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European A.T. Kearney/WHU Logistics Study 2015 Digital Supply Chains: Increasingly Critical for Competitive Edge European supply chain managers expect major improvements to result from high digital investments.

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1Digital Supply Chains: Increasingly Critical for Competitive Edge

European A.T. Kearney/WHU Logistics Study 2015

Digital Supply Chains: Increasingly Critical for Competitive Edge European supply chain managers expect major improvements to result from high digital investments.

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This seventh edition of A.T. Kearney’s European Excellence in Supply Chain Management study is dedicated to the future role of digitalization in global supply chain networks. This study, conducted with the business school WHU, reveals that supply chain managers of leading European companies expect the most important digitali-zation levers in the next three years to be rather traditional topics such as IT integration (an area where 70 percent of supply chain managers are planning significant or high investments), more comprehensive use of data (more than 50 percent expect big-data analytics to have a clear impact on reducing outbound inventories), and paperless processes.Interestingly, newer technological advances such as 3D printing, robots, and smart labels are expected to be less relevant over the short term. Managers investing in digitalization, nevertheless, have high hopes to improve decision making and to achieve increased flexibility, lower cost, and lower risk. As a result of digitalization, they also clearly plan to reduce employment in operational logistics areas, while slightly increasing staff for tactical and strategic supply chain planning.

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1Digital Supply Chains: Increasingly Critical for Competitive Edge

IntroductionCompanies in various sectors throughout Europe are investing heavily to digitalize their business models in general and their supply chain management (SCM) in particular. Take major logistics service providers such as DHL, which has announced that it will rely increasingly on big data to minimize risk, while trials it has conducted with employees using data glasses for picking processes have increased productivity by 25 percent. Logistics provider DB Schenker is investing in a digital mobility lab, and airlines with a strong cargo business, such as Lufthansa and Emirates, are expanding their paperless e-freight offering, which includes data cleaning for customers. Ocean carriers and forwarders, such as Kuehne + Nagel, use INTTRA’s ocean freight platform for e-payments, and global retailers Amazon and Alibaba have invested in robotics for goods handling, drones for deliveries, and new apps for optimizing own asset-light delivery services in cities.

What can be observed with logistics service providers and retailers is also notable in manufac-turing companies as they digitalize their SCM. Automaker BMW is working on achieving a fully digitalized factory and on a more dynamic, data analytics-driven supply-chain segmentation for inbound parts. Referring to the 15th International Trade Fair for Logistics, Mobility, IT and Supply Chain Management in Munich that ended in May 2015, head organizer Stefan Rummel told industry journal DVZ: “Where logistics people meet, they almost always talk about digitalization.”

This seventh edition of A.T. Kearney’s European Excellence in Supply Chain Management study also focuses on digitalization. Conducted jointly with the Kühne Institute for Logistics Management at the German business school WHU–Otto Beisheim School of Management, it delves into the ways that digitalization in all of its formats impacts SCM, based on feedback from 60 industrial and commercial companies throughout Europe (see sidebar: About the Study).

About the Study

The 2015 European Excellence in Supply Chain Management study is the seventh edition to be published since A.T. Kearney first undertook this research with the European Logistics Association in 1982. For the purposes of this edition, A.T. Kearney and the Kühne Institute for Logistics Management of WHU–Otto Beisheim School of Management conducted an online survey on digitalization of the supply chain in European industrial and commercial companies between December 2014 and February 2015.

Overall, 60 companies partici-pated, and more in-depth inter-views were conducted with 15 of them. Two-thirds of participating

supply chain managers could answer for the global SCM of their companies; another fifth was answering with reference to the European SCM.

Most participants’ route-to-market is not expected to signifi-cantly change between 2013 and 2017. Fifty-five percent of revenues are generated directly with end customers and users, 33 percent with resellers, and 12 percent via a three-step route-to-market and based on a wide range of as many as 650,000 SKUs. On average, participating companies use the following number of logistics service providers in Europe: land freight (109), warehousing (13), ocean freight (4), and air freight (3).

Companies come from 16 countries (including slightly more than one-third from Germany) and a wide range of industries, including automotive, chemical, pharmaceuticals, building materials, machinery, fast-moving consumer goods, metals, electronics, aerospace, wholesale, and retail.

