Can The Supply Chain Really Be Digitized? Yes, But Here’s What It Means

On February 24, 2021, the Biden Administration issued an Executive Order calling for more resilient supply chains to ensure the country’s constant supply of goods despite inevitable disruptions (like a global pandemic). The initiative is ambitious, yet it will be difficult to implement without taking arduous steps towards digitizing business operations. A resilient supply chain would be one that utilizes business process automation, which not all businesses are fully equipped to implement.

Supply chains involve designing products, selecting appropriate production processes and raw materials, finding ideal raw material sources, and then proceeding to production, shipping, and logistics. These complex stages each call for different kinds of technology.

What Biden’s Executive Order Really Means

The current administration’s EO highlighted America’s need for resilient, diverse, and secure supply chains to ensure the country’s steady economic growth and national security amid biological threats like the global COVID-19 pandemic.

The EO also cited cyber-attacks, extreme weather conditions, and terrorist attacks among the conditions that debilitate the country’s manufacturing capabilities and availability of necessary goods and services. The country needs to mitigate these threats, so it has prioritized the creation of resilient American supply chains.

Resilient local supply chains would allow for greater domestic production within America while maintaining world-class manufacturing standards. There would be a steady range of supply and a strong domestic production, essentially having enough resources to encourage economic growth in the country, especially in marginalized areas such as the inner city or remote/rural regions.

The EO further highlights how resilient American supply chains would maintain the country’s competitive edge in research and development. With this competitive approach, while maintaining close cooperation with the country’s allies and partners, America can foster collective economic and national security by collaborating with those with shared values. As such, joint forces can effectively respond to international disasters and emergencies.

In essence, President Biden’s executive order emphasized how focusing on strengthening and diversifying American supply chains would greatly benefit the country in terms of economic growth, national security, and disaster response.

Resilience From Future Disruption

The pandemic seemed to be a wake-up call for the U.S. government to prioritize supply chain resilience. When lockdown began, most supply chains in critical sectors had no choice but to pause B2B operations, with some factories and suppliers completely closing due to safety concerns. Later on, many companies that emerged struggled to get back in business due to the pandemic’s unpredictable nature.

While these companies seemed ready to reopen, their supply chains were not. One primary driver for the difficulty was manufacturing and supply chains in foreign countries. As such, companies saw that reshoring manufacturing and supply chains back to America seemed to be the most logical business strategy. Should lockdowns occur in the future, these businesses would not have to rely on offshore manufacturing and supply chains.

One key product area that suffered a shortage during the lockdown were components for digital chips. As a result, mobile phone and automobile manufacturing suffered. The domino effect of these shortages prompted the Biden Administration to stop relying on international business production and reinforce domestic production of critical materials, thus the issuing of the executive order.

A digital supply chain would ensure smooth functions since they would operate without trade interventions or policy. While supply chains currently use digital methods to some extent, this call for resiliency would require acceleration in the sector’s digital transformation to better serve customers.

The Biden Administration’s initiative of localizing the production of critical materials may be promising, but it remains a Band-Aid solution, at best. The initiative could mean a spike in pricing across the board while providing no guarantees of disruptions as a result of future disease outbreaks, raw material shortage, and armed conflict. An America First strategy fails to see the larger complexities of operating supply chains in a global environment. In effect, such an initiative could make supply chains just as vulnerable while also sabotaging production.

Still, digitizing the supply chain could meet the Administration’s short-term resiliency goals while circumventing issues and providing instant supplies and hopefully minimally escalating time and costs. With that said, complete supply chain digitization would still take quite a long time to implement.

Multiple levels of the supply chain require just as many digital initiatives. Currently, some companies still rely on phone calls and spreadsheets for their orders. Meanwhile, other more digitally savvy businesses utilize online formats like custom APIs, electronic invoicing, and digital threads for their operations. Other supply chain stages are ideal for automated functions, which some advanced manufacturers take advantage of by incorporating artificial intelligence in their systems.

Although a completely digital supply chain setup has a long way to go, the end would justify the challenges of getting there. Opportunities and advantages of digitized processes have become apparent, especially with a pandemic disrupting certain stages in the supply chain.

5 Essential Digital Supply Chain Capabilities

Business advisors at The Hackett Group identified five essential business capabilities as their initiative in interpreting what digitizing the supply chain entails.

1. Creating a Digital Ecosystem

Digital ecosystems are networks of resources, service providers, and consumers that are all connected digitally. Connecting these networks allows companies to access knowledge, collaborate with each other to crowdsource innovation, and develop strategies in production based on shared customer feedback.

2. Optimizing Digital Service

Organizations should focus on digital services that boost business services’ effectiveness and efficiency. Such upgrades would involve optimizing automated business processes, virtual service delivery procurement, and initiatives that eliminate as many manual processes as possible.

3. Developing a Digital Workforce

By automating manual processes, business teams are more connected than ever. Organizations can develop digital capabilities that give teams seamless access to analytical tools and enterprise data. A digital organization would have effective communication through digital channels and can collaborate more effectively without having to be in the same room.

4. Connecting Digitally

Connecting digitally would mean streamlining communication within a digitally operating company. As a result, businesses can engage with customers and other digitally operating suppliers and partners just as easily as they would within their company.

5. Utilizing Analytics

When customers can conveniently purchase products through digital channels, businesses can use analytics to identify key insights. With analytics-driven insights, a business can more effectively target the right customers at the right time with the right solution. In a digital supply chain environment, data repositories and master data management are key capabilities in digitizing supply chains.

The Supply Chain of the Future

The Biden Administration’s Executive Order for resilient supply chains must invest in helping businesses transition into digital processes. The road to a complete digital infrastructure is challenging but necessary to produce long-term positive results for industry. The main goal of digitizing the American supply chains is to maintain a steady flow of goods amidst future and inevitable disruptions. This goal would be difficult to achieve when relying on antiquated measures that do not constitute speed and resiliency.

Ernie Martin is Founder and Managing Director of Receivable Savvy. He brings over 25 years of experience in financial supply chain management, marketing and communications and draws upon his extensive experience to share knowledge and best practices with AR professionals. He currently chairs the Vendor Forum of the Federal Reserve Bank of Minneapolis and his resume includes time at several well-known brands and companies such as Tungsten Network, Delta Airlines, CIGNA Healthcare and Georgia Pacific as well as a number of years as an independent consultant.