REPORT

AUGUST 2016

WHAT IS THE MATRIX?A ROADMAP FOR CHIEF SUPPLY CHAIN OFFICERS COPING WITH DIGITISATION 

This document is the result of primary research performed by SCM World. SCM World’s methodologies provide for

objective, fact-based research and represent the best analysis available at the time of publication. Unless otherwise

noted, the entire contents of this publication are copyrighted by SCM World and may not be reproduced, distributed,

archived or transmitted in any form or by any means without prior written consent by SCM World.

© 2016 SCM World. All rights reserved.

Kevin leads SCM World’s Content team and cutting-edge, practitioner-driven supply chain research. Kevin also co-chairs the SCM World Executive Advisory Board, a group of 15 C-level practitioners from the world’s leading brands dedicated to improving the practice of supply chain management.

A research fellow at the Stanford Graduate School of Business, he helps to shape the direction of supply chain teaching for the next generation of business leaders. Prior to SCM World, he served as Group Vice President for Supply Chain at Gartner following the 2009 acquisition of AMR Research, where he was Chief Strategy Officer. In his 10-year career at AMR, he created the Supply Chain Top 25, wrote over 400 published articles and reports, and led a six-year dialogue with business leaders and luminaries such as Bill Clinton, Colin Powell, Michael Eisner and T. Boone Pickens.

Kevin holds a Bachelor of Arts in Economics from Boston College, a Master of Sciencein Industrial Relations from Oxford University and an MBA from Stanford University. He isbased in Boston and travels to London frequently.

AuthorKevin O’MarahChief Content Officer, SCM World

CONTENTS

INTRODUCTION 4

DIGITISATION STARTS WITH THE BASICS 5

THE FIVE ESSENTIAL SUPPLY CHAIN CAPABILITIES 6

DISRUPTIVE TECHNOLOGIES ROUNDUP 8

THE MATRIX: THE ONE-PAGE VIEW OF DIGITISING YOUR SUPPLY CHAIN 10

USING THE MATRIX 13

NEXT STEPS: POPULATING THE MARKET MATRIX 14

CONCLUSION 16

4 What is the Matrix? A Roadmap for Chief Supply Chain Officers Coping with Digitisation 

INTRODUCTION

To supply chain and operations people, “digitisation” has been basically synonymous with software applications for the last 50 years. Programmable logic controllers (PLCs), material requirements planning (MRP) and enterprise resource planning (ERP) were all part of a generational shift away from the analogue age of industry. During this time, progress has mostly been measured in upgrades as seen on a computer screen, with ever more integrated data supposedly showing what was really happening in terms of demand from customers and supply from production.

In the past several years, however, the concept of digitisation has escaped from the three-letter-acronym confines of enterprise software and bled into every corner of work associated with supply chain and operations. What was once the domain of the CIO working steadily alongside functional users in procurement, manufacturing,

planning and other roles is now a wide open playing field. Renegade initiatives in robotics, internet of things, data analytics, artificial intelligence and additive manufacturing are springing up everywhere like weeds in a well-tended garden. Each is intent on making the most of its moment in the sun, but collectively they risk creating confusion and waste.

Senior operations executives are walking a knife edge that avoids cynically dismissing the digital wave as “hype” or naively sponsoring digital initiatives in a de facto science fair. Digitisation is happening, and it’s probably coming faster than people realise, with implications that will reach further than most can imagine.

This report offers the first instalment of a roadmap for managing this transition.

Source: SCM World

Disruptive technologies threaten to break up the status quo of the ERP technology garden

ERP disrupted1 |

SRM

Big data analytics

CRM

Sales

EngineeringManufacturing

HR

Planning

Finance

Machine learning

Big data

Internet of things

3Dprinting

Uberisation

Advanced robotics

Cloud computing

ERPEnterprise Resource

Planning

‘Technology Garden’

August 2016 5

DIGITISATION STARTS WITH THE BASICS

Enterprise software has been important for supply chain practitioners with real breakthroughs in production planning, demand forecasting, warehouse management, supplier resource management and much more. The progress made in using these software tools to improve inventory turns, on-time-in-full service levels and asset utilisation rates has been excellent, especially where these systems have been well connected to ERP backbones that roll up into financial management tools governing the whole business.

Moving forwards with a digitisation strategy, therefore, should start with asking how the new tools complement what’s already in place. However, since these disruptive technologies work by transforming speed, agility or precision of existing operations, the journey is unlike traditional software upgrades in which old systems are retired as new ones “go live”.