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2Digital Supply Chains: Increasingly Critical for Competitive Edge

This report summarizes our findings and explores in detail what SCM digitalization means for business, how it affects investment in IT and analytics, and the areas where it will have the greatest benefit.

Digital Technology Enablers and Their Business ImplicationsDigital trends in SCM affect the overall business model

From sensors and cloud services to nanotech and big data, a number of technologies drive digital trends. How fast these technologies advance in performance and cost will determine how quickly they bring about change in SCM. In figure 1 we identify and describe six big technology enablers that are digitalizing SCM.

Figure 1Digital enablers and select implications for supply chain management

GPS-, GSM-, and Galileo-based positioning; sensors for filling status, product quality, packaging quality, equipment status• Reliable all-time localization

• More SCM information and event management requirements (for example, temperature, humidity, opening, shock)

Note: GPS is global positioning system, GSM is global system for mobile communications, SCM is supply chain management, UI is user interface, and CKD is completely knocked down.

Source: A.T. Kearney analysis

Strategy

Sensorsand

geolocation

Robotics

UI anddisplay

innovation

Cloud services

Big data

Nanotechand 3D

printing

Digitaltechnology

enablers

3D printing, microwave, laser-based production technologies• New production

locations

• New supplier configurations

• New production materials

Multivariate regressions, predictive analytics, large-scale scenario analysis• Demand forecasting

• Capacity planning

• Routing optimization

• Contracted and flexible contracted versus spot-capacity purchase optimization

• Advanced procurement with collaborative optimization

Safe to operate in close man-machine environment, cheaper, more flexible (including flexible renting and leasing schemes)• Picking

• Palletizing

• (Un)loading

• Automated CKD assembly in smaller lot sizes

Augmented reality, customer self-service scanning, in-store navigation• Glasses-based picking

in warehouse

• Displays on packaging

• Proliferation of interactive shelf displays

• Displays on products managed by the manufacturer

Connected devices, global real-time data consistency, fast distribution of analytics• Cloud-based tracking

• Cloud-based global real-time availability of SCM data and synchronized IT systems

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3Digital Supply Chains: Increasingly Critical for Competitive Edge

A.T. Kearney has observed a number of general digital business trends not only with direct effects on SCM, but also with much larger implications for manufacturing and retailing companies’ overall business models (see figure 2). Obviously, each industry and company will face different opportunities and challenges, even going so far as to completely question the current business model or product configuration.

Note: SC is supply chain, and SCM is supply chain management.

Source: A.T. Kearney analysis

Digital business trends

Analytics-driven cross-functional optimization and predictive decision making

Select supply chain management implications

• Leveraging of data to improve SC demand forecasting and SC service procurement

• Dynamic data analytics-driven SC segmentation of parts and goods

Description

Using advanced analytics with increasingly diverse input to optimize complex cross-functional trade-o�s and facilitate value chain integration

From human judgment to machine intelligence

• More automated SC procurement processes• More automated SC event and risk

management based on expert systems

Multi-sensor information, algorithms, big data, and machine learning, leading to the gradual replacement of human judgment by machine judgment

Distributed resourcing and growing customer buying power

• More complex inbound SCs with more global suppliers and more variation of direct and aggregated procurement

• Leveraging of meta platforms to source SCM service providers (for example, trucking companies and couriers)

Access to everything, anywhere, anytime. Growing transparency and access provide customers with vastly increasing buyer power

Micro customization, matching micro demand and supply

• Need to connect with customers for earlier sensing of demand and batch shifts

• Managing SCs for very customizeddemand and supply; smart and dynamic SC segmentation

Matching the long tail of demand, supply, andproduction capabilities to create the ultimate customer fit and fulfillment

Complemented reality-driven productivity

• Optimized picking operations• Virtual testing of supplier parts and

new packaging• Reduction of need to distribute physical

sample products

Driving new ways of engagement and productivity through augmented and virtual reality

Figure 2 Select digital business trends and supply chain management implications

Mounting digital risk exposure

• Growing exposure to risk with connected products, embedded automated services, and automated cross-company processes

• SC management to SC partners in risk management and defense planning

Increasingly intertwined and ongoing activities with customers, suppliers, and partners; growing exposure to digital business risks and crimes

