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Business conditions upend digital supply chain investments

A new PwC survey of supply chain leaders indicates that most companies are not yet seeing results from investments in advanced supply chain technologies.

The investments that companies are making in digital supply chain technologies have yet to pay off. Still, the digital transformation of supply chains, including the adoption of cloud applications and other technologies like advanced analytics, are needed in an era of severe supply chain disruptions.

This is one of the findings in the recently released report "PwC Digital Trends in Supply Chain 2022" by the global accounting and professional services firm.

In the report, 80% of the respondents said that investments made in digital supply chain technologies have not delivered expected results. The respondents were 244 operations and information technology leaders directly involved in supply chain operations, including chief supply chain officers and directors.

The report shows that supply chain digital transformation projects are hindered by budget constraints and high employee turnover, and struggle with developing the talent needed to digitally transform supply chains. The report also shows that while digitization is important, keeping the lights on is even more critical right now.

Unprecedented changes in supply chains

While companies may be struggling to achieve the expected benefits from supply chain technology investments, the need to implement these technologies is critical due to rapid changes in business conditions, according to Matt Comte, operations transformation practice leader at PwC.

It's a very unprecedented environment that we're looking at, and there are geopolitical developments that are changing how we think about supply chain.
Matt ComteOperations transformation practice leader, PwC

Supply chains have been honed over years to be linear and just-in-time, and have existed in a world largely untouched by inflation, Comte said. These linear, just-in-time supply chains are now trying to exist in a different world, one of rising inflation and disruptive global events.

"It's a very unprecedented environment that we're looking at, and there are geopolitical developments that are changing how we think about supply chain," he said.

Companies are making decisions to change supply chain practices, including reshoring, nearshoring and improving manufacturing and distribution networks, Comte said. There's no one answer that will work for every company, however.

"We're starting to see four or five different archetypes coming out of different choices," he said. "We're seeing a very dynamic supply chain environment."

Efficiency, managing costs trump modernization

While companies are aware of the need to modernize and digitize supply chain systems, the economic conditions of the past two years have led them to prioritize keeping the business running rather than focusing on adding digital applications to improve supply chains.

The PwC report indicates that increasing efficiency in supply chain operations for the next 12 to 18 months was a top priority for 63% of respondents, while managing and reducing costs was cited by 59%.

Both priorities outweigh any that involve more digitization of the supply chain, including automating processes and analytics (21%); increasing resilience and responsiveness (21%); upskilling employees for digitization (19%); increasing sustainability (19%); manufacturing digitization and automation (16%); and transforming procurement practices and operating models (16%).

"This suggests that many companies are focusing more on the bottom line in the short term but have yet to make some of these potentially transformative actions a bigger focus," the report stated.

Matt Comte, operations transformation practice leader, PwCMatt Comte

This runs counter to what was expected before the survey was conducted, according to Comte.

"I thought we would hear more active investment in digital talent, more active implementation of AI and analytics, more dedication to functional industrial apps that drive point solutions needed to run the factory and integrate into the supply chain," he said. "But we didn't hear that. Instead we heard by magnitudes that our clients are focused on two things today: increased efficiency and reducing cost."

Gaining results may take time

When it comes to digitally transforming the supply chain, there's a variety of investment in emerging technologies for supply chain operations, according to the report.

Cloud leads the way, with more than one-third of respondents indicating that their companies are planning at least $1 million in cloud, while other tech investments include third-party analytics, scan and intelligent data capture, RFID and IoT.

These investments in supply chain technology have had some benefits, but 80% of respondents said they have not fully delivered expected results, including diversifying the supplier base, better evaluating supplier risks and being more responsive to changing business conditions, according to the report. 

This does not mean that results will never be realized, however, and companies will need to make sure that they are ready to take advantage of the technologies and be clear about business needs and requirements, according to Comte.

"But it won't be easy, and from the outset of the project you need to be very clear about what the technology does and where investment is needed," he said. "You also need to think through the time and resource investment, because sometimes we underestimate the cost and we overestimate the speed."

Supply chains must transform to meet new challenges

Industry experts believe that supply chains must undergo digital transformations to meet the challenges of the post-COVID-19 economy and global instability.

Mike Jette, telecommunications, media and technology industry Lead, GEP WorldwideMike Jette

From now on, resilience needs to be a core part of how you design supply chains, said Mike Jette, telecommunications media and technology industry lead at GEP Worldwide, a company based in Clark, N.J., that provides supply chain-related software and consulting services.

Supply chain disruption caused by the war in Ukraine and other events should provide evidence that more investment in digital supply chain technologies is needed, Jette said.

"Supply chain professionals are a bit overextended and have overemphasized multi-layered, [seemingly] hyper-efficient supply chains," he said. "We need to redesign with resiliency as one of the principles, not just lowest costs in a perfect world, and that dream of lowest cost typically doesn't happen because the world isn't perfect."

Events like the Ukraine war and the COVID-19 pandemic have provided a unique opportunity to step back and assess the known weaknesses in longstanding supply chain practices, according to Simon Ellis, practice director at IDC.

"On some level, it's been good to see that the supply chains have been able to respond as well as they have [to disruptions]," Ellis said. "But in other ways, it's disappointing that there were a lot of things that we recognized were problems but didn't do anything about them."

Practices like just-in-time worked well in an era of unconstrained supply chains when materials were readily available and companies didn't have to keep a lot of inventory on hand.

"That works great until the world does a collective face plant, then all of the sudden having some extra inventory on hand is quite helpful," Ellis said. "So that's one thing that [supply chain professionals] have to think about: Do the inherent efficiencies of having just-in-time justify the issues when a lot goes wrong? I don't think anyone knows the answer to that -- the answer is by individual company."

Jim O'Donnell is a TechTarget news writer who covers ERP and other enterprise applications for SearchSAP and SearchERP.

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