TEST AND LEARN: BUILDING ON WHAT YOU ALREADY HAVE

The most common term used by senior leaders engaged in this paradoxically incrementalist and yet high-speed transition is “test and learn”. Such an approach actually rejects the monumental process reengineering and systems design projects that were so common between the late 1990s and early 2010s. It is in fact the exact opposite of the “forklift upgrade”, which is so popular among big systems integrators.

It also means that process design, while still important, is less the focus than capability development. For supply chain and operations, this requires a shift away from the essentially linear SCOR model to a much more fluid map of the five basic capabilities that comprise our world.

6 What is the Matrix? A Roadmap for Chief Supply Chain Officers Coping with Digitisation 

THE FIVE ESSENTIAL SUPPLY CHAIN CAPABILITIES

It all starts with demand and supply.

No matter the industry, all operations have customers with needs. These needs, which in traditional demand planning tools are forced into alphanumeric fields, are far more complex and nuanced than any traditional forecasting tool can handle. The same can be said of supply, which is also fundamental to any operation, and which has also until recently been limited to a handful of characters organised in rows and columns.

SENSE AND RESPOND

The other essential axis around which digitisation is disrupting our supply chain capabilities is sense and

respond. Visibility is the holy grail for supply chain professionals and in terms of demand and supply, “sense” means truly understanding what customers need while also knowing precisely what is possible. The two fundamental capabilities we focus on are “Demand Sense” and “Supply Sense”.

Digitisation is also changing what we can actually do in response to customer need or supply capacity. Where historically digital has meant software systems launching a production run or issuing a work order in the warehouse, today it means much more. Capabilities for “Supply Respond” and “Demand Respond” are hugely impacted by disruptive digital technologies, which make things happen to give customers what they want. Consider 3D printing, drones, digital supply chain and Uberisation.

Digitisation impacts five essential capabilities2 |

Supply sense

Demand sense

Supply response

Demand response

Decide &

commit

Know what is possible

Know what a customer

needs

Make it happen

Give customers what they

want

Profitable to promise

Source: SCM World

August 2016 7

Manufacturing Execution Systems

(MES)

Warehouse Management

Systems(WMS)

Digitisation builds on an existing IT infrastructure3 |

Supplier Relationship Management

(SRM)

Demand Planning

(DP)

Advanced Planning & Scheduling

(APS)

DECIDE AND COMMIT

Central to all supply chain logic is planning. For most this is some version of sales and operations planning and it usually includes the use of software tools that assemble data from systems such as demand planning and supplier management and then dispatch orders to manufacturing execution or warehouse management. The process works, but in terms of capabilities it still very much meant for mass production with minimal support for true customer centricity, individualisation or precise resource efficiency.

BUILD ON YOUR ERP

The incrementalist “test and learn” approach makes sense because these legacy systems are in place, largely working well, and are fully connected to a financial scorekeeping system that is the standard. The goal is adding depth, flexibility and speed to operations’ ability to sense and respond to demand and supply, with ever better visibility to profit.

Unlike going live on a new ERP system, it will never be finished. The roadmap is all about getting onto a steeper part of the learning curve as information technology and operational technology merge into a fully digitised global supply chain.

This is what we mean by the Matrix.

Supply response

Demand response

Decide &

commit

Source: SCM World

Supply sense

Demand sense

8 What is the Matrix? A Roadmap for Chief Supply Chain Officers Coping with Digitisation 

DISRUPTIVE TECHNOLOGIES ROUNDUP

The revolution in digital is truly massive. Our survey data shows big jumps in all categories of disruptive technology in terms of the “impact on supply chain strategy”. Each category is worthy of intensive study in its own right, but here is a quick summary:

Big data analytics – This involves using data science on suddenly massive lakes of data to find demand or cost trends, pockets of waste or opportunity, connections between cause and effect or any other relationship between variables. It applies in smart manufacturing applications to improve yields and reduce waste. It applies in demand management to refine pricing, promotions and placement. It applies in sourcing to identify risks, hedging opportunities and resource requirements. Success stories include BMW, Amazon, Nestlé, Intel and Cisco among many others.

Digital supply chain – This is the use of digitised product shipped electronically to customers. It includes software applications or content downloaded to any device from mobile phones to industrial equipment. It also includes intermediate products like artwork, formulations and 3D models that activate downstream production steps closer to the consumer. Success stories include Tesla, Apple, Honeywell, The Coca-Cola Company and Xerox.