Sharing economy • Additional availability of industrial truck, wagon, locomotive, and container capacities

Sharing of proprietary assets via e-platforms to increase utilization and tap into capacities formerly outside of markets

From physical product transactions to consumption

• Organization of SCM for services and management of diminishing hardware distribution, return logistics, and SC for di�erent rounds of life cycle

• Management of post-sales SC service to customers

• More usage-oriented pricing with SC suppliers

Using digital to extend, expand, enhance, complement, replace, or go beyond physical o�erings. Using measurability, sensors, and connectivity to charge for usage instead of purchase

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4Digital Supply Chains: Increasingly Critical for Competitive Edge

Supply chain managers need to manage the implications of the digital transfor-mation of their function and of the under-lying business model at the same time.

SCM will be central to wider digital transformation

Supply chain managers who want to lead the transformation of their SCM into the digitalized age not only will identify the opportunities and challenges facing their own function, but will also consider the digital transformation of the entire company, its products and services, and the way suppliers, customers, and other market partners interact with their company. How SCM can contribute to the digitalization of the business model is as important as defining the digital transformation agenda of SCM itself (see figure 3).

Source: A.T. Kearney analysis

Figure 3Digital supply chain framework

Digitalmanufacturing

Supply chain integration

Supply chain automation

Supply chain reconfiguration

Supply chain analytics

Digitallogistics

Digitalplanning

Digitalsupply

Shared products, product as a service

Omnichannel distribution

Connectedproducts

Embedded services

Digital supply chain

Digital business model

A

B

C

D

1 2 3 4

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5Digital Supply Chains: Increasingly Critical for Competitive Edge

In terms of the key dimensions for digital supply chain management, we differentiate between digital planning, digital supply, digital manufacturing, and digital logistics. While this study largely focuses on digital logistics, all aspects of digital supply chains are taken into account. Key levers for digital SCM listed in figure 4 have been tested empirically as part of our study to establish what supply chain managers will focus on and what investments they will make in the next three years.

The SCM function is not digitalizing in a vacuum. While some elements of digitalizing the SCM function are exclusively within the purview of the SCM departments, such as replacing paper freight documents with digital ones, the overall digital transformation of the business model can be thought of as a second dimension of digital outside of its control (see figure 5 on page 6). SCM decision makers who clearly understand the dynamics in this dimension as well will be better able to address the challenges posed in each dimension. The extent to which the SCM must transform itself will also depend on whether the company has entered the market with a digital business model from the beginning as a digital native, or has adopted it later on as a digital migrant.

Notes: SCM is supply chain management, and GSM is global system for mobile communications.

Source: A.T. Kearney analysis

Areas for digitalization of the business model

Connected products

Select digital supply chain management levers and challenges

• New SCM requirements for smart products (for example, chips in textiles)

• Shorter lead times and price changes for electronic components

Embedded services

• New spare parts and service requirements

• Setup of online monitoring and second- or third-level support

• New failure analytics due to more possible reasons outside of own products

Shared products, product as a service

• Disposition and capacity management of rented products

• Product and product parts monitoring and replacement planning

• Logistics for relocation, maintenance, refurbishing, and repair

• Product software management, including firewalls

Omnichannel distribution

• Direct sales (bypassing wholesalers or via online) to users and consumers, with smaller lot sizes and di�erent central and regional storage requirements

• Cross-border selling, partially with own customs solutions

Figure 4 Areas of digitalization and supply chain management levers and challenges

Areas for digitalization of supply chain management

Supply chain integration

Select digital supply chain management levers and challenges

• IT integration across all areas of company

• IT integration with supply chain partners

• Paperless freight document

Supply chain automation

• Smart packaging informing and acting on conditions of goods inside

• Radio or GSM tagging and tracing of goods

• Radio or GSM tagging and tracing of packaging and containers

• Smart labels communicating with each other, creating decentralized optimization intelligence

• Robots and autonomous vehicles

Supply chain reconfiguration

• 3D printing and additive manufacturing

• E-platforms for direct carrier selection and transactions

• Use of app-based e-platforms for express and parcel courier deliveries

Supply chain analytics

• Big data analytics for SCM improvement

1

2

A

B

C

D

3

4

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6Digital Supply Chains: Increasingly Critical for Competitive Edge

