Co-Founder, Berlin KraftWorks Inc.
Knowledge Transformation and Digitalization of Supply Chains
More and more these days we’re seeing a call for digitalization and AI adoption in supply chains. COVID-19 revealed the weaknesses inherent in global supply chains, and the call has gotten louder. With that, the onslaught of folks pushing their wares has begun…everything from small apps to large enterprise level solutions promising to revolutionize your business and make your supply chain “resilient” or “risk proof”.
It all sounds alluring, and awesome. I can’t think of anyone who wouldn’t want to take advantage of anything that will help get their operations back up and running.
But as we get caught up in the excitement, we may not spend the time to properly consider options, and consequences. When the excitement wears off, the realities may seem far less appealing over the long term.
Why – is it a mistake to look to technological solutions? Did our selected provider lie? Are many of these solutions just gimmicks? The answer is a firm “No” to all these questions.
Caveat Emptor is the most ancient supply chain principle. It’s Latin for “Let the buyer beware”. It means that ultimately, responsibility rests on the purchaser to check something out thoroughly, perform diligence and investigate all data before acting on a purchase, and if any of this is omitted, then the buyer will likely end up unhappy with the results. Perhaps this concept has become more relevant than ever.
At a macro level, our supply chains didn’t fail the COVID-19 stress test because of any lack of digitalization or AI. They failed because of a lack of sufficient knowledge to build strategic and resilient supply chains in the first place. Moving from a macro to a micro level, this translates into operational problems at firms: costs that are hard to manage, expedites and late shipments, shortages in supplies and materials, lowest unit-cost decisions, inability to determine total costs including process costs, and many more.
The lack of knowledge, not a lack of technology, places supply chains in a purely reactive state (always too late) instead of it being a strategic asset (always ahead of the challenges). And this is what needs to change before firms will get ahead of the curve - regardless of technology. The good news is that it can change, with leaders emerging everywhere to help guide the knowledge transformation. These are my four steps for firms that are considering digitalization:
1) Get your house in order first
Well-built technology tools are absolutely accelerators. However, it’s up to firms to make sure their operations and supply chains are up to the task BEFORE implementation. This is not a new concept. ERP, which has been around for decades, typically requires anywhere from 9 months to a year of whole-company organization before it ever goes live for this very reason. And every failed ERP implementation I’ve ever seen or been asked to correct, has been a direct result of firms short-cutting or skipping this portion entirely. It’s far more economical to get your firm in order first and not expect digitalization to do it for you, that’s not its function.
Reputable providers of digital and AI solutions geared for supply chains actually don’t want you to buy their products until you’ve sorted out what you supply chain needs to look like thoroughly and accurately, according to your specific business requirements. Why? As one of them explained to me,
“Our solution is a Ferrari. It will accelerate what the user applies it to exponentially. If the user applies knowledge and experience it will do incredible things. If it’s applied to a bad set-up it will become exponentially bad, exponentially quickly, and with a lot of cost. If we sell a Ferrari to someone who doesn’t know how to drive…it will look great and maybe even go really fast for a short while, but it will end up in disaster and our customer will blame the software. We’d rather see the customer be successful and our tools be a part of that success.”
2) Use external parties to give you an unbiased view
If you’ve read this so far and said “we’re in great shape, we don’t need to sort anything”, then it’s time to get another firm to do a detailed analysis of your firm to validate what’s real and what’s perceived. Preferably, not the same firm that you will buy your digitalization solutions from to avoid product bias.
All firms have built-in internal bias due to departmental metrics, goals, and targets which often may support the individual departments (and even contradict other departments) instead of the business as a whole. The only way to overcome this is to use an external party not bound by any of those metrics (or compensated on meeting those metrics) who can apply an integrated system thinking approach to the business and guide re-alignments where needed without any internal bias.
3) Allow only validated data to guide the technology solution selection
If you’ve done 1 and 2 above you’re now in a position to take the validated data and really understand what the core needs of the business are, without distraction of “symptoms” and “fires”. You can now look at solutions that will, when applied appropriately to your specific business needs, reduce or eliminate your pain points and allow you to increase your capacity or bandwidth (depending on the nature of the technology tool in question). Technology cannot ever be a replacement for knowledge in any business. It can however be an accelerator, freeing up resources to allow redeployment of those resources on higher-value functions to support the business case. Expecting technology to help manage your business is a great approach. Expecting it to do it for you leads to trouble.
4) Be mindful of your technology landscape and develop a strategy
I once knew of a firm that had 17 different software solutions for different aspects of their business. It was a nightmare. The firm began to hire folks to keep up with the double and triple data entry these separate tools required, and it snowballed from what started as a way to minimize costs, to something that increased their costs 10-fold and nearly eliminated their capacity to actually deliver to their customers. All the while, there was no consistency or accuracy in the data provided by these separate tools.
Though this sounds extreme, it can happen more easily than you think, especially among separate departments.
The best practice is to develop a technology strategy from the outset. Your technology strategy should work to centralize your data and make sure all areas of the organization are getting the same numbers. Well-tuned enterprise systems are good for this, and they are accepting more “plug-ins” that allow you to add functionality from different providers without decentralizing your data (or access to it).
We are truly beginning to see an integrated, system thinking approach where technology solutions are concerned. But we humans still need to do the hard work of selection, implementation, evaluation, management, and adaptation of technology wisely, as we still possess the most advanced technology in the known universe - that which lies between our ears.
Technology is neither good nor evil, it is only what we make of it. If we have a bad experience with an implementation or a specific piece of software, we really need to take an unbiased look at the underlying business conditions before we blame the tool. Caveat Emptor.