scm trends

Services: supply chain transformation in the age of digitization

Web services by Amazon. Freight cost services by AEB. Latest digitization trends offer better – and cheaper – optimization opportunities for supply chains.

65.6% of supply chain professionals across industry sectors believe that digitization will provide a significant competitive edge within the next five years. That’s one of the findings of this year’s SC Digest Supply Chain Digitization Benchmark Survey.

In my view, digitization forms the basis for the natural progression of company structures – in terms of organization, IT, and management. This is also reflected in the current business landscape across Southeast Asia where companies massively shift their strategies to better leverage digitization opportunities. Businesses increasingly recognize how supply chain digitization can help them save time, money, and resources.

Governments realize the potential, or the necessity, too. “Everything that can be digitized, will be digitized”, said Angela Merkel, Chancellor of Germany, in 2015. And Singapore leads by example with its “Smart Nation” – an ambitious project driving the country’s digital transformation into a nation powered by the Internet of Things (IoT).

Enabling business innovation and market growth through technology and use of shared data forms one of the main pillars of this program. These are crucial steps towards establishing a conducive business environment that encourages companies to adopt digital tools, expand, and leverage technology to enhance supply chain networks. Of course, implementing comprehensive digitization as part of a large, established infrastructure is no mean feat and includes many areas and stages.

First things first

Essentially, digitization can mean a number of things for businesses. In its first steps, it includes consistently converting manual, paper-based tasks as far as possible to automated, IT-supported processes. But in more advanced stages, it also includes, for example, autonomous production machinery and self-guided warehousing equipment. 

As a concept, particularly the later stages, it sounds really great for everyone – but implementation in real-life can get tricky: my colleague Torsten explains this in his blog post “Internet of things-technology – much more than just a purchase”.

Regardless of its stage of implementation, however, digitization will always have a significant impact on a company as a whole and on how it creates value and delivers its products or services. I would like to focus here on the first stages of digitization – converting manual processes or replacing inefficient legacy systems – because this is of special relevance for businesses in Southeast Asia. In a landscape brimming with emerging technologies and economic opportunities, companies are keen to take advantage of potentials offered by digital business transformation.

Painful but worth it

Digitizing information-intensive processes can potentially cut costs by up to 90% – as reported by McKinsey. In supply chain management – particularly in Southeast Asia – such processes with significant optimization potential can especially be found in warehousing, shipping, and customs departments.

Uprooting legacy, on-premise systems and replacing them with fully integrated and comprehensive cloud-based or hybrid-based solutions might be challenging and tedious, but the pain is only short-term. In fact, the pain will be much worse if companies don’t act now: they will suffer the longer-term consequences when competitors soaring ahead with digitization-fuelled services become more agile and outstrip the capabilities of those left behind in the “physical” world.

Apart from saving costs and tremendously increasing operational efficiency, digitizing and automating logistics and global trade processes also enables businesses to make use of the available data for management purposes: to better understand performance levels, peaks, cost drivers, and causes of risk.

Real-time reports and dashboards on digital process performance also allow managers to address problems before they become critical. Quality issues in the supply chain can be quickly addressed, and data from digital channels about customer behavior and satisfaction helps to align product development, delivery, and service strategy.

Service model trends

As part of the digitization process, software-as-a -service (SaaS) plays an important role in line with latest trends in hybrid system environments. But also for newly expanding businesses, start-up companies, or small businesses looking to upgrade, SaaS solutions offer benefits through lower investments, eliminated maintenance costs, and sufficient levels of automation for limited volumes.

Companies like Amazon, Google, and Rackspace are reshaping the market with their “as-a-service” solution models for all business areas. Amazon Web Services (AWS), for example, brought in $2.8 billion in revenue in the past quarter alone – up 58% year-over-year. Amazon CFO Brian Olsavsky has attributed this success to three important factors, which include functionality and innovation. Specifically, Amazon added data analytics and machine learning functionalities to its software capabilities.

Staying ahead with AEB

Shipping costs account for 31% of overall logistics cost in the supply chain. At AEB, we’re constantly advancing our software suite to deliver high impact solutions to reduce logistics costs, secure global trade, and streamline supply chain operations. We closely engage with customers and partners to understand latest market demands and deliver solutions that fit the need – in the cloud, as a service, hosted, integrated in ERP, or installed on-premise.

Listening to latest demands, we are currently developing a new service which will allow companies to fully outsource their freight cost management and hand over their entire freight cost management to a team of experts at AEB. They will manage your freight tariffs and the entire freight cost process while generating cost savings and helping you to monitor performance of your logistics service providers. This new service will deliver all the benefits of freight cost management digitization to businesses, but without the hassle of IT implementation, investments for upgrades and maintenance. It will enable staff in shipping departments to focus on their core tasks.

I’ve been working in the IT industry for many years now. And I’ve often experienced outsourcing being viewed through a negative lens – resulting in a perception of it as a facilitator of job cuts. In this technology-driven age, however, and under the digitization pressure that businesses find themselves under today, I strongly believe outsourcing and automation to harbor tremendous potential for companies to save costs and increase efficiency as a basis for continued growth.

How far advanced – and important – is digitization in your company? I would love to hear your thoughts on LinkedIn.