In today’s fast-paced business landscape, an efficient, reliable and resilient supply chain is necessary for companies in all industries to gain a competitive advantage. Businesses of all sizes are seeing the need not only to digitize their supply chains but to also rethink the roles of their people and processes to ensure that products will be available and will arrive at their intended destinations in time to meet customer demand.
Making this kind of major transformation is seldom a quick and simple task, however. Supply chains are complex and often entrenched in suboptimal legacy technologies and processes — outdated techniques that need to be reimagined if companies want to gain a competitive edge.
Supply chain transformation is a significant undertaking that typically requires a clear strategy, a long-term roadmap, implementation plans and measurable goals. The good news: The benefits are worth the investment. Organizations that commit to supply chain transformation often see substantial returns in near-term efficiencies, and in building a flexible foundation for the future, they also reap long-term rewards by aligning the supply chain with the company’s strategic goals.
What Is Supply Chain Transformation?
Supply chain transformation is the comprehensive overhaul and modernization of a business’s supply chain network, designed to gain a competitive advantage by improving operational efficiency and boosting customer satisfaction. How well a company manages its supply chain — all the steps required to produce finished goods, from obtaining raw materials to distributing products to partners and delivering them to customers — is also a key driver of business success.
In the 20th century, companies began to invest in infusing more efficiencies into their supply chains. As technology advanced over the years, businesses were able to explore new optimization opportunities. Today, companies increasingly recognize that a reimagined and well-managed supply chain can be a critical driver of business value. Now, armed with more accurate and available data — plus powerful capabilities like artificial intelligence (AI), machine learning, robotics, autonomous vehicles, connected devices and next-generation networking — many businesses are seizing the opportunity to take a digital approach and are fundamentally transforming their supply chain processes.
While the specific goals of a company may vary, depending on the industry, the overarching aim is the same: to optimize the supply chain in ways that align with a company’s strategic goals. In many cases, a supply chain transformation involves not only implementing new software and tools, but creating a mindset shift that calls for developing new processes, staff roles and organizational models.
Key Takeaways
- Major supply chain disruptions in recent years have prompted many companies to pursue supply chain transformation.
- The purpose of supply chain transformation varies by company, but the key outcome for most is better alignment with business goals.
- Supply chain transformation involves more than adopting new technology and leveraging data analytics; other key elements include creating new strategies, changing organizational structures and developing talent.
- Best practices for the supply chain transformation process include developing a roadmap, optimizing inventory control and enhancing supplier collaboration.
- Understanding common challenges to supply chain transformation, such as internal resistance to change and integration hassles, can help companies prepare for and handle any potential issues that may arise.
Supply Chain Transformation Explained
Many companies have invested in greater supply chain digitization over the years. But, as the COVID-19 pandemic revealed, digitization alone is not always sufficient to create highly responsive and resilient supply chains that can withstand major disruptions. Indeed, according to an Ernst & Young survey, 97% of respondents said their organizations experienced disruptions related to the pandemic. These challenges motivated many company officials in recent years to rethink the way they build and manage their supply chains .
Since the pandemic, supply chain transformation has quickly become a top agenda item across industries, and companies have been revisiting their legacy approaches to supply chain management (SCM), seeking opportunities to adopt emerging best practices . In fact, nearly three-quarters of respondents to Ernst & Young’s survey (conducted in late 2020 and repeated in September 2022) were planning to make major shifts in the way they managed their supply chains. Companies seeking to transform their supply networks embark on a fundamental reworking of the supply chain that typically takes several months or even years. A transformation requires businesses to examine their existing supply chains to determine their strengths and weaknesses; develop goals in such areas as data, technology, processes and people; and create and implement a transformation plan.
Many modern supply chain transformation efforts focus on creating more robust and transparent networks to efficiently supply goods and quickly respond to customer demand in a constantly changing business environment. In addition, business leaders may look to supply chain transformation to help mitigate risks, reduce costs, increase revenue, drive market growth and improve the customer experience.
Although businesses approach supply chain transformation in a variety of ways, certain key elements are common to the most successful supply chain transformation efforts. They include the implementation of new technologies, the introduction of modern approaches to data collection and analytics and the development of new processes and organizational structures.