Digital to Drive Heavy Investment in IT Integration and Big Data Over the Next Three Years IT systems integration remains the hottest topic—internally and externally

European supply chain managers tell us that the key digitalization topic for their companies is SCM IT integration. This is where they anticipate the greatest impacts and where planned investments are highest. More than 80 percent of respondents expect the integration of IT systems and data within their group to offer significant, high, or very high potential for improve-ments to their SCM, and 77 percent anticipate the same from IT networking with partnering suppliers and customers in the supply chain. A core finding of the study is not just that businesses expect IT integration internally and externally to deliver strong benefits in the next three years, but also that 70 percent of respondents intend to make considerable investments in internal IT integration (42 percent relevant investments and 28 percent high investments) and 53 percent in external IT integration with supply chain partners (see figure 6 on page 7).

For many companies, IT integration remains a Herculean task. They still have large numbers of stovepipe solutions that do not interface or share data seamlessly with other systems. Arriving at and maintaining globally standardized supplier, material, and product data remains an equally big challenge. When a supply chain spans multiple countries and partners, new challenges arise whenever acquisitions are made or partners change. Jan Keller, group vice president for supply

Source: A.T. Kearney analysis

Current state

Future state

Figure 5Interdependence between digitalization of business model and supply chain management

Digitalization of supply chain management• Supply chain integration • Supply chain reconfiguration

• Supply chain automation• Supply chain analytics

Digitalization of the business model• Connected products• Embedded services• Shared products, product as a service• Omnichannel distribution

Company A: Digital natives

Companies B and C: Digital migrants

Company D: Rare case

Low High

Low

Hig

h

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7Digital Supply Chains: Increasingly Critical for Competitive Edge

chain at ABB, states: “As a rule, our internal IT systems are managed locally. The objective has to be a unified product base that’s identical in every country.”

In addition, some businesses remain cautious about IT integration with suppliers and customers. The potential benefits of streamlining their IT may be clear, but a number of respondents state that they lack a sufficiently trustful relationship with SCM partners to engage in more intensive data sharing. Alexander Moldenhauer, chief supply chain officer at Avanco GmbH, explains: “Many of our raw material suppliers have started downstream activities and turn into competitors, so sharing data calls for a special degree of trust.”

Moving forward, the larger companies intend to invest more heavily in IT integration along the supply chain than the smaller companies. This is hardly surprising, given that they are in a better position to set standards within their supply chain and thus extend IT integration outside their own organization. Expected benefits are first and foremost substantially lower inventory levels and more flexible delivery times and batch sizes.

Figure 6Digital levers worth investing in for the supply chain

Note: SC is supply chain, SCM is supply chain management, and GSM is global system for mobile communications.

Source: European A.T. Kearney/WHU Logistics Study 2015

Relevant investment  

High investment

% of respondents expecting significant, high, or very highimprovement (2015–2017)

% of respondents planning relevant and high investments (2015–2017)

Radio or GSM tagging and tracingof packaging and containers

New and innovativecomputer software

E-platforms for direct carrierselection and transactions

Use of app-based e-platforms forexpress and parcel couriers

IT integrationwith SC partners

IT integration across allareas of own company

Big data analysis forSCM improvement

Paperless freight documentprocessing and archiving

3D printing andadditive manufacturing

Robots andautonomous vehicles

Smart packaging informing andacting on conditions of goods

Radio or GSM taggingand tracing of goods

New and innovativecomputer hardware

Smart labels communicatingwith one another

70%

48%

37%

43%

27%

22%

53%

13%

8%

17%

3%

7%

7%

15%

82%

72%

68%

45%

43%

40%

77%

35%

33%

25%

20%

18%

15%

33%

Very high improvement High improvement Significant improvement

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8Digital Supply Chains: Increasingly Critical for Competitive Edge

Demand forecasting and planning is focus for IT investments

Digital trends are affecting all supply chain IT systems. This not only refers to general needs, such as seamless integration and interfacing within and across companies, but also includes real-time synchronization of data, global standardization of implemented work flows, and rising demands on cyber security. These trends challenge the core of supply chain IT system functionalities and features, requiring them to evolve to best support areas such as integrated, automated data gathering, tactical planning, procurement, and execution (see figure 7).

