What’s disrupting supply chain and procurement?

Some innovations have already hit, others not yet. Best to be prepared.

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Digital technologies are impacting specific industries, both through internal change and competitive threats. In "How to jumpstart digital transformation in healthcare," I proposed a healthcare IT transformation strategy. But these forces also are transforming standard business functions, such as finance, marketing and HR. Also undergoing transformation are the key areas of supply chain and procurement.

Like many business processes, supply chain and procurement have their own inertia. A case in point is the persistence of the Electronic Data Interchange (EDI) protocol. “EDI is Dead! Long Live EDI!” That was the title of an Industry Week article from 2004, yet it could still apply today.

The arrival of XML two decades ago, along with supportive APIs, did not lead to the displacement of EDI, which may be clunky and slow by comparison, but remains widely deployed. Anyone who continues to use EDI for supply chain functions, however, should be aware of API-based alternatives. You never know exactly when a technology will prove disruptive – or how disruptive it will be.

Cloud computing and ERP 

The same principle also applies to other aspects of supply chain and procurement. Some changes have occurred, but others not yet. From our perspective as a global IT and communications service provider, cloud computing has already transformed the sourcing, acquisition and use of key IT resources. Just consider the widespread availability of SaaS, IaaS and PaaS offerings.

There’s a similar finding in the 2018 MHI Annual Industry Report, which focuses on innovations that apply to the supply chain. Produced by MHI, a materials handling and logistics industry association, and Deloitte, the report tracks the adoption rate of 11 separate innovations. At the top of the list is cloud computing and storage.

With adoption in supply chain currently at nearly 60 percent (and its 5-year estimate at 90 percent), cloud computing and storage would appear to have “crossed the chasm” or – to borrow from Gartner terminology – reached the “plateau of productivity.” But it has taken years. First to understand the variations (public, private, hybrid) and then to figure out how best to apply them to supply chain solutions, such as Enterprise Resource Planning (ERP).

There was a time, for instance, when many doubted ERP giant SAP would move to the cloud. Then in 2012 it bought two SaaS providers, including Ariba, a major provider of supply chain software. Several years later, SAP was claiming that its broader move to the cloud was boosting growth.

But disruption can breed disruption. Would Ariba or others offering procure-to-pay solutions upend existing ERP platforms? The answer seems to be that their impact has been real but not devastating. “ERP will still be there, just not the single place to go to manage your procurement,” says Dawn Tiura, CEO of Sourcing Industry Group (SIG), a global membership organization for sourcing, procurement and outsourcing executives.

Sensors, inventory, bots and 3D printing

An astute observer of industry trends, Tiura, sheds light on several other innovations identified in the MHI-Deloitte report, as noted in the following summaries:

  • Sensors and automatic identification. Expected to reach an adoption rate of 80-90 percent within five years, sensor tracking technology is already becoming tables stakes. “I can’t imagine a supply chain not using sensors today,” Tiura says. And combined with IoT, sensors become even more powerful.
  • Inventory and network optimization. Forecast to be as widely deployed as cloud computing by 2023, this category promises effective use of big data. Tiura thinks that together with predictive analytics and automation, smart inventory management could lead to interesting – and even life-saving – scenarios, such as the shipping supplies before a hurricane hits or vaccines at the first signs of an epidemic.
  • Robotics and automation. The report highlights robotic warehouse machines, which makes sense from a materials handling perspective. (As do driverless vehicles and drones.) But true digital transformation, Tiura says, is more about bots than robots. Bots are the software applications that can run sequences of automated tasks, much faster and with significantly fewer mistakes than humans.
  • 3D printing. “This is one that’s going to completely change some supply chains,” Tiura says. Indeed, this category is looking much less like a science project than it once did. Applications range from custom medical and pharmaceutical solutions to more conventional, on-premises manufacturing that could substantially reduce the size of some warehouses.

Blockchain and AI

At the far end of the deployment spectrum are blockchain and artificial intelligence (AI), two categories that are nonetheless attracting considerable attention these days.

Emerging technologies often generate both hype and misunderstanding. According to one Gartner report, blockchain was “extremely hyped” back in mid-2017. It is also still associated with cryptocurrencies, which for some retain an unsavory link to hyper-secrecy for illicit activity and the dark web. But as understanding of distributed ledger (blockchain) technology grows, so does interest in potential applications, especially in chain of custody.

“Eventually it could power payment systems, so that when goods are transferred, payment occurs automatically,” says Tiura. “(But) as an asset management system, it’s fantastic.”

Given network-effect driven momentum, blockchain could hit its tipping point at a rapid pace. It does face a few threats. Quantum computing has some observers worried, and any given blockchain could be disrupted by a “hostile takeover” of its consensus protocol. Yet the MHI-Deloitte report expects industry adoption to hit 50 percent within five years. CIO Senior Writer Clint Boulton says blockchain is already approaching a “big business breakout.”

As for AI, one promising application will be on tail spend. Defined as the roughly 80 percent of suppliers that provide 20 percent of an organization’s goods, tail spend is “fraught with cyber risk,” says Tiura. “Companies don’t know who these suppliers are, they don’t know who their second – or third-tier – suppliers are and they’ve never sourced them correctly.”

“If AI can do all the work and you can analyze it, it’s going to be huge,” she says.

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