Report Details: This report is based on survey research, financial analysis, and discussions with manufacturers attempting to gain first-mover advantage. Highlight: Digital innovation needs to be focused on ‘test and learn.’ The convergence of new technologies to redefine the atoms and electrons of the supply chain is quite promising, but there needs to be alignment. Read the report for nine insights on how to move forward.

1. Building a Digital Supply Chain
Insights from Work with Manufacturers
4/9/2018
By Lora Cecere
Founder and CEO
Supply Chain Insights LLC

2. Page 2
Contents
Research Methodology
Open Content
Disclosure
Executive Summary
Getting Started
The Call to Action
Why Traditional Thinking Is Not Sufficient
An Example: A Closer Look at Consumer Products
Getting Ready
Defining Digital Innovation through Testing…
Recommendations
Conclusion
About Supply Chain InsightsLLC
About Lora Cecere
3
3
3
4
5
6
7
9
11
12
15
16
17
17

3. Page 3
Research Methodology
Today, “digital supply chain innovation” are buzz words. There is no industry-standard definition. It is
a craze sweeping across companies. It is driven by both fear and opportunity. In this research
analysis we share insights from working with manufacturers attempting to gain first-mover advantage.
Over 25 major manufacturers are working with us to drive digital supply chain innovation. For the
purposes of this report, “digital supply chain innovation” redefines the atoms and electrons of the
supply chain through digital transformation. It extends past digitization to drive transformation and
redefine the status quo.
Open Content
This report is shared using the principles of Open Content research. It is intended for you to read,
share, and use to improve your supply chain decisions. Please share this data freely within your
company and across your industry. All we ask for in return is attribution when you use the materials in
this report. We publish under the Creative Commons License Attribution-Noncommercial-Share Alike
3.0 United States and you will find our citation policy here.
Disclosure
Your trust is important to us. In our business, we are open and transparent about our financial
relationships and our research processes; and, we never share the names of respondents or give
attribution to the open comments collected in the research. This research was 100% funded by the
Supply Chain Insights team.
In the development of our research, our philosophy is, “You give to us and we give to you.” As a part
of this philosophy, we share the data, and if interested, our insights, with all the respondents. We are
committed to delivering thought-leading content. It is our goal to be the place where visionaries turn to
gain an understanding of the future of supply chain management.

4. Page 4
Executive Summary
The work is just beginning. It is easier said than done. The barriers are high. The opportunities are
even greater.
Organizations are not designed to redefine themselves. The focus of a traditional supply chain
organization is driving continuous improvement on existing processes.
Companies are attempting to implement digital supply chain strategies. The possibilities for process
improvement from the technologies in Figure 1 are endless. The problem is how to fix the "current
state" (the basics) while embracing new possibilities.
Figure 1. Coalescence of Today's Technologies
In this process of moving forward, carefully define what "fix the basics" means. In doing so, make
sure not to slow the pace of innovation. I often hear the words "fix the basics" bandied about without
clarity. This lack of clarity results in a lack of focus which becomes a barrier to driving a digital
innovation strategy. Question existing paradigms.

5. Page 5
Getting Started
Companies lack a common definition and vision for the digital supply chain. Start by defining your
vision. Focus on solving a big and hairy goal. Drive organizational alignment. The focus on functional
processes and metrics makes it difficult to move at all, much less move fast. The organization is very
good at protecting the status quo. The bias is to make current processes more efficient. This is in
opposition to the goal of a sprint to drive digital transformation.
Drive a guiding coalition by discussing both fear and opportunity. Ideate together as a digital
transformation team. Explore the definition of outside-in processes. Challenge functional and/or
traditional definitions as shown in Figure 2.
Figure 2. Defining Outside-In Processes
Fear stems from industry disintermediation and sweeping business model transformation. For
example, e-commerce is redefining retail. Since 2010, over 12,000 stores closed in the United States.
The shifts in retail are pervasive. Growth is being redefined by a shift in channel strategies. As
Amazon extends its reach to other industries, new business models are being defined. Examples
include Alibaba, eBay, Honest, and Zappos. As Aerosoles, American Apparel, Bebe Stores and Toys
“R” Us file bankruptcy (and cease operations or become “online-only” retailers), companies like
Macy’s and Sears are downsizing to attempt to continue operations and avoid the “retail apocalypse.”
In parallel, the automotive industry is shifting from selling cars to sharing a car’s ownership. The
collaborative economy models of car sharing, versus ownership, are redefining the automotive
industry. Lyft, Uber and Zipcar are examples.

