Commerce disruptions driven by tariffs, trade wars and a global pandemic have catapulted supply chains into the forefront of business conversation. Suddenly, concepts like supply chain risk, visibility and resilience — once the province of the manufacturing sector — are common topics in business conversations and on front pages of many mainstream media outlets. 

Organizations that had invested in making their supply chains sustainable were better prepared for these changes and saw those efforts pay off. 

The most impactful spending went toward technologies that underpin the so-called “digital supply chain” and building the processes that enable it. 

What Is Digital Supply Chain?

In a typical supply chain, the flow of goods involves designing a product, sourcing and procuring the raw materials and parts, making the product, estimating demand, planning how you’ll market the final product, taking orders, arranging logistics and sales channels and then providing customers with visibility into their orders. 

Items tend to travel linearly, with each step dependent on the previous one. While conceptually simple, the linear pre-digital approach to supply chains is dependent on each step in the process performing about as expected. A failure to perform by a subassembly provider or a shipper along the chain may not be discoverable for days or weeks. The result is often missed deadlines and unhappy customers. 

A digital supply chain, in contrast, provide significantly more visibility into the workings of the chain. The added near real time visibility of supplier performance and customer needs lets supply chain owners develop more complex relationships with more suppliers — thus indemnifying themselves against most sources of disruptions. Digital supply chains are more customer-centric and aim to meet today’s three pillars of excellence in demand fulfillment: speed, personalization and choice. 

What that means in practice depends on what an organization is trying to achieve. But in its end game, a digital supply chain integrates internal systems and data with external information, both structured and unstructured. There’s two-way sharing with suppliers and full visibility into the supply chain for all stakeholders. New technologies collect, monitor and analyze data to make predictions and recommend actions in real time.

Digital Supply Chain Explained

A digital supply chain is a set of processes that use advanced technologies and better insights into the functions of each stakeholder along the chain to let each participant make better decisions about the sources of materials they need, the demand for their products and all of the relationship in between. 

Fully integrating legacy supply chain management technologies — demand planning, asset management, warehouse management, transportation and logistics management, procurement, order fulfillment — is a needed first step. But truly digitizing a supply chain also involves mining data from those processes and instrumenting the equipment that enables them to produce the needed data. 

The instrumentation of the supply chain is done with sensors and monitors that collectively have become known as the Internet of Things (IoT). The technology is typically used to monitor manufacturing or logistics processes. Through the use of gateways, that data can be shared with stakeholders along the supply chain. The data is then aggregated and used by stakeholders to assess whether they can reliably expect the products they need.

A clothing retailer could know not only how many green, medium shirts of a style are in a warehouse, they might also know how many are being manufactured at a given time, and where their order sits in the manufacturing queue. Collecting this data across a number of suppliers can help the retailer ensure that they have just the right inventory across its stores without having to carry excess stock.

The systems that collect and analyze the data do so in near real time, providing far more timely visibility into the workings of the supply chain than could otherwise be had.

But making sense of all that data requires advanced analytics to model it and predict outcomes. Complexity grows as the number suppliers, parts, distributors and customers grows.

One technology to help make that happen is a digital twin, a virtual model of a physical product or a process. This technology enables the business to make a “digital copy” of its supply chain and use it to model what-if scenarios. In our example above, green shirts from one vendor might cost 15% more than from another, but meeting demand will require product from both (or more). Buyers might be able to ask, “what if we drop our three most expensive providers” and the model will predict if demand will still be met. Machine-learning algorithms allow the technology to perform predictive modeling and make recommendations on how to respond to changing conditions. 

And finally, blockchain, a public, immutable ledger with attributes that allow it to record extremely accurate data about transactions, holds great promise in ensuring global transparency and precise, real-time asset tracking.

What Is a Supply Chain?

Both digital and traditional supply chains integrate functions such as designing a product, procuring needed raw materials and parts, estimating demand, planning the product introduction, arranging supply, selecting sales channels, delivering support and providing customers with visibility into orders.

A pharmaceutical industry supply chain, for instance, would link a drug maker with companies involved in supplying raw materials, manufacturing, packaging, regional warehousing, wholesale distribution, retail pharmacies, recycling and managing returns. A retailer’s supply chain might involve variations on this basic structure, while also routing some products to an ecommerce marketplace.

Traditional vs. Digital Supply Chains 

Where traditional supply chains plan and react, digital supply chains predict and prescribe actions to take.

Traditional supply chains are largely static and function on rules based on historical transactional inputs, lag times notwithstanding, while fully digital supply chains function in real time, are dynamic and can adapt to changing circumstances. While traditional supply chains are linear, digital supply chains are networks. 

Traditional supply chains often rely on standalone systems, while in digital supply chains, information from IT systems and OT (operational technology) systems are integrated. Instead of optimizing by node, shipment or order, digital supply chains balance profit and service levels. 

In a traditional supply chain, spotting possible problems and predicting likely effects can require a lot of legwork. Most companies need to perform regular supply chain resilience assessments of their most critical suppliers based on SKUs, for example, and manually list what steps to take to keep production alive if any of those links broke. 

With a digital supply chain, in contrast, shared quality and control data from the supplier can enable companies to anticipate issues and proactively respond without laborious preplanning. 

Supply chain management encompasses the planning and management of all activities involved in sourcing and procurement, conversion and logistics management. This includes coordination and collaboration with stakeholders — suppliers, intermediaries, third-party service providers and customers. 

And above all, in traditional supply chains, humans are making decisions based on machine inputs, while in digital supply chains, machines are driving the decisions with human oversight.