Digital Transformation Is Changing Supply Chain Relationships

Authors: Maria Jesús Saénz, Elena Revilla, and Inma Borrella

The digital transformation of businesses is creating new products, processes, and services. But to provide these new offerings, companies must share information and assets with each other in ways that were previously off-limits. For example, digitized services may require competitors to share physical assets such as warehouse space.

This, in turn, means that companies will need to change the way they forge and manage relationships with other entities in the supply chain to facilitate new types of alliances and agreements. It will require managers responsible for developing supply chain relationships, such as account managers or supply managers, to adopt a boundary-spanning mindset in order to facilitate collaboration, experimentation, and trust across organizational boundaries.

Offerings That Are Redefining Relationships

One supply chain process that requires such interactions is collaborative forecasting informed by machine-learning-based algorithms, which use real-time information on buying patterns to identify new parameters that affect demand. To fully exploit these insights, companies need deeper interactions with upstream suppliers and customers downstream.

Or consider a product that is redrawing supply chain relationships: a smart infant pacifier that gathers information on children’s health, such as body temperatures and medications. Manufacturers of the product, their suppliers, and retailers can use these new streams of data to refine the product and create new ones. Doing so, however, requires them to establish more expansive collaborative relationships. For example, retailers could give customers free registrations to an app that monitors the pacifier’s usage. The manufacturer and suppliers could use this data to develop customized accessories based on how the product is used.

Examples of services that would necessitate new relationships are digital tools and platforms that enhance a supply chain’s agility and flexibility by enabling companies to switch from asset ownership to asset sharing. They provide a good illustration of how digital transformation changes the dynamics of interactions between companies.

Consider on-demand warehousing from providers such as Flexe. These services identify unused industrial storage space and make it available to companies on a short-term basis. Sharing the space in this way enables the owner of the space to defray the cost of its unproductive asset and better align its warehousing needs with others’ demands. It allows the service buyer to meet its changing storage requirements without having to add an expensive asset to its portfolio. However, the owner might have to accept that companies interested in sharing its warehouse facility may be archrivals—an accommodation that was difficult to justify before digital transformation opened the door to this type of service.

Then there is the Walmart GoLocal platform, which allows other retailers, restaurants, or online services, small and large, to use Walmart’s own delivery platform to complete last-mile deliveries to other merchants’ customers. Platform users gain access to the retailer’s transportation network as well as external gig drivers. Enterprises on the platform can leverage the diverse ecosystem of users to achieve new efficiencies. For instance, with so many delivery routes on the platform, there may be opportunities to share vehicle space on routes used by multiple companies. Pooling goods in this way improves vehicle utilization and lowers the cost of transportation.

As these examples show, companies have to be more open-minded about commercial rivalries if digital-transformation-driven asset-sharing services are to fulfill their potential.

Developing Boundary-Spanning Managers

The managers responsible for crafting and implementing these new relationships have to be open to unfamiliar ways of doing business. They must be able to identify the value of nontraditional opportunities, find the most appropriate partners, and create agreements that maximize the value captured while minimizing the potential risks. This means that companies that are digitizing their supply chains or planning to do so need to promote new roles and supporting systems. Here are some examples of these new approaches.

Identify collaboration opportunities

Managers need to encourage the exploration of other ways to leverage new relationships. For example, savvy digital companies should continuously test new technologies and develop prototypes with partners and their customers. Walmart is experimenting with using live-streaming technology in collaboration with TikTok to offer customers new shopping experiences.

Create KPIs that reflect the gains from collaboration

Managers may need to expand the range of key performance indicators (KPIs) they use to encompass the opportunities created by digitization. For example, in addition to tracking established indicators such as on-time delivery, Walmart’s GoLocal service measures gains from the delivery pooling arrangements that were not available to enterprises before joining the platform. Also, measurements like these provide evidence of quick wins and promote the scalability of benefits from digital initiatives.

Develop responsive contracts

Digitalization, and the communities of users it creates, can enable companies to develop contract systems that rapidly realign agreement terms with new business demands. For instance, Flex Pulse, a cloud-based platform built by global contract manufacturer Flex to give the company visibility into its manufacturing operations worldwide, also supports a digital contracts system. The system stores and manages contracts digitally and monitors operations involving Flex, its suppliers, and its customers in real time. Contractual terms such as incentives can be altered quickly in response to shifting market conditions. Also, the system uses AI algorithms to track supplier performance and identify opportunities to improve the efficiency of joint operations. These opportunities can be speedily translated into revised contractual terms.

Boundary spanners will become essential change agents in the new era that digital transformation is making possible. Without them, companies will struggle to compete in the new world.

TAKEAWAYS

Digital technologies are allowing companies to share supply chain information and assets in new ways. These new opportunities will require managers to become boundary spanners—facilitating collaboration, experimentation, and trust across organizational boundaries. They can do so in three ways:

✓ Identify collaboration opportunities. Explore different ways to leverage new relationships, such as testing new technologies and developing prototypes with partners and their customers.

✓ Expand the range of KPIs to include opportunities created by digitization. Doing so can provide evidence of quick wins and promote the scalability of benefits from digital initiatives.

✓ Develop responsive contract systems. Digitalization can enable companies to develop contract systems that rapidly realign agreement terms with new business demands.