Supply chain digitization has been a critical component to drive growth, optimize costs, and accelerate the overall supply chain performance. But automating the supply chain and reaping its benefits does not happen overnight. Successful digital transformation in the organization requires clear objectives and approaches.
Inclusion among functions is key
A large producer of canned fruit items installed a brand-new radio-frequency identification (RFID) system at its manufacturing facility. The RFID system aimed to streamline the producer’s inventory management system.
The canned fruit producer’s workers stuck RFID tags on every case of canned fruit and on the pallets where the cases were stacked. As forklift operators picked up the pallets and brought them to the warehouse, RFID scanners tagged each pallet and automatically added the cases into the finished goods inventory.
When a warehouse worker picked a case of canned fruit to be staged for shipment, an RFID scanner at the door tagged it and immediately deducted it from inventory.
The point of the RFID system was to update inventories accurately and in real time. It would improve inventory record accuracy and information timeliness compared to the traditional system in which workers entered data manually via pen and paper and accountants computed the inventories which took time to do.
The accountants of the canned fruit producer, however, distrusted the RFID system and insisted the workers continue doing the manual system. Hence, even as the RFID system tagged incoming and outgoing pallets and cases, the workers continued to fill out forms to record what they produced and what cases they brought in and out of the warehouse. The RFID system ended up not delivering any tangible benefits and gradually, it became useless.
The canned fruit producer’s executives liked RFID technology for its features but didn’t take into account the complexity of building it into its business. The executives thought that installation of an RFID system was easy.
The management didn’t realize that putting in RFID was more than just buying tags and installing transmitters, receivers, and additional computer hardware. It required adoption of a system that involved acceptance not just by production and logistics but also by accounting and other functions as well.
RFID is a digital technology, one of many hyped by The Fourth Industrial Revolution, also known as Industry 4.0. Unlike a new computer system or a new machine, digital technology taps data for visibility and productivity improvement. It’s what McKinsey cites as “creating value in the processes that execute a vision of customer experiences.”
Building in digital technology like an RFID system applies principles from project management but at a much wider scale. It’s not as simple as constructing a new warehouse or installing a new machine. It requires fitting in with functions that will be affected.
It’s like a human organ transplant. One cannot just outright replace a heart, liver, or kidney with another. A transplant entails a multitude of diagnostic tests, procedures, and regimens pre- and post-transplant to ensure success.
The canned fruit producer brought in an RFID system that was liked by supply chain managers but was rejected by accountants. Like a failed organ transplant, the enterprise’s “body”, its organization, did not accept the RFID system.
Bringing in digital technology requires what one would call a digital roadmap, a plan that considers the unique characteristics of new technologies.
A Digital Roadmap emphasizes the following elements:
Establishing Terms of Reference (TOR)
TOR is a narrative of what an enterprise’s organization envisions a new technology will contribute. It isn’t a scope of work or detailed specifications. Rather, it’s a set of features, functions, and criteria that the organization wants. A TOR is the foundation for decision-making when it comes to choosing from technological options.
Dedicated team of qualified individuals
There should be a team of dedicated individuals to plan, decide, and carry out any new technology. The team should not only have skilled members but also members who are recognized as authorities in their fields. Note that members need not be employees of the enterprise; they can be contractors, consultants, or just plain advisors. It’s important that each member has the devotion and expertise to participate.
Consensus is a necessity for the organization to be enrolled into the introduction of new digital technology. Consensus will likely be tough to attain because digital technologies are new and will entail significant changes in the workplace. Debates and disagreements are inevitable.
Executives will be expected to lead and enroll everyone to adopt and accept new roles and responsibilities. The digital roadmap cannot progress without consensus and commitment.
The digital roadmap should define the needed content from any new digital technology. Content is the information gleaned from data and software that would be useful to apply for productivity improvement. With an RFID system, for instance, the data gathered from scanned tags provide the content for real-time inventory visibility which leads to the opportunity to turn over inventories faster.
A cash-flow schedule
New digital technologies often need much investment in capital. Other than time and human resources, the enterprise will be spending money to pay for software, hardware, and the expenses that come with implementation, including education for everyone in the organization. The digital roadmap should therefore include a schedule of cash outlays that tells how much and when budgets will be needed and spent.
A digital roadmap shouldn’t have too long a timeline lest newer technologies render obsolete the digital technology the roadmap was aiming to achieve. Digital technologies don’t have long life cycles. What seems state-of-the-art today may be obsolete tomorrow.
Artificial intelligence (AI), for example, has grown in popularity versus RFID systems. A digital roadmap should therefore be swift in rolling out a new digital technology that will ensure its applicability and competitive edge.
Digital technologies marry data and operations for productivity improvement and have become popular thanks to Industry 4.0. Yet, enterprises hesitate to delve into digital technologies and when they do, often encounter difficulties.
A digital roadmap resolves this by providing a pathway that stresses a TOR, formation of a dedicated team, encourages consensus, clarifying useful content, a cash-flow schedule, and a competitive timeline.
New technologies are always exciting but just like anything new, it requires acceptance by all.