Supply Chain Transformation Goals
The overarching purpose of a supply chain transformation effort is to build and manage a supply chain that aligns with business goals. In many cases, companies are looking to take advantage of real-time data, in conjunction with modern to improve decision-making and supply chain responsiveness. Additional objectives vary by company. For example, one company may seek to drive revenue growth while maintaining operational excellence, yet another may prioritize establishing more sustainable business practices. Companies may also seek to invest in supply chain transformation as part of implementing a modern integrated business planning approach .
Despite differences in business strategies, many supply chain transformation efforts share some common goals, including:
Improved Efficiency
One of the biggest benefits of assessing and addressing supply chain issues is increased efficiency. Companies pursuing supply chain transformation can often identify the source of bottlenecks and streamline their practices by replacing slow, error-prone tasks with faster, more accurate automated processes.
Cost Reduction
Implementing new technologies and automated processes to help manage the supply chain often results in lower costs for businesses in the long run. Reduced costs may result from a more efficient supply chain that wastes fewer materials and allows staff to spend less time on tedious tasks so they can focus on higher-value, strategic work.
Increased Visibility
One key goal for many organizations is improving transparency, both internally as well as externally with partners, including those downstream and upstream. Better access to data and improved accuracy can increase visibility and create more actionable insights for companies.
Enhanced Customer Experience
With improved visibility and efficiency, companies are often better armed to meet consumer demand and delight their customers with quicker deliveries, higher-quality products and robust product availability.
Improved Agility
Supply chain disruptions motivated many organizations to consider supply chain transformation in recent years. With more accurate data and advanced analytics, as well as new processes and organizational models, companies have an opportunity to manage products in more agile ways, thanks to their ability to respond to a variety of shifts in supply and demand.
Enhanced Collaboration
In this era of interconnected global supply chains , it’s more important than ever for companies and their suppliers to work together to manage and optimize the end-to-end value chain. Supply chain transformation can empower intercompany collaboration through shared data and tools.
Sustainability
Environmental sustainability is a high priority for many businesses, and much of a company’s impact occurs within its supply chain network, extending from the sourcing of its raw materials to the way products are distributed. Supply chain transformation can provide critical data, analytics and insights to allow companies to meet their sustainability targets.
In most cases, companies will have multiple goals for their supply chain transformation efforts. Identifying one or two of the most important goals — typically, those best aligned with a company’s key performance indicators — can help guide supply chain transformation efforts end to end, from initial planning and measurement to long-term refinement.
Key Components of Supply Chain Transformation
While supply chain transformation may look a little different from company to company, certain elements are common to most change initiatives. Here are the key components of supply chain transformation:
Strategy
In order to determine what to change, companies first need a well-thought-out vision for their supply chain transformation effort that incorporates clear, measurable goals. Because supply chains are complex and constantly changing, the strategy should be flexible and scalable over time.
Technology
Digital investments in the supply chain are a major component, enabling greater efficacy, efficiency, productivity and safety. Transformation technologies can run the gamut from advanced supply chain management software and machine learning capabilities to Internet of Things (IoT) devices and robotics on the production floor.
Data Analytics
Advanced data analytics that are capable of capturing and analyzing large volumes of data — both structured and unstructured — are essential for a successful supply chain transformation. The ability to analyze relevant data to glean insights enables companies to continually improve their supply chain processes and, ultimately, respond more quickly to changes. Companies can also use analytics to gain more visibility into both upstream and downstream systems, which helps manage supply and demand more intelligently.
Knowing is Half the Battle
Organizational Structure
Making changes to organizational structures can be difficult, and a shift in roles and processes is often necessary to take full advantage of the opportunities that come with better data, analytics and automation. In addition to implementing new tools, most companies will have to make changes to teams, reporting relationships, responsibilities and other organizational elements.
Talent
Transforming the way employees approach their work is as important as giving them new tools and data insights. Introducing updated technologies and embracing automated processes can create a degree of fear and uncertainty within the organization. To help manage employee expectations, it’s critical to get everyone on board early with supply chain transformation, inviting staff input throughout the process. Companies embarking on supply chain transformation must invest in the skills necessary to plan and implement advanced supply chain tools and processes, as well as change management for their larger supply chain organizations.
Enlisting people who understand the business, as well as the new technologies and processes, can supercharge supply chain transformation initiatives. A well-managed supply chain transformation can free professionals to focus more on value-added work.
