The topic of digital supply chains has been in the forefront of the minds of executives across all industry sectors. Digital transformation (AKA: digitalization) is the process of developing digitized data, integrating communications, and automating processes to improve performance in many dimensions. For example, some companies have achieved unprecedented levels of visibility and efficiency. Multiple factors had converged over the past few years to enable the building of digital supply chains, including availability of big data, analytics, artificial intelligence (AI), robotics, and the Internet of Things (IoT). These advances are being combined with developments in hardware (e.g., servomechanisms) and software (e.g., machine learning) to rapidly make automation of processes (both manual and transactional) cheaper and more reliable. Yet many companies, and supply chain managers in particular, have been in a ‘wait and see’ mode when it comes to digitalization. The Covid-19 crisis has changed that, shining a light on the need for supply chain visibility and responsiveness, and creating an even greater push toward supply chain digital transformation.

Over the past three years we have studied the state-of-the-art of digital supply chain transformation.

We wanted to understand the keys that lead to successful transformation and obstacles that impede development. We conducted in-depth interviews with senior leaders of over a dozen large companies, all household names, across a range of industry sectors. We then conducted deep case studies of two companies, one a major airline, the other a leading consumer electronics firm. Through multiple site visits, data gathering efforts, and analysis, we observed and participated in the process of digitalization at these firms.

Our conversations and work with supply chain executives at numerous firms have produced insights into the factors that are separating leading firms from laggards. First, more successful transformation efforts build upon a set of common underlying features that define what a digital supply chain looks like – and how it differs from a traditional supply chain. Second, more advanced firms’ visions of digital maturity build upon core attributes that convey a natural progression of capabilities. Third, and perhaps most important, leaders are strategically targeting well-defined capability development efforts that provide differential competitive advantage. In contrast, lagging supply chain organizations seem to mostly be stuck in incremental change efforts designed only to address pain points and cost reduction opportunities. Most of these projects are limited “capital for labor” substitutions, with little linkage to more strategic goals.

Many supply chain leaders make the mistake of focusing on technological solutions rather than building capabilities. Companies need to focus less on the technologies themselves and more on the underlying capabilities they enable when they are combined with complementary changes in organizational structures and human capital.