Fifty-seven percent of surveyed supply chain managers plan to invest significantly in demand forecasting over the next three years (see figure 8 on page 9). This is some 20 points higher than for other IT systems in SCM. For example, Fortaco, a Finnish production engineering company, has integrated a forecasting system into its enterprise resource planning (ERP) system which, Fortaco CEO Lars Hellberg explains, covers downstream customers and suppliers. Not all supply

Note: RFID is radiofrequency identification, and TMS is transport management system.

Source: A.T. Kearney analysis

Classic IT systems for supply chain management

Demand forecasting and planning

Examples of digital supply chain transformation

• Integration of big-data predictive analytics

Degree of change caused by digital

Very high

Inventory planning and management

• Integration of big-data predictive analytics• Analytics-based dynamic supply chain segmentation

Very high

Warehouse management • Fitness for augmented reality• Better integration of manual and robotics processes and

self-coordinating robots handling packaging beyond RFID

High

Network and routing optimization

• Integration of big-data predictive analytics• External interfacing for automated

updating of capacities and schedules

Very high

Transport management • Integration with advanced procurement systems• Seamless interfacing with e-platforms for booking

and reservations as part of the standard configuration

High

Figure 7 Implications of digitalization on supply chain IT systems

Tracking and event management

• Implementation of more sophisticated machine judgement• Advanced scenario planning• Process-integrated risk management

High

Freight document handling and archiving

• End-to-end digital document handling• Interfacing and integration of all documents and

document handling systems

Very high

Transport and logistics procurement

• Collaborative optimization• App-based spot-market tendering to truck brokers and truckers• Seamless interfacing with TMS systems

High

Interfaces with suppliers, customers, and supply chain service providers

• More standardization of interfaces (including due to more shipper-carrier interaction and more independent providers of specialized supply chain services)

• E-platform proliferation

High

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9Digital Supply Chains: Increasingly Critical for Competitive Edge

chain partners are tied into the system yet, but the company is one of just a few to have deployed a fully integrated solution of this kind. Under Nico Weidel, the management team member responsible for supply chain management at CHRIST, the company has developed its own forecasting system and integrated it into its existing ERP system.

Advanced big-data data analytics will be a hot topic in SCM

Seventy-two percent of the surveyed companies say that big data is capable of delivering strong improvement effects in SCM over the next three years, as we saw earlier in figure 6. Companies making more than 80 percent of their products to stock see significantly greater effects (20 percentage points) than companies making more than 80 percent of their products to order, underlining the high importance of big-data analytics for make-to-stock businesses.

Nearly three in five managers plan to invest significantly in demand forecasting.According to Manuel Galitschke, director of process management and operations at Cadenzza, one thing is clear: “There’s no shortage of data.” What he considers crucial is “picking out the important data, analyzing it, and incorporating it into the ongoing business.” And Franz-Peter Kayser, head of transport and replenishment at German retailer Tchibo, confirms: “The data is already there. It just needs to be utilized and evaluated appropriately.” For him, the principal

Figure 8Investment in IT systems

Source: European A.T. Kearney/WHU Logistics Study 2015

% of respondents planning significant investment by 2017

% of respondents stating this system is part of current supply chain

Network optimization and routing optimization system

Tracking and eventmanagement

Transportmanagement system

Electronic freight documenthandling and archiving

Electronic interfaceswith carriers

Demand forecastingand planning

Inventory planningand management

Warehousemanagement system

58%

63%

72%

40%

52%

43%

52%

42%

57%

37%

35%

32%

32%

30%

38%

20%

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10Digital Supply Chains: Increasingly Critical for Competitive Edge

goal with big data is to achieve the required transparency to expose process disruptions and enable changes to be implemented quickly.

What supply chain managers expect more than anything through big-data analytics is substantial reductions in outbound inventory: Fifty-two percent of respondents see clear or even very clear effects here, versus 40 percent for inbound inventory. Forty-five percent expect improvements in optimization of batch sizes, and 43 percent expect to reduce SCM risk (see figure 9).