6. Page 6
Additive manufacturing business models are being tested in the medical device industry. Today,
implants for surgery arrive at the hospital in the trunk of a salesperson’s car. Tomorrow, it will be
printed in a manufacturing center within the hospital.
Define the drivers for your industry. Is the movement from selling products to services?
Disintermediation? New solutions based on forms of delivery? Business models driven by new
insights? Define the vision.
The Call to Action
Fight the status quo. Today’s supply chain processes are not equal to today’s challenges. In the
period of 2010-2017, 90% of industries lost ground on operating margin and inventory management.
Supply chains became more complex. Traditional supply chain processes were not up to the
challenge. Let’s examine the data.
In Table 1 we share the progress, pre- and post-recession, on Days of Inventory. Note that the only
improvement was in the consumer value chain in retail and household products companies. This is
mainly due to the redefinition of the channel, based on the ‘Amazon Effect’ and the introduction of
demand-sensing technologies.
Table 1. Pre- and Post-Recessionary Inventory Levels

7. Page 7
In addition, post-recession demand and supply volatility increased. Organizations transitioned from
regional to global supply chains. Industries experienced unprecedented volatility. Never in the history
of supply chain management have companies faced the global material volatility shown in Figure 3.
Figure 3. Post-Recession Commodity Volatility
Why Traditional Thinking Is Not Sufficient
Across the industry, there is a pervasive view that first- and second-generation supply chain pioneers
defined "best practices" over the period of 1982-2010, and the continuation of these practices will
drive financial balance sheet improvement. This could not be further from the truth.
Like a tire caught in pothole, companies struggle to move forward. The push for bigger and better
ERP systems is a barrier. Why is this? There are many reasons, here we give the four we see the
most often in our research:
1) ERP Implementations. Many supply chain leaders think that one of the benefits of the
implementation of Enterprise Resource Planning (ERP) is better visibility of total costs. However, in
our research, as shown in Figure 4, we find that 88% of companies have an ERP system, but only

8. Page 8
29% of companies can easily get to supply chain costs. The issue is that the implementation is not
delivered with this goal in mind. This should not be assumed. It is not an automatic benefit.
Companies that can focus on total costs can better drive improvement through the orchestration of
cost options across source, make and deliver.
Figure 4. Companies That Can Easily Get to Supply Chain Cost Data
2) A Focus on Functional Costs. Culturally, organizations focus on functional costs. There is a
mistaken belief that if companies focus on managing functional costs, then the company will excel
at the management of total costs. This is not true. Total cost management requires the orchestration
of costs cross-functionally—orchestrating source, make and deliver—against a supply chain
strategy. I liken it to being a decathlete. When an athlete competes in a decathlon, the focus is on
winning the event and gaining the most cumulative total points. To do this, the competitor knows
they must perform second or third in most events to win the combined event. This is also the case
within the supply chain. When each function tries to have the "best costs," the leaders will throw the
supply chain out of balance. There needs to be a focus on total costs with careful alignment of each
function.
3) Multiple ERP Systems. The average company has five to seven ERP systems. Rolling up the data
from these multiple systems is difficult. With the extensive M&A activity within the industry, this is
made more difficult.