Internet of things – Arguably the master bucket for all operational technologies, IoT represents the connectedness of objects to the worldwide web, and therefore, universal human accessibility. It’s about the presence of sensors and actuators in equipment that report on precise conditions and can, in some cases, trigger actions in response. Applications include smart homes, cities, manufacturing, farming and even healthcare. Success stories include Johnson Controls, Caterpillar, Rolls-Royce, Konecranes and Disney.

Cloud computing – Like IoT, this is another enabling technology. As the platform for accessing data from IoT-enabled equipment, for shipping over digital supply chains and for crunching big data, cloud allows digitisation to happen without requiring individual operators to run their own giant data centres. It provides speed, scalability and a variable cost model. Major providers of cloud services include Microsoft, Amazon, Google and Oracle. Successful users include nearly all large companies.

Advanced robotics – Robotics in manufacturing is well established. The new capabilities of advanced robotics include collaborative robots that are smaller, cheaper, much easier to program and safer to use alongside human beings. The implications, especially when coupled with machine vision, are very important in terms of work design in plants and fulfilment centres. Individualised products, unique packaging configurations and extremely agile manufacturing are all possible with advanced robotics. Success stories include Johnson & Johnson, Continental, Harley Davidson, Trelleborg and Volkswagen.

Machine learning – Also known as artificial intelligence, this refers to the use of self-teaching algorithms embedded in software to automate decision making on an indefinite loop of continuous improvement. It’s especially useful for repetitive tasks that vary constantly from instance to instance. It’s central to such emerging supply chain applications as self-driving vehicles, pricing and offer configurations in order management and dynamic logistics routing. Leaders include Amazon, Google, GlaxoSmithKline and IBM.

August 2016 9

Disruptive technologies4 |

*Not included in 2014 % of respondentsSource: SCM World Future of Supply Chain survey 2015 n=1,018

Big data analytics

Digital supply chain

2014

Internet of things

Cloud computing

Advanced robotics

Machine learning*

3D printing Drones/self-guided

vehicles

Uberisation

77 56 3171 38 1764 36 1664 33 2049 27 1145 8

2015

‘Disruptive and important’ technologies with respect to supply chain strategy

3D printing – Also known as additive manufacturing, 3D printing radically alters the approach to manufacturing, inventory placement, new product and process development, and perhaps above all else, field service management. The technology is advancing quickly with many materials not only possible, but increasingly economically viable. Success stories include General Electric, Nike, Hershey, Barilla and Boeing.

Drones – This category includes airborne, ground-based and even ocean-going autonomous vehicles. Significant research and development is under way for delivery by drone in all modes. Other applications include materials handling in a production or fulfilment centre environment as well as inspection and surveying

duties for large and/or inaccessible facilities like pipelines, farms and oil platforms. Success stories include BASF, Land O’Lakes and BP.

Uberisation – Also known as the “sharing economy”, Uberisation involves the use of a market-making application distributed on a mobile platform (phones, tablets, etc) and supported by some combination of geo-tracking devices (GPS), identifying codes and electronic payment. The supply chain applications are evolving quickly as a natural opportunity to leverage otherwise idle assets and labour. Success stories include CVS and Whole Foods with Instacart and Cargomatic for local trucking.

10 What is the Matrix? A Roadmap for Chief Supply Chain Officers Coping with Digitisation 

THE MATRIX THE ONE-PAGE VIEW OF DIGITISING YOUR SUPPLY CHAIN

By starting with the supply/demand – sense/respond Matrix and mapping existing digital support for each of the five essential capabilities, executives can see in a snapshot the as-is situation in their operations. For most, this involves identifying where software applications from companies like SAP, JDA, PTC, Siemens, Schneider Electric or dozens of other best-of-breed software systems are in use. It also accommodates legacy, custom-built applications for things like order management, engineering change or customer relationship management.

SCM World has tested this matrix with more than 300 senior supply chain leaders including dozens of SVP-level executives, and found nearly universal acceptance of the logic and usability of the image as a basis for discussion and planning. Mapping the as-is situation forces a debate about what tools are closest to the core of profitable decision making, which are transactional process applications and which are at

the edge closer to customers, suppliers and actual work in production or delivery.

INDUSTRY MATTERS

Business strategy dictates where supply chain capabilities are lacking.

Many in consumer goods industries are comfortable with their supply response capabilities in terms of quality and cost, but feel a need to strengthen demand-sensing capabilities. Companies struggling with direct to consumer or other omnichannel pressures often feel demand response capabilities are lacking in terms of flexible and cost effective fulfilment.

Industrial companies often feel a need to strengthen supply sense capabilities to better manage cost and availability risk upstream in second- and third-tier suppliers. Field service as demand response capability is an opportunity for many.