Figure 9Expected effects of investing in big-data analytics in supply chain management

% of respondents seeing “clear” or “very strong” e�ect by 2017

Note: SCM is supply chain management.

Source: European A.T. Kearney/WHU Logistics Study 2015

Improved mix of contracted and spot buying of logistics services

Improved transport routing, transport mode selection

Reduced inbound inventory

Continued growth of large forwarders

Optimized batch sizes for ordering, production, and shipment

Reduced outbound inventory

Lower SCM risk

Shorter delivery times without increasing inventories

Improved spot market transport sourcing

Improved contracted logistics and transport sourcing

52%

43%

42%

40%

33%

18%

45%

17%

15%

15%

However, several of the supply chain managers expect big data to also give rise to major challenges such as the need for culture change (as a consequence of putting faith in data without necessarily striving to understand causalities) and the creation of capabilities to network and evaluate the data effectively.

E-platforms, smart tagging, and 3D printing: Few companies confirm high SCM optimization potential during the next three years

Just 40 percent of the surveyed companies currently use transport management systems and software to optimize their transport networks and routing. The picture is similar with respect to using software for electronic management of freight documents.

In transport sourcing and routing, as well as in optimization of mode selection, considerable differences are evident between very large enterprises (such as those with revenues of more than €10 billion) and others. Among the former, the share of those expecting advantages from big data is almost twice as high.

Only a third of respondents see potential to deliver significant efficiency gains in the three years ahead by attaching GSM or radio transmitters to products, packaging, or containers to improve tracking. Insufficient IT integration with other partners in the supply chain, directly or over a

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11Digital Supply Chains: Increasingly Critical for Competitive Edge

shared platform, and the lack of a clear business case for the investment are explanations. Torben Weilmünster, director of supply chain management for the pharmaceuticals and consumer division at Merz, acknowledges the advantages of radio-based tracking but adds: “Radio/GSM tagging isn’t business-critical. The technology can’t generate higher sales as such. The ability to locate goods precisely at any given time does not yet offer anyone within the supply chain a sufficiently valuable information advantage to warrant the higher expense.”

Although supply chain managers do not expect e-platforms to drive a marked shift in the purchase of logistics services toward direct carrier selection and transactions in the next few years (only 10 percent of respondents support this notion), 45 percent see e-platforms as becoming of high significance in the optimization of their supply chains.

Only a small group of respondents expect to see appreciable improvements result from automation technology, in particular through greater use of robots or self-driving vehicles.

Supply chain managers see greater transparency leading to better decision making as the main benefit of going digital.Just 15 percent of supply chain managers expect 3D printing to deliver significant improvements in the near term, whereas more than half of respondents do not expect it to have any impact at all in the next three years. One of the respondents adds that 3D printing has not reached a level where it can replace traditional production techniques and lead to a whole new production setup, as the range of printable raw material is still quite limited.

Considering all of these focus areas for digitally driven change and investments, what benefits do supply chain managers expect from digitalization?

Digital Benefits: Strong Effects for Inventory Levels, Delivery Times, and SCM FlexibilityFocused on cutting inventories and delivery times

Forty-three percent of the companies expect digitalization to clearly lead to more just-in-time procurement and lower inbound inventories (see figure 10 on page 12). Dr. Stefan Nöken, an executive board member at toolmaker Hilti, explains: “A fully integrated system provides visibility of inventory levels throughout the entire value chain and thus helps us to reduce inventory levels substantially.”

SCM followers (the companies that self-report their supply chain performance as below average) see greater benefits of digitalization than SCM leaders (companies rating their supply chain performance as above average or clearly above average) in every dimension. The difference between perceptions is particularly large with regard to the potential effects of digitalization on inventory reduction (62 percent of followers versus 35 percent of leaders).

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12Digital Supply Chains: Increasingly Critical for Competitive Edge

Almost one-third of participating companies expect digitalization to lead to more decentralized warehousing in order to shorten delivery times. While around 40 percent of SCM leaders expect to see this effect, less than a quarter of SCM followers do. Assessments differ widely between companies that generate more than 80 percent of revenue through direct sales to end customers and those that market most of their products through resellers: while in the former group only a few companies (18 percent) expect more decentralized warehousing, a majority (56 percent) of the latter group hold that expectation. Torben Weilmünster at Merz sees a trend toward inventory centralization at his company: “Decentralized inventories are costly and, in Europe at least, not absolutely necessary. Here, we can get goods to customers within 48 hours, no matter where they are.”