Supply Chain Transformation Process
The specific steps involved in a supply chain transformation initiative will vary, depending on the company and the industry. However, the overall process of making fundamental changes to supply chain management will look similar across companies, from deciding on the scope of the transformation to assessing its impact and identifying opportunities for ongoing improvement.
Manufacturers, retailers and other businesses seeking to transform their supply chain processes typically follow a similar playbook of steps, as outlined below.
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Define the Scope and Objectives
Before any changes are proposed, business leaders must agree on the purpose of a supply chain transformation. Do they want to reduce inventory costs? Provide faster product delivery? Collaborate more closely with suppliers? Meet sustainability targets? By determining the end goals, leaders can more clearly define the scope of the effort. The key at this stage is to align the objectives with the company’s overall goals to ensure that any investments in supply chain transformation best serve business requirements. This entails a high-end, yet thorough, exploration of the business context for supply chain transformation for both the near and long term, allowing the primary stakeholders to prioritize the most important goals for the supply chain transformation effort.
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Assess the Current Supply Chain
It’s essential that business leaders evaluate the current state of their supply chains , looking for areas that need improvement as they develop goals for transforming supply chain processes. Companies can bring in subject matter experts in core functions to better understand the status quo and identify gaps and bottlenecks in systems, resources and processes. At this stage, businesses can assess whether their existing technologies are capable of adapting to new supply chain approaches or whether it would be better to invest in new technology.
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Determine the Changes Required
Based on the deficiencies and bottlenecks discovered during the assessment stage, companies can then begin exploring the technology and process changes that can close the gaps between the current and transformed states of the supply chain. Decision-makers should be careful to consider how well these technology investments and changes will meet both near-term and long-term supply chain and business goals.
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Develop the Roadmap
Once a company has a good handle on the types of technologies, processes and organizational changes it needs to make to achieve its ultimate goals, it’s time to plan the transformation journey. Fundamentally redesigning supply chain management is often a multiyear endeavor, so it’s crucial to create a roadmap for the transformation to keep everyone organized and on the same page over the long haul. This roadmap will lay out a timeline for when changes will be made to technology, data, processes and job roles, as well as clarifying key milestones for the transformation.
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Redesign Processes
Transforming the supply chain requires more than layering advanced technologies on top of existing ones. It’s necessary to redesign supply chain processes to extract the full value of new technology and data-driven insights and to create new ways of working. Aligning technologies, processes and people is essential to successful supply chain transformation.
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Optimize Inventory Management
For companies eager to respond in a flexible manner to supply chain disruptions while still controlling costs, transforming the approach to inventory management is a critical priority. At this point, companies can focus on opportunities to implement improvements to inventory management that will reduce their inventory costs while continuing to meet customer demand, addressing elements like demand forecasting , warehouse flow and stock rotation. “
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Enhance Supplier Collaboration
By transforming the supply chain, businesses often gain the opportunity to partner more closely with key suppliers. As companies implement new systems to improve supply chain management, they can collaborate more strategically with suppliers to share data and insights, enhancing management of the value chain.
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Develop and Train the Workforce
Employee buy-in is vital to a successful supply chain transformation. To ensure that employees are prepared to adopt new tools and processes, staff training and development are a critical aspect of supply chain transformation. When employees are given ample time to adjust to different ways of getting work done, they may be less likely to resist the changes that come with transformation.
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Monitor and Measure Progress
Benchmarking progress ensures that supply chain transformation efforts stay on track and ultimately deliver the desired benefits. In addition to pinpointing key performance indicators (KPIs) for measuring supply chain performance, business leaders should decide on specific measures of success for transformation efforts. Monitoring and reporting on these indicators is important for maintaining momentum, especially during the lengthy transformation process.
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Implement Continuous Improvement
The marketplace is always evolving, which means that supply chain transformation is not a one-and-done endeavor. Tracking performance metrics and supply chain transformation KPIs can reveal opportunities for further improvements to supply chain management over time.