The SCM World Matrix5 |

Sense

Supply Demand

Core

Process applications

Process applications

Process applications

EdgeEdge

EdgeEdge

Process applications

Core

Core Core

RespondSource: SCM World

A framework for mapping support for the digital supply chain

August 2016 11

Many companies across industries want better cost-to-serve information and faster what-if analytics to improve decide and commit capabilities. Most want faster innovation.

Disruptive digital technologies collectively promise breakthroughs in such supply chain holy grails as visibility, agility and customer centricity. Most also suggest substantial reductions in headcount for either manual work or routine administrative tasks. All of this is at least theoretically possible in a fully digitised supply chain, but what should be done first and why?

STRATEGY AND THE DIGITISATION OF SUPPLY CHAIN

Among the most likely digitisation pitfalls is over-reliance on the traditional business case approach to projects. In isolation, many of these new technologies will fail to make the grade of payback within two years. This is because a supply chain designed from the start with digital in mind won’t look the same as a traditional supply chain with digital tools replacing mechanical or manual ones. Paving the cow path is an apt analogy.

It’s better to start with the competitive situation in mind and search for systemic capability enhancements rather than point cost savings. For pioneers in previous generations of technology-enabled supply chain advancement, the focus was on where exactly true competitive advantage could be had. Technologies were then applied iteratively, usually with a test-and-learn philosophy, to get ahead.

This is the story behind Zara’s application of technology to fast fashion, Procter & Gamble’s innovations towards the Consumer Driven Supply Network and Amazon’s focus on customer fulfilment technologies in Jeff Bezos’ famous flywheel.

The other serious pitfall to avoid is digitisation-as-transformation, “big bang” style. In recent decades, many supply chains rode along for massive ERP overhauls, and while the final payback looks like a net winner, the pain was intense. Worse still, the paralysis attached to multi-year rollouts with exhaustive process design phases is no longer something shareholders will permit.

Source: SCM World

The digitised supply chain is enabled by disruptive technologies

6 |

Supply sense

IOT Big Data

Drones

Uberisation

3D Printing

Cloud IOT

DSC

Big Data Cloud

IOTBig DataRobotics

Demand sense

Supply response

Demand response

Decide & commit

Cloud

AI

Source: Amazon

The original Amazon Flywheel7 |

12 What is the Matrix? A Roadmap for Chief Supply Chain Officers Coping with Digitisation 

Using the matrix: from ‘as-is’ to ‘to-be’8 |

AS IS TO BE (VISION)

POSSIBLE VENDORS PHASES

The game today is all about charting a series of moves starting from your specific as-is situation with targeted tactical steps intentionally building strength in specific capabilities that matter to you. Each new idea about automation in the plant or DC, advanced analytics in S&OP or IoT data collection in field service should meet at least three of these four tests to be worthy of investment:

R It will improve the supply chain’s ability to do something customers value and can measure.

R It will save money in working capital, cost of goods sold, or SG&A.

R It will improve the overall capability being targeted on your roadmap.

R It will pay for itself within two years.

Sense Sense

Sense Sense

Supp

ly

Supp

ly

Supp

ly

Supp

ly

Dem

and

Dem

and

Dem

and

Dem

and

Respond Respond

Respond Respond

PHASE 4

PHASE 3

PHASE 2

PHASE 1

Source: SCM World

Stringing together a series of moves like this should lead to a digitised supply chain that’s faster, better and cheaper, but is also positioned to outperform rivals, substitutes and potential entrants.

August 2016 13

USING THE MATRIX

As-is: To get started, a team can simply hang a blank version of this Matrix on a conference room wall and use post-it notes or markers to map as-is digital support for existing capabilities. Different perspectives and opinions will emerge on the strength of as-is capabilities and the value or importance of needed improvements to as-is capabilities. The takeaway from such an exercise should be a rough prioritisation of planned or proposed investments in new digital capabilities.

To-be: At the same time, an idealised map of the desired to-be state should be created. On this version of the Matrix, teams can imagine where new technologies ranging from robotics to artificial intelligence could help the business. This is in part a competitive strategy exercise and in part a technology visioning exercise. The important principle is to keep competitive strategy and technology vision together at all times while mapping the to-be state.

Roadmap: The last piece is roadmapping, which is meant to codify the incrementalist “test and learn” approach most senior leaders prefer. In a single space (big conference room or PowerPoint presentation, for instance) teams should show progression from the as-is Matrix through a series of phases ending with the to-be version. This approach will allow early stage experiments to sit alongside established tools or systems and show their growth, adoption and impact over time. The idea is to break the habit of isolating digital investments as freestanding investment decisions and instead see them as part of a bigger operations and supply chain strategy.

