Manufacturers falling behind in digital supply chains

12 December 2018

European manufacturers are falling behind in the digital optimisation of supply chains with only 28% of manufacturers using AI.

Manufacturers problems lie in their failure to utilise AI’s potential to deliver increased alignment with customer needs and values and increased operational excellence through “prescriptive” supply chains, which can analyse data and adapt in response.

The notion of these machine learning supply chain systems are advantageous to businesses as they “take it one step further in anticipating future incidents, and tell you, ‘This is likely to happen and this is what you can do to prevent negative impact’”, Hans-Georg Kaltenbrunner, vice president of manufacturing industry strategy EMEA at JDA Software, told SM. The maintenance or improvement of service level directly correlates to increased revenue.

A report showed that while 31% of manufacturers are predicting prescriptive supply chains will be implemented by 2023, only 13% currently have them in place. AI innovation allows advanced data collection processes, through the use of self-learning autonomous supply chains.

Few manufacturers are pushing the digital transformation in supply chains and many continue to face data challenges due to the sudden integration of a “new generation of supply chain planning and optimisation tools which have only been introduced within the last five years”, said JDA. Thus pointing towards the need for restructuring of business models to ensure digital readiness.

The study results showed manufacturers plan to use digital optimisation as a means to create “supply chain segmentation”. Kaltenbrunner said: “If manufacturers put themselves in a position to better exploit their data, they will be able to evolve supply chains from ‘one-size-fits-all’ to a market segment size of one.”

“In particular when you integrate point of sales information or buyer sentiment from social media and so on, then you’re in a big data lake and humans can no longer detect patterns based on this amount of data, so AI’s help detect such patterns that determine changing market conditions and prepare your organisation and supply chain for that market change before it happens.”

Also, the changing mindset towards the “network approach”, which encompasses a strategy where “the distribution centres and factories can support and buffer each other”, allows a more efficient response rate across the supply chain.

Jan Godsell, professor of operations and supply chain strategy, WMG, University of Warwick, advised that if manufacturers aim to “maintain and enhance competitive advantage” they need to focus more on processes of their “supply chain digital transformation.” To be specific, adding AI and machine learning technologies, integrating a “business process layer to their organisational structure” to optimise end-to-end supply chains, and evolving from sales and operational planning to integrated business planning.

Allocation planning and order promising was identified as a key area where manufacturers should focus digital technology investments. Such investments will “double over the next five years from 30% to 61%”, due to data use and a network approach to provide increased product availability and customer satisfaction, the report said.

Almost two thirds (61%) of manufacturers plan to have end-to-end network design by 2023, enabling increased efficiency for supply chain processes.

The report, Delivering the Digital Dividend, conducted by JDA and WMG at the University of Warwick, measured the digital supply chain readiness of 179 European manufacturers.

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