent can a digital supply chain also generate added value in medium-sized companies?

Digitization and digitization pressure

In principle, most companies have a positive attitude toward digital transformation. In a 2018 study, Kersten et al. already came to the conclusion that 74.2% of the stakeholders surveyed saw high to very high opportunities in this, but only 35.4% saw high to very high risks. However, the opportunities also result in digitization pressure. In a survey by candidus, the mostly medium-sized respondents answered that the pressure of digitization will increase in their company in the next five years (agreement of 5.9 on a scale of 1 (very low) to 7 (very high)).

What does Digital Supply Chain mean?

It is undisputed that there can be no Industry 4.0 without a digital supply chain (“SCM 4.0”). SCM 4.0 is about networking digital technologies along the value chain (ideally from the raw material supplier to the end customer) with the goals of real-time capability and self-control in order to increase customer orientation, effectiveness and efficiency. The basic prerequisite is the provision of high-quality data in real time, because only in this way can agile action succeed in close coordination with customer and supplier networks.

The digital supply chain thus goes beyond traditional systems with materials management functions and is instead mostly Internet-based. A possible classification of SCM 4.0 can be based on the classic SCM model with “SC Design”, “SC Planning” and “SC Execution”.

Does this also work in the midmarket?

First of all, it should be noted that although various studies distinguish between large companies and SMEs, in reality the supply chains are often interrelated, with corporations accessing medium-sized suppliers, for example. If we look at the automotive supply chain, for example, we see that automotive manufacturers (OEMs) are often faced with large suppliers (tier ones), while the downstream upstream suppliers (tier twos) are often medium-sized. Bosch, for example, already formulated in 2019 that it sees great potential in small and medium-sized suppliers as part of the digitization of its supply chain.

The importance of SCM 4.0 is also considered indisputable for SMEs: In a 2019 study by the University of Würzburg, Bogaschwesky came to the conclusion that almost 80% consider electronic data exchange along the supply chain to be relevant. However, desire and reality apparently diverge: 43% of SMEs do not use electronically supported processes for demand forecasting. Another result of the candidus study fits into this picture: on average, the respondents classified themselves in the “Basic” maturity level category at most. What is surprising, however, is the following finding of the consultants: “You cannot draw conclusions about the maturity of a company’s supply chain from its sales.

What are the special features to be considered?

The reason why the topic of SCM 4.0 is generally less relevant for SMEs is usually answered with the specifics of SMEs:

  1. Lack of market power vis-à-vis suppliers and customers to establish own standards,
  2. limited internal resources, and
  3. a lack of technical prerequisites

The third argument is surprising, since most of these are Internet-based solutions that are not high-end solutions. Here, the challenge lies more in data security and general reservations rather than a lack of willingness to finance. For example, the candidus study cited above found that “high investment with benefits that are difficult to quantify” was only seen as the fifth biggest barrier.

Practical examples

SCM 4.0 in SMEs should be characterized by practicability and rapid implementation of pilots and subsequent applications. On the one hand, such use cases do not overburden the company’s own organization, and on the other hand, rapid successes reduce reservations on the part of employees. Three brief examples from the area of supply chain execution, which naturally do not claim to be representative, are intended to illustrate this:

1. Control Tower

A medium-sized logistics services company offers its industrial and retail customers a tool that ensures supply chain visibility for all incoming deliveries, regardless of the mode of transport, and thus serves to optimize transportation.

2. Prepared invoices from CEP service provider

Today, many medium-sized companies still compile transport invoices manually and check them monthly, although the large courier, express and parcel service providers in particular already make such invoices available to their clients in digital form for further evaluation.

3. Construction of own online stores

Webshops that perform forecasting, ordering, payment, and complaint processing functions are also available in the traditional B2B sector, thus reducing the manual effort required in customer service. The challenge lies less in the IT interfaces and more in creating an incentive for customers and employees to use them.

Success factors

In addition to the classic success factors of project and change management, such as openness to change, commitment at management level, and qualified employees, there are also specific aspects to the development and implementation of a digital supply chain: Regardless of the variety of possible projects, the bracket is the existence of data as well as standardized and documented processes. Otherwise, there is a risk of merely digitizing inefficient processes.

True to the principle “Nothing is more convincing than success,” SCM 4.0 initiatives should be implemented via smaller use cases that can be realized quickly and that simplify daily doing for the employees concerned. This is probably more convincing in SMEs than a large-scale digitization initiative as part of a corporate strategy (which is rarely explicitly formulated in this way in SMEs).

Author:  Prof. Dr. Dirk Hartel (XING | LINKEDIN) | Hartel Consulting

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