Supply Chain Transformation Challenges
Any large-scale business change will encounter its share of hurdles, and tackling supply chain transformation is no exception. Because of the complex nature of supply chains and the number of moving parts involved, businesses may need to navigate many challenges along the way. Understanding the issues that are likely to arise can go a long way toward handling them, enabling leaders to address them in advance. Common supply chain transformation challenges include:
Resistance to Change
Supply chain transformation can have a significant impact on a wide range of individuals from supply chain employees to key suppliers, partners and customers. Investing in change management can uncover and address sources of resistance and get key stakeholders engaged and on board with the transformation. It’s important to ensure that those affected by changes in technologies, processes and work roles understand the rationale for the changes, recognize the benefits (not only for the larger organization but with regard to their own jobs) and have access to the training necessary to adopt new ways of working. The success of these initiatives relies on the engagement of all stakeholders involved.
Integration of New Technologies
Successful supply chain transformation depends on the integration of new technologies with existing systems. For many organizations, transforming the supply chain may require an updated technology infrastructure, fresh approaches to IT operations , greater cloud migration and the purchase of new tools. Supply chain transformation depends on an efficient and reliable foundation to achieve integrated, adaptable and reconfigurable services. It’s vital that any new digital tools play well with existing systems and that business leaders acknowledge that successful integration may involve additional time and resources.
Data Integration and Analytics
Data-derived insights are at the core of most supply chain transformations, and effective analytics depend on good, clean data and the ability to integrate that data from a variety of sources. Inaccurate, incomplete or outdated data can sink even the most advanced supply chain transformation efforts. Companies embarking on supply chain transformation need to support the flow of quality supply chain data. Automated checks on data quality in conjunction with supply chain management workflows is one potential solution.
Implementation Difficulties
Any large-scale, technology-enabled business transformation will encounter implementation challenges. One lesson many leaders have learned from similar efforts is the value of breaking down the initiative into much smaller projects, advancing to the next phase only after some progress has been made and applying any lessons learned in early stages of the transformation to subsequent stages of the implementation.
Disruption to Existing Processes
By its very nature, supply chain transformation is disruptive to the status quo. But given the essential role of the supply chain in the day-to-day operations of a company, managing that disruption is mandatory. Transformational initiatives may have to run in parallel to current processes to reduce the risks involved; it can be challenging for companies to find ways to reshape their supply chain management process while maintaining reliability, productivity, profitability and customer satisfaction . Leaders must take care to ensure that transformation initiatives do not interfere with successful ongoing processes.
Cost
Transforming the supply chain can be a capital-intensive initiative, and if the effort is not successful, the losses can be staggering. Many companies manage the overall cost of a supply chain transformation by approaching the project in phases, budgeting for various aspects of the project well in advance.
Talent and Skills
It’s critical that an organization’s workforce be equipped to seamlessly handle the supply chain transformation. For organizations with long-tenured ties to supply chain partners , staff may encounter steep learning curves when adapting to new systems, processes and ways of working. Since supply chain transformation depends on the evolution of the workforce and its adoption of these changes, companies must be willing to invest in the necessary training and change management processes to set their employees up for success.
Supply Chain Transformation Examples
Retail giants, including Amazon and Walmart, were some of the first businesses to explore using advanced data and analytics to create predictive models for transforming their supply chains. Using customer data and advanced inventory management, procurement and replenishment processes, they were able to position their inventory to better meet customer demand. Leveraging data-driven insights, companies delivered products more quickly and at a reduced cost, thereby improving the customer experience while also boosting their own profits. These early supply chain transformers ultimately set the standard that others in the retail industry — and beyond — would follow.
Today, companies of all sizes across many industries can transform their supply chains by taking advantage of modern enterprise software and advanced analytics. Supply chain transformations can take a variety of forms, depending on the company’s objective. For example, a technology manufacturer facing increased pressure from customers to provide faster delivery times may set a goal of minimizing lead times while reducing costs. With that clear and focused objective, the company would then align its organization around a multiyear supply chain transformation that includes the introduction of new technologies and real-time integrated planning and scheduling processes. The company could group its product lines to customize its supply chain processes so they meet the demands of specific customer segments and introduce new capabilities, such as storing components in strategic locations and assembling products on demand.
Companies that are growing quickly often opt to make a commitment to supply chain transformation. For example, Beekman 1802, a microbiome-based skin-care brand that arose from a goat farm in upstate New York, saw the need to evolve its approach to supply chain management amid its rapid growth. As the business expanded, carrying 1,000 different product SKUs in an 110,000-square-foot warehouse, its manual, spreadsheet-based systems quickly became outdated. The company chose to adopt a new ERP and inventory management system that provided full visibility into critical customer, warehouse and supply chain data.