More than a quarter of respondents expect to see a reduction in the number of stages in the selling chain through to the end customer. Interestingly, companies that generate 80 percent or more of their revenues through indirect sales channels are not more inclined than other companies to use digitalization to circumvent intermediate stages in the selling chain.

Better SCM decisions, less risk, greater flexibility

The study assigns the expected benefits for companies into the categories of “improving customer value” (which can translate into higher sales volume, higher prices, or higher customer bonding), “improving supply chain agility and reducing supply chain risk,” and “reducing supply chain costs.”

Figure 10Impacts of digitalization on supply chain management

% of respondents seeing “clear” or “very strong” e�ect by 2017

Note: JIT is just in time, and LTL is less than truckload.

Source: European A.T. Kearney/WHU Logistics Study 2015

Reduce number of logistics partners in transportation

Individualize shipment batch sizes

Reduce overseas delivery times

Turn next-day deliveries into same-day deliveries

Decentralize inventories to meet delivery time requirements

Increase JIT sourcing, reduce order-to-stock

Streamline route-to-market by taking out wholesalers or retailers

Turn multi-day deliveries in Europe into 24-hour deliveries

Reduce shipment sizes

Reduce order batch sizes

43%

28%

27%

25%

23%

22%

30%

20%

20%

18%

Turn fixed-day deliveries into time-definite deliveries 17%

Turn LTL into parcel shipments 17%

Reduce number of logistics partners in warehousing and value-added services 10%

Turn make-to-stock into make-to-order (or purchase-to-order) 10%

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13Digital Supply Chains: Increasingly Critical for Competitive Edge

Overall, supply chain managers see greater transparency and, thus, better SCM decisions as being the foremost benefit that the digital levers can deliver, and 65 percent of SCM leaders expect to see a clear or very strong benefit in terms of SCM flexibility from digitalization in the next three years (see figure 11). This comes as no surprise to one experienced supply chain manager in the mechanical engineering sector who took part in the survey: “The more transparent a supply chain, the greater the number of options that can be explored in the decision-making process. Today, few companies actually have the transparency to see how much vendors charge on various routes. I think there are sizable savings to be found here.”

Figure 11Positive impacts of supply chain digitalization

Note: SCM is supply chain management.

Source: European A.T. Kearney/WHU Logistics Study 2015

% of respondents seeing “clear” or ”very strong” positive impact from digital levers

Lower transport and logisticsadministration costs

Higher product and service quality

More efficient or differentiatingdelivery supply chain

More efficient or robustinbound supply chain

Increased SCM flexibility

Better overall SCM decisionsthanks to greater transparency

Lower supply chain risk

Lower supply chain complexity

Freed-up time for tacticaland strategic tasks

Lower transportation cost

70%

52%

48%

45%

42%

38%

65%

38%

32%

32%

23%

Lower inventory andwarehousing costs

While 61 percent of companies that market their goods primarily through intermediaries see digitalization offering a clear benefit in terms of an increase in product and service quality, the same is only true of a third of companies that generate more than 80 percent of their revenues through selling directly to end customers.

SCM departments expected to shrink as a result of digitalization

While only one participating supply chain manager expects a revenue decline for his company when comparing 2017 with 2013, 23 percent expect overall SCM costs to go down during this period. And although one-third of participants expect their company’s revenues to grow by 10 to 25 percent during this period, less than half see an increase in SCM costs in the same range.

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14Digital Supply Chains: Increasingly Critical for Competitive Edge

Forty-three percent of supply chain managers polled expect digitalization to lead to a reduction in SCM headcount in the next three years (see figure 12). By contrast, only 15 percent expect the headcount to increase.

Figure 12Impact of digitalization on employment in supply chain management

Distribution of responses

In-house production logistics

Operational SCM

In-house transportation asset management(vehicles, ships, containers)

Customs handling and global trade administration

Transport and logistics procurement

Supply chain strategic and tactical planning

In-house transportation service execution(for example, own drivers)

In-house warehouse and value-added services

Overall effect on SCM full-time-equivalent employees

Transport and logistics administration

10%

22%

25%

27%

28%

28%

18%

30%

47%

43%

60%

73%

58%

71%

54%

62%

72%

57%

48%

42%

30%

17%

18%

10%

10%

13%

15%

Note: SCM is supply chain management.