By insisting on a single page view of each step along the way, business users are able to assess digitisation initiatives in terms of how they affect operations and when that impact will be felt. It should help with communication cross-functionally and upward to CEOs and investors. It will also help keep solution vendors focused on capability outcomes within specific timeframes avoiding scope creep.

14 What is the Matrix? A Roadmap for Chief Supply Chain Officers Coping with Digitisation 

NEXT STEPS POPULATING THE MARKET MATRIX

Questions within the RFI are aimed at calculating the most accurate position for each vendor’s solutions across the supply-demand and sense-respond axis of the SCM World Matrix. According to their position, vendors’ solutions have different roles which can be described as:

• CORE solutions – At the crossing of the two axis is the CORE of all supply chain thinking where decision-making solutions that are able to orchestrate both SUPPLY & DEMAND and SENSE & RESPOND will be mapped. Solution such as supply chain visibility, S&OP and PLM will tend to be mapped at or near the core area.

• APP solutions – Surrounding the core is the APPS area where business process solutions typically sit. These represent the necessary foundations of supply chain management, whether they are planning solutions like supply chain planning or demand planning & forecasting, or solution orchestrating executional processes, such as smart manufacturing management, warehouse management or e-commerce.

• EDGE solutions – The EDGE of the map is home to solutions that are essential to their specific areas, whether it is about, for example, pure Supply Response – such as collaborative robotics or 3D printers – or pure Supply Sense – such as supply chain risk monitoring.

Technology vendors have a long and chequered history of overselling. To help manage the market for solution vendors, SCM World is using this same Matrix to assess their offerings. We have invited vendors to respond to an RFI (Request for Information), which encompasses 13 categories across five key areas:

August 2016 15

The bubble size for each individual vendor’s solution will be determined by the broader SCM World community through a Voice of Customer (VOC) survey, where users will share their experience using these solutions based on their level of innovation, speed, reliability, value for money and scale of impact

The data collection for this has already started with an initial group of 20 large traditional software vendors. This should result in an easily compared graphical portrayal of the participating vendors’ offerings across all five essential capabilities, to be published in a Market Matrix report later this year.

Longer term, we plan to apply this same approach to specialist vendors for each of the emerging “disruptive and important” technologies described in our roundup above. Robotics vendors, Uberisation partnerships, IoT solution providers and more can all be mapped against this same Matrix and viewed on a level playing field, not in terms of what they are selling but in terms of what supply chain capabilities the business needs and when.

16 What is the Matrix? A Roadmap for Chief Supply Chain Officers Coping with Digitisation 

CONCLUSION

Digitisation may be the most important strategic topic for senior supply chain and operations executives today. It spans every function and manifests from the highest level of aggregate business performance to the most granular level of individual work.

CEOs expect cost savings and headcount reductions. Competitive forces are morphing unpredictably. Regulatory regimes are uncertain. Perhaps most important, consumers have become so powerful in today’s hyper-connected world that demand-driven forces for change are irresistible.

Developing a rational, effective roadmap for navigating this digital transformation does not look much like past technology initiatives. It is neither a grand process reengineering reminiscent of the late 1990s, nor a series of rifle shot investments in narrow scope technologies.

Best practice appears to boil down to a “test and learn” approach, which sounds prudent. Without a roadmap though, this way risks meandering at a moment when missteps could be very costly.

The vastness of the challenge may be paradoxically best served with a simple solution. The Matrix is meant to provide such a solution. It is a single page view of the entire supply chain upon which all manner of digital tools can be projected. It is intended to start

with existing systems and tools (the as-is) and allow an unconstrained vision of strategy unique to each user (the to-be). It is also explicitly designed to facilitate “test and learn” approaches with a roadmap based on phased growth.

Above all else, it is about capability development in five essential areas common to all businesses:

• Demand Sense – knowing what customers need;

• Supply Sense – knowing what is possible;

• Decide & Commit – making profitable promises;

• Supply Response – making it happen;

• Demand Response – giving customers what they want.

Each of these capabilities can be expected to sharpen continually with the development of digital.

The leadership needed from supply chain and operations executives is to consciously choose which capabilities matter and when they should be added. Investments made along the way should not only pay for themselves, but also serve the business’s strategy.

August 2016 17

18 What is the Matrix? A Roadmap for Chief Supply Chain Officers Coping with Digitisation 

August 2016 19

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