Technology and Supply Chain Integration: Investing to Balance Returns and Disruptive Transformation
CIOs have never had an easy job, but today’s challenges in managing investments and integrating new technologies far exceed those encountered in the past. Managing investments in technology to support supply chain operations and integration is no exception. In fact, the challenges are among the most complex CIOs and other technology leaders are likely to face. Consider the range of rapidly emerging technologies in play: tapping new data sources, advanced analytics, 3D printing and digital manufacturing, supply chain in the cloud, Internet of Things, robotics, and mobile apps, among many others available today or just over the horizon. The pressure from the top to pursue these investments is often intense. A PwC study (PwC’s 6th Annual Digital IQ Survey: The five behaviors that accelerate value from digital investments) found that most CEOs actively champion the use of IT to achieve business strategy, especially at top-performing companies.
And it’s easy to understand why they do so. PwC’s recent survey (PwC’s 17th Annual CEO Survey: Leading in extraordinary times) found that 86 percent of CEOs cited advancements in technology as a megatrend that will most likely transform their business over the next five years.
Given that no company has the resources to invest in every new technology, how should CIOs navigate the challenges of improving the return on their companies’ investments in supply chain technologies? The answer is to apply a portfolio investment mindset to the rapidly emerging supply chain technologies. Much like a product R&D executive needs to balance investments in near-term, lower-risk products with longer-term, potentially disruptive, higher-risk products, today’s CIO should to apply the same approach -balance investments inner-term, business-as-usual efficiency improvements to investments in business-model disrupting technologies. The optimal portfolio will balance and focus investments in a way that drives the greatest return for the business in the near and mid-term while still positioning the company as a leader in quickly responding to disruptive change.
Aligning costs with business strategy
Two examples illustrate how this approach to focusing on and realizing value from technology investments works in supply chain operations and integration.
Moving from Big Data to Big Decisions
Many companies are rushing to access and tap “big data” to gain insight and competitive advantage on market and customer trends and to sense and assess supply chain-impacting disruptions and risks. Companies are investing in capabilities, assets, services and data sources in order to gain a competitive edge. Taking supply chain risk analysis as an example, the stakes can be high—a study conducted by PwC and the MIT Forum for Supply Chain Innovation (Making the right risk decisions to strengthen operations performance) found that over 60percent of respondents said their business performance indicators had dropped by 3 percent or more as a result of sup
ply chain disruptions in the prior year. To address this, some companies have collected and analyzed vast amounts of data in an attempt to identify and quantify every risk that poses a threat, often without regard to how probable or impactful the threat actually is. Hence results and real impact have been elusive—in PwC’s Digital IQ Survey, 58percent of respondents agreed that moving from data to insight is a major challenge.
The right approach is to start by identifying the most critical supply inputs and flows in the overall supply chain, and then developing focused data, analytics, and response plans for these specific areas. By making these “big decisions”—what do we really need the data to do—and not focusing on “getting all the data we can,” data acquisition and analysis can be focused on developing the insights most relevant to informing these high-value decisions. Successful big data implementations generally start with a focused definition of the decisions to be made, draw from the “specifications” for the data, analytics, and decision-making processes, and then follow a “test and learn” approach to refine and improve each element of the decision. The CIO needs to be a key leader throughout this process, helping to establish a linkage between required investment, the “big decisions”, and value to the business.
Integrating the Digital Supply Chain
An explosion of digital and digitally-enabled technologies holds the promise to fundamentally change the structure of how and where products are made and distributed. The component technologies—Internet of Things, digitally-enabled additive manufacturing, supply chain control towers, collaboration hubs, integrated omni-channel, drones, learning machines—each in themselves can be transformational to some industries. But the real promise—and challenge— will lie in integrating the right combinations of technologies to enable new supply chain models that are faster and more tailored to the customer. Many companies are already incubating and piloting these technologies, but the path to integrating them into effective end-to-end solutions can escalate quickly into unmanageable complexity and cost.
Much like the solution to the big data challenge, the solution lies in a focused approach. Successful new-technology integration efforts start with a market-back definition of new integration possibilities that disrupt or disintermediate existing value chain relationships. Such a focused, market-back lens keeps the ultimate purpose in sharp definition and mitigates the tendency to expand scope, timelines, and cost in the pursuit of integration for its own sake. Again, the CIO should play a critical role testing and challenging this market-back focus and helping the business to define the necessary and high-value integrations.
The CIO’s Place at the Table
Too often, CIOs are handed the requirements and asked to make it happen. This approach risks technology blind spots, and costly, unfocused investments and implementations. As these examples illustrate, CIOs need to have a critical seat at the table earlier in the process and can take a leadership mentality by imagining the art of the possible relative to the business strategy and then agreeing on the costs and priorities with the team. This allows them to identify and evaluate new technology options, and work closely with business leaders to define the right decisions, data sources, and integration points that will produce the most business impact from focused technology investments. With the rapidly evolving landscape, CIOs can help guide the business in assembling the right portfolio of technologies and solutions to balance near-term improvements and longer-term disruptive possibilities.