As a result, Beekman 1802 moved from fulfilling orders within three days, on average, to executing next-day fulfillment. The new system also helped minimize shipping errors and manage costs. Demand-planning capabilities have enabled the company to more accurately forecast product sales, and the company is now able to predict potential stockouts and work with suppliers to expedite orders. The end result is a supply chain management system that can serve as a foundation for long-term growth as the company explores expansion into other geographic markets.
Invest in Supply Chain Transformation With NetSuite SCM
For many companies, selecting an upgraded supply chain system plays a central role in unlocking opportunities to transform their supply chains to better meet their business needs. After all, the advanced analysis of large quantities of data can unlock new, more efficient ways of managing supply networks and improve the links between supply and demand trends.
Once a company has decided to embark on transforming its supply chain, the business must determine whether its existing software is up to the challenge or whether new technology is necessary. Technology vendors that support integrated business planning by bringing together sales, marketing, finance, procurement and operational data can empower companies seeking to optimize cost, service and inventory trade-offs in their supply chain transformation efforts.
Advanced technology, like NetSuite’s Supply Chain Management systems , offers visibility across the end-to-end supply chain, tracing the flow of goods from suppliers through the process of manufacturing products, distributing them to partners and delivering them to customers. Its integration of demand planning, inventory management, scenario planning and predictive analytics can transform all aspects of supply chain management with proactive, data-driven decision-making tools. Implementing a single source of real-time supply chain data can help a company better align the supply chain with the rest of the business and unlock transformation benefits, like streamlined processes, increased profitability, better demand management, improved cash flow, greater responsiveness and reduced risks.
In a competitive and dynamic business environment — and the ongoing threat of disruption — supply chain transformation has emerged as a business imperative for many companies. Transforming supply chain processes offers many possible business benefits, including leveraging rich data to more accurately predict the precise products needed to meet customer demand.
It’s important for business leaders to start by establishing their supply chain goals and then assess their current capabilities. From there, they can determine the appropriate technology, processes and organizational changes necessary to improve business outcomes. While businesses need to proceed through several steps to achieve fundamental and lasting supply chain changes, investing in advanced supply chain management software is key to achieving the full value of a transformation. The result of a successful supply chain transformation is a system that offers greater visibility across the end-to-end supply chain, plus advanced analytics capabilities that, in combination with business practices, can enable greater transparency, flexibility and resiliency.
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Supply Chain Transformation FAQs
What are the main components required for supply chain transformation?
While a supply chain transformation may look a little different for each company, there are certain necessary elements for any such initiative. The main components of supply chain transformation include establishing strategies, employing technology and data analytics, creating new organizational structures and developing talent.
What is the difference between supply chain optimization and supply chain transformation?
Supply chain optimization typically refers to improving existing supply chain processes in ways that improve efficiencies. Supply chain transformation involves making more fundamental changes to the way a supply chain is created and managed in order to achieve not only incremental improvements but also new opportunities that can yield greater business returns.
How long does a supply chain transformation take?
The short answer is: It depends. Transformation can take anywhere from months to years. The analyst firm Gartner has found that achieving true supply chain transformation takes an average of three years.
What are some common mistakes to avoid when implementing supply chain transformation?
One of the biggest mistakes a company can make in transforming its supply chain is assuming that one new tool will be enough to fundamentally improve supply chain performance. While new technology is key, it’s also important for companies to develop a clear transformation strategy that includes changes to processes and people.
Other mistakes companies make when implementing supply chain transformation involve overlooking the common hurdles inherent in executing large change initiatives. These include resistance to change, complicated technology integrations, implementation problems, disruptions to existing processes and lack of training for employees. Companies that take a clear-eyed approach to supply chain transformation, and anticipate and prepare for likely hurdles, are more likely to achieve their desired results.
What are the five stages of the supply chain?
The five critical stages of a supply chain are planning, sourcing, manufacturing, delivery and returns. Supply chain transformation may seek to fundamentally improve any or all stages of the supply chain.
What are the eight supply chain processes?
Because the supply chain encompasses everything from sourcing raw materials to product delivery and returns, supply chain management involves a number of processes. The eight core processes are purchasing, manufacturing, inventory control, order management, warehouse operations, customer service, reverse logistics and supply chain performance tracking.