Source: European A.T. Kearney/WHU Logistics Study 2015

No changeDecrease Increase

2%

5%

5%

The larger the company, the higher the expectation that staff will be cut: close to three-quarters of the companies with annual revenues of more than €1 billion anticipate making workforce reductions because of digital trends. Employees working in transport and logistics adminis-tration functions will be affected the most. In this segment, 47 percent of the companies expect cuts. The situation is similar in the customs and shipping processing functions.

In contrast, strategic and tactical supply chain planning is becoming more important: it is the only area in which many companies are planning to increase headcount. As one respondent explains, “Many of the processes directly involved in SCM can be automated and greatly simplified. Parallel to this, strategic SCM activities will gain greater importance and play a key role in creating a competitive advantage.”

No Revolution, but High Expectations for Continued Digital Supply Chain EvolutionThe study clearly shows that evolutionary changes will take place in select areas. Supply chain managers expect big benefits from continued digitalization in their supply chains. Namely, they expect greater transparency and flexibility, plus a reduction in inventories and delivery times, particularly through better integrated IT systems within their own company, along their

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15Digital Supply Chains: Increasingly Critical for Competitive Edge

entire supply chain, and through big-data analytics, which has climbed very high on the ranks of importance for supply chain managers.

However, it seems no revolution is in sight for the digitalization of supply chains. Supply chain managers do not plan on transacting directly with carriers rather than using freight forwarders, and there are no major moves either to eliminate stages in the selling chain to the end customer or to significantly change batch sizes at each processing stage. Over the next three years, neither the self-declared SCM leaders nor the SCM followers are planning to make significant changes to the number of logistics partners they work with. Three-dimensional printing, a potentially disruptive technology that could change supply chains entirely by printing parts at the point of need, is expected to only play a minor role until 2017.

The pace for digitalization may increase significantly as cross-industry initiatives aim to better connect supply chains among companies to achieve next-level cost and delivery speed optimi-zation. Linking customer data, sales forecasts, historic differences between plans and reality, and forward-looking SCM data can create much-improved supply chain planning. On the other hand, linking the transport and logistics procurement systems enabled for collaborative optimization with operational systems will be one of the tasks that go largely unsolved. Linking virtual produc- tion simulation to SCM simulation is another item that goes unchecked on many action lists.

The degree of transformation for supply chains will depend on the industry sector and company, but we expect it to create significant productivity benefits overall, both within the next three years and beyond. We strongly believe that companies may achieve exponential gains by acting on some of the supply chain digital levers not presently judged as creating revolutionary change over the next three years. In manufacturing, many companies that make smart investments in disruptive supply chain configurations will be able to create a competitive advantage for the entire business model; 3D printing will be one of them. For the short term, laying the IT and data groundwork, this study shows, is the highest priority.

A.T. Kearney Kühne Institute for Logistics Management, WHU–Otto Beisheim School of Management

Dr. Bernd Schmidt, partner, Düsseldorf

Dr. Sven Rutkowsky, principal, Düsseldorf [email protected]

Ingo Petersen, consultant, Munich [email protected]

Felix Klötzke, consultant, Berlin [email protected]

Prof. Dr. Carl Marcus Wallenburg, executive director, Vallendar and Düsseldorf [email protected]

Lukas Einmahl, research associate, Düsseldorf [email protected]

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About A.T. Kearney

A.T. Kearney is a leading global management consulting firm with offices in more than 40 countries. Since 1926, we have been trusted advisors to the world’s foremost organizations. A.T. Kearney is a partner-owned firm, committed to helping clients achieve immediate impact and growing advantage on their most mission-critical issues. For more information, visit www.atkearney.com.

About WHU–Otto Beisheim School of Management

WHU–Otto Beisheim School of Management is a mainly privately funded business school based in Vallendar/Koblenz and in Düsseldorf. It is a leading business school in Germany and consistently ranked among the top in Europe. For more information, please visit www.whu.edu.

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