Lots of companies say they are making building and sustaining a digital supply chain a priority. Many companies also have ideas on where and how a more digital supply chain will produce a significant return on investment.
But there’s also a disconnect between the expectations many companies have for a digital supply chain and where they are in the building and execution phase, says new research from consulting firm Capgemini SE.
Capgemini recently surveyed more than 1,000 companies in the United States and overseas and found that 77% of organizations listed cost savings as the biggest reason for investing in a digital supply chain; about 50% of companies said having a more digitized supply chain was a top corporate priority.
But the research found that many companies also lacked a clear focus in how they were updating their supply chain with more e-commerce connectivity and such digital technologies such as artificial intelligence and the Internet of Things. For example, many companies had as many as 29 different digital supply chain projects planned or in the works, but only 14% had succeeded a full-scale deployment of just one project.
“While most large organizations clearly grasp the importance of supply chain digitization, few appear to have implemented the necessary mechanisms and procedures to turn it into a reality,” says Dharmendra Patwardhan, Capgemini’s head of the digital supply chain practice for business services. “Companies are typically running too many projects, without enough infrastructure in place, and lack the kind of focused, long-term approach that has delivered success for market leaders in this area.”
Many companies have multiple projects in the planning and building phase because they expect a good return on investment in multiple areas, Capgemini says. Although Capgemini didn’t break out specific numbers for cost savings, the research found that ROI on automation in supply chain and procurement averaged 18%, compared with 15% for initiatives in human resources, 14% in information technology, 13% in customer service and 12% in finance and accounting. It also found that the average payback period for supply chain automation was about 12 months. “The broad enthusiasm for focusing on digital supply chain initiatives may be explained by the prospect of the return on investment that they offer,” Capgemini says.
But companies also are running the risk of spreading money and other resources to thinly cover multiple digital supply chain projects. When organizations don’t have a central strategy or technology infrastructure in place, many projects run behind or aren’t completed in a timely manner.
For example, the research found that the organizations successful at fully deploying a digital supply chain project had an average of six projects at proof-of-concept or pilot stage, but that those companies without a clear strategy or infrastructure failed to fully roll out an average of 11 projects.
“Companies are typically running too many projects, without enough infrastructure in place, and lack the kind of focused, long-term approach that has delivered success for market leaders in this area,” Patwardhan says. “Digitization of the supply chain will only be achieved by rationalizing current investments, progressing on those that can be shown to drive returns, and involving suppliers and distributors in the process of change.”
Other research findings include:
- Only 39% of companies say they have a clear procedure to evaluate the success of a digital supply chain pilot project;
- 51% of organizations have a clear set of guidelines for prioritizing the projects that need investments;
- 57% of executives say that a lack of commitment by top management is a key challenge.
“Digitization of the supply chain will only be achieved by rationalizing current investments, progressing on those that can be shown to drive returns, and involving suppliers and distributors in the process of change,” Patwardhan says.
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