9. Page 9
4) Failure of Continuous Improvement Programs. Within many continuous improvement programs,
companies take money out of one pocket and put it into another. The number of continuous
improvement programs without clarity on total costs. Without orchestration of the overall program,
funds can be saved in one function and counteracted in another. The focus needs to be on the
management of total costs. Most companies lack this focus. The current state is shown in Figure 5.
Figure 5. A Close Look at Continuous Improvement Programs
An Example: A Closer Look at Consumer
Products
As an example, let’s take revenue management in the consumer products industries of household
products, and food & beverage as an example. In our research, we find 63% of respondents have
started a digital journey with a term of one to two years.1 The programs have their roots in digital
marketing and are often focused on trade promotion management. However, when we ask these
companies to define “digital,” companies struggle to answer. The answers tend to be very functional.
As shown in Figure 6, the industry focus is aggressive.
1Supply Chain Insights,Revenue Management Rethinking Digital Transformation http://supplychaininsights.com/portfolio/revenue-
management-rethinking-the-digital-transformation/

10. Page 10
Figure 6. Digital Supply Chain Transformation in Consumer Products
When we ask about the barriers for transformation, change management tops the list. Organizations
are very steeped in functional process thinking. The testing of new technologies and approaches is
often a struggle. The question for many companies is how to manage the testing of technologies at
the edge of a process like trade promotion to move it to the core. The complexity of the global
organization increases this challenge. In Figure 7, we share insights from research on driving digital
innovation in revenue management.

11. Page 11
Figure 7. Barriers for Transformation
Getting Ready
Companies are so confused by the number of people—consultants, associations, and Universities—
who are trying to "help." The promise of "digital" is gaining traction at a speed that is faster than the
development of processes and technologies. It is exciting and promising but change management
issues are intense.
In driving digital innovation, start by recognizing that this transformation is not an evolution of current
processes. We don't have the answers, but we can see the potential. It requires casting off traditional
paradigms. Let's take some examples:
 Additive Printing. In Jabil’s 3D Printing lab, they have a fascinating showcase of how their
thinking changed as they moved from traditional machining (taking away materials) to additive
manufacturing (3D printing, adding materials). The transformation is enlightening.

12. Page 12
 Changing the Pick. A second example is Kiva. Amazon bought Kiva in 2012 for $775 million.
Prior to the acquisition, Kiva’s technology gained slow adoption. One of the reasons? It
changed the pick. While traditional warehouse picking directed the warehouse worker to
manually go to the "pick area" to put goods onto the pallet, Kiva robotics moved goods to the
pick center in a sequence. It redefined warehousing and there was pushback.
 Schema on Read. A third use case is the relational database in supply chain. Over the last
two decades, ERP grew in importance as the system of record. With "schema on read" and
open source analytics, supply chain architectures are becoming less ERP centric.
Three case studies of changing paradigms based on technology capabilities. To maximize value,
leaders recognize that the transformation is a step change. The redefinition of processes makes
teams within the organization feel "uncomfortable." It requires learning new concepts and questioning
the investments of the last two decades. What is presumed to be "best practices" often needs to be
discarded. It is hard work.
Defining Digital Innovation through Testing
with New Forms of Analytics
It is a world of test and fail, where teams are summoning the courage to challenge tradition,
questioning the status quo, and imagining what could be. It is all about exploring the Art of the
Possible (the potential of technology and analytic advancements).
In a digital transformation, teams redefine the atoms and electrons of the supply chain. This includes
process flows, conversion and transport processes, and new capabilities enabled by new forms of
analytics. Imagine a supply chain that senses, learns, and adapts in response to the market. One
where data is available at the pace of business. It is hard to imagine because it is so different from
today's reality.
To imagine this requires throwing away current paradigms and learning new techniques. Embracing
the possibilities has many challenges. For business leaders, the greatest issue, as shown in Figure 8,
is the alignment between the business and IT, employee skill levels, and managing the rate of
change.2 These issues are not trivial.
2 Supply Chain Insights Research Study, Putting Together the Pieces RethinkingAnalytics
http://supplychaininsights.com/portfolio/putting-together-the-pieces-supply-chain-analytics/

