Is digitization the answer to supply chain challenges in 2023 and beyond?

The past three years have been especially difficult ones when it comes to supply chain disruption. There’s no question that COVID-19 was the major unforeseen disruption that exposed and exacerbated existing issues that were already challenging supply chain performance. But long before the pandemic hit, globalization and changing customer demands and expectations were putting pressure on the existing supply chain and the Procurement professionals tasked with getting the needed materials and product. Add in the effects of inflation and you can see that challenges continue to grow.

In the summer of 2022, a Supply Chain Quarterly article concluded that the supply chain crisis is expected to continue through 2023 and noted that many Procurement leaders said they “lack confidence in their existing technology to handle problems, and consider modernizing the supply chain function a strategic priority.” The article further noted that the issues that were of most concern included “a lack of visibility into supplier risk, a ‘disjointed’ source-to-pay process due to multiple systems, and a lack of spend reporting.”

Digitization answers many of the supply chain challenges

Global professional services firm, KPMG noted that 21^st-century supply chains need to be demand-driven, automated, and have access to data and digital technology. That requires a number of organizational functions, like procurement, logistics, and finance, to work in conjunction. Yet many organizations still find these functions operating in silos.

Procurement, logistics, and finance need to collaborate while being in alignment with overall company goals. Digitization and automation make this possible. Automating processes creates greater speed, accuracy, and efficiency. Digitizing all data also provides visibility into the status of every order and every transaction…for all stakeholders.

Last year, an article from KPMG detailed the key challenges impacting the global supply chain in 2022 and offered advice on how to mitigate these challenges, with technology playing a major role. Many of these problems still exist…and come at a time when most organizations are looking to control spend and account for the efficiency and efficacy of every dollar expended. Certainly not a full list, here are some of the challenges that persist:

• • JIT inventory management is short-sighted – In the late 1970’s and early 1980’s, the “just-in-time” management philosophy for inventory and manufacturing took hold in the U.S. as a way to avoid the cost of excess inventory. But COVID showed that this strategy didn’t really work when a major disruption occurs. That’s the time when Procurement needs to be flexible and resilient, focusing on issues beyond just price. Price was now only one issue, with availability, compliance, and risk playing more prominent roles. Procurement also has to consider the timing of ordering as well as optimal quantity. Digitization provides more accurate analytics and that, in turn, will help decide inventory needs to meet customer demand, at a time when customers (B2C and B2B) expect on-time delivery and aren’t particularly interested in an organization’s inventory problems.
  • The ability of logistics to move product was challenged – When the pandemic hit, the task of logistics to ensure product gets to its destination in a timely manner became more important than ever. The disruption created by the pandemic put a laser focus on supply chain issues that had been put on the back burner in the past; issues like slowdowns at ports, an ongoing shortage of truck drivers, compliance with regulations and security checkpoints, and of course, allocation shortages. Any or all of these issues can lead to costly delays, especially if the logistics and procurement teams don’t have accurate information. The data collection enabled by digitization lets logistics track product and order movements in real time. Logistics needs to work in close collaboration with Procurement to find alternative supply chains as needed which requires flexibility on both functions. As an example, Logistics may recommend micro-facilities, putting inventory closer to the customer base.
  • Re-evaluate your vendor list – Good supplier relationships are absolutely essential for Procurement. Having vendors that you trust and who trust you can give an organization priority when it comes to fulfillment. But relationships develop over time and sometimes, Procurement can become complacent, giving most business to an existing yet limited list of vendors thinking this will give them an advantage when it comes to negotiating price. But supply chain disruptions left companies with this management style little to no leverage over alternative vendors when their own list could not supply the needed product. Having the right technology and tools will enable companies to quickly identify the suppliers that will help them meet their needs. These tools will also identify how these vendors operate when it comes to compliance to regulations, both domestic and foreign.
  • The required skillsets are evolving – With the Great Resignation and “quiet quitting,” companies face the problem of too many jobs and not enough workers. Even if an organization has the requisite number of employees, do those employees have the skillsets needed for a digital business environment. This effects every business function, including procurement, logistics, and transportation. New technology needs employees with the skills (or at the very least the raw talent) to optimize that technology. Recruiting Millennials and Gen Z employees will require new ways of recruiting, with salary levels alone not being enough to attract the best and brightest.

Digitization is the key to resolving these and other issues, and companies are increasingly turning to transforming their procurement and finance functions to meet the demand. As the KPMG article notes, ”.…teams are focusing on digital transformation and technology – seamless flow of information across value chain and insights delivers faster decision making. Organizations are leveraging spend analytics tools and software packages to increase visibility of where, how, and when they spend. Consolidation of spend enables improved buying leverage and negotiating power to help drive value or push for improvements.”

Download Corcentric’s 5 Steps for Procurement Success in Times of Uncertainty to see how to better face global challenges.

If you’re ready to see what you’ve been missing in your cash flow, get in touch with Corcentric today. We’ll give you the big picture.