13. Page 13
Figure 8. The Challenges for Companies Attempting to Implement New Forms of Analytics
Over the last decade, the gaps between business and IT teams grew. The reasons are many.
Contributing factors include business process outsourcing, downsizing, rightsizing, and Baby Boomer
retirements. Client-server technologies are quickly becoming legacy. Business leaders are frustrated
with long deployments, and IT leaders are struggling with staffing. Many built strategic plans believing
that consultants could help them with specialty skills, but the market is flooded with generalists. IT is
managed as a cost center and business leaders are seeking value. Is there any wonder that there is
a disconnect?
The opportunity is high. In my time as an industry analyst, I have never seen this magnitude in the
shift of market dynamics. Traditionally, the focus on IT was implementation. Today, the need is
evolution. In short, how can companies maximize the value of current systems?
It is not easy. Most organizations have downsized IT and line-of-business teams. The result? A
decline in the effectiveness IT systems implemented over the last decade. Neither team has excess
resources, and the business struggles to speak the language of IT while the IT resources quest to
know more about the business. Most are at a stalemate. What to do?

14. Page 14
1) Go Fast to Go Slow. Test the possibilities of new technologies. Test and learn through small agile
sprints. Fail forward and invest in learning. Avoid conference room discussions based on slideware, and
work with technology innovators to test and learn.
2) At the Beginning of the Project, Shake Hands Affirmatively with Master Data Management. Own
it. Don’t Let Its Own You. A common misconception is that a digital transformation needs to start with
the cleansing of master data. Instead, the digital transformation embraces disparate data and leverages
machine learning to harmonize and synchronize data sources. Use "schema on read" technologies and
rely on prescriptive and cognitive computing to drive insights. The current issues with master data were
largely driven by a focus on transactional systems requiring "schema on write" (fixed data structures
and/or hierarchies).
3) Explore New Forms of Analytics. While the traditional analytical approaches were based on analytics
as an add-on to what I term alphabet soup (ERP,APS, WMS, CRM, SRM, SCE), in a digital
transformation analytics are at the core. While the current focus is on data visualization using
descriptive analytics, slowly the industry is embracing unstructured data and new forms of analytics to
redefine decision support. The goal is to power data-driven processes that move at the speed of
business. For most businesses this is a great opportunity. The believed level of disruption in shown in
Figure 9.
Figure 9. Relative Levels of Perceived Disruption

15. Page 15
Recommendations
Digital innovation needs to be focused on ‘test and learn’. The convergence of new technologies to
redefine the atoms and electrons of the supply chain is quite promising, but there needs to be
alignment. In this work, here are insights I have learned through working with business leaders:
 Digital Supply Chain Transformation Is Disruptive. Set clear expectations. It is not doing what
we are doing today better and faster. It is redefinition based on the convergence of technologies to
define new capabilities. In the process, teams will need to redefine the paradigms learned over the
last two decades. It is uncomfortable. Leaders need to question the known. Teams need to harvest
the benefits of the unknown. Early adopters are driving innovation. Only 7% of companies are
innovators while 36% of companies believe they are laggards. As a result, many companies are
vulnerable for Amazon-like disruption. Early this month, Amazon announced a push into healthcare.
Last week, they challenged FedEx. What will be next?
 ProcessesAre Largely Undefined. We do not have the
answers. The impact of process innovation is new and
evolving. Instead of approaching digital innovation as a
large consulting project, it needs to be approached using
design thinking with test-and-learn pilots. Don't make the
mistake of hiring a large consulting team to drive digital
transformation.
 Testing Requires the Redefinition of Supporting
Processes. Conventional procurement and business
process outsourcing is a deterrent. The more that your
organization has defined procurement for "global
templates" and institutionalized procurement, the slower
your organization will move on testing.
 Drive Cross-FunctionalAlignment Early. Procurement goals are usually a barrier to an agile
sprint. The procurement organization is incented for payables that are long (75-120 days). An agile
sprint requires quick funding for a 10- to 12-week effort. In addition, procurement organizations tend
to treat all vendors with the same terms and conditions. An agile sprint requires the sharing of risk
and reward, whereas traditional Ts and Cs push the risk to the technology provider. The takeaway?
Bring the procurement team to the table early and review standard contract terms to be sure that
they are consistent with the spirit of an agile sprint.
 Fail Forward. The traditional organization works hard to not fail. The concept of fail forward is
viewed in disbelief. Encourage failure. Let's face it. Through test-and-learn, we learn as much from
Rules of the Road
Digitizationisnotthe same as
digitalization.
Innovate atthe edge andmove to the
core withcleargovernance.
Don’tworry aboutgettingthe master
data right.Jumpin!
Testand learn.Be opento fail.
Learn fromthe past to unlearn,then
to relearn.Understandthatunlearning
ishard.

16. Page 16
failure as success. However, no one in the organization is comfortable failing. Next steps? Focus on
learning. Highlight the goals of the group then market both success and failure with a focus on the
learning.
 Avoid Religious Arguments. Terms like agile, demand-driven, Lean and sprint have many
definitions. When teams get into religious arguments, everyone loses. Instead, focus on the
business goal. Test innovation and new ways of working with the goal in mind.
 Walk on the Wild Side. Agile sprint ideation does not happen through discussions with traditional
consultants and technology providers. They are as focused on maintaining the status quo as you
are. Push to know innovators. Go where the innovators are and push to understand the ‘art of the
possible’. As a leader, make time for teams to learn from innovators. I have seen companies do this
in many ways including site visits to Silicon Valley, innovation days where technology leaders
showcase new ideas, and visits to innovation conferences.
 Build Innovation Labs. Take time to build processes to drive innovation using stage gate
processes. Use the governance model of product R&D as a guide, and form a cross-functional
group to move projects from ideation to adoption. Be sure to have cross-functional leadership
representation in the governance group.
 Lead by Example. Build a Learning Culture. Invite technology leaders to drive learning. As a
leader, be the first to drive discussions on how new technologies like Hadoop, Cognitive Learning,
Additive Manufacturing, and Wearables can drive change. Ask groups to learn, and report back on
new possibilities.
Conclusion
Today, companies have a great opportunity to drive digital transformation. It is a plunge into the
unknown and needs to be driven by visionary leadership. On the journey, be clear on the differences
between digitization and digital transformation. To be successful, embrace new technologies and
drive process redefinition, outside-in, from the channel back.

17. Page 17
About Supply Chain Insights LLC
Founded in February 2012 by Lora Cecere, Supply Chain Insights LLC is focused on delivering
independent, actionable, and objective advice for supply chain leaders. If you need to know which
practices and technologies make the biggest difference to corporate performance, turn to us. We are
a company dedicated to this research. We help you understand supply chain trends, evolving
technologies and which metrics matter.
About Lora Cecere
Lora Cecere (twitter ID @lcecere) is the Founder of Supply Chain Insights LLC and
the author of popular enterprise software blog Supply Chain Shaman currently read
by 15,000 supply chain professionals. She also writes as a Linkedin Influencer and
is a contributor to Forbes. She has written five books. The first book, Bricks Matter,
(co-authored with Charlie Chase) published in 2012. The second book, The
Shaman’s Journal 2014, published in September 2014; the third book, Supply
Chain Metrics That Matter, published in December 2014; the fourth book, The
Shaman’s Journal 2015, published in August 2015, the fifth book, The Shaman’s Journal 2016,
published in June 2016 and the sixth book, The Shaman’s Journal 2017, published in July 2017.
With over 16 years as a research analyst with AMR Research, Altimeter Group, and Gartner
Group and now as the Founder of Supply Chain Insights, Lora understands supply chain. She has
worked with over 600 companies on their supply chain strategy and is a frequent speaker on the
evolution of supply chain processes and technologies. Her research is designed for the early adopter
seeking first-mover advantage.