DIGITAL TRANSFORMATION AND STRATEGY_final.pptx

digitalization
in logistics
Digital Transformation and Strategy

Concepts ● Information Technology (IT)
● Technology Standards

What is…
Information Technology (IT)?
● Importance of business
processes and IT
● Goals of Supply Chain and IT
● Supply Chain Management
System Components
● S&OP Planning
● Integrating Supply Chain IT

Importance of business processes and IT
• Information technology (IT) is an important enabler of effective supply chain
management, which typically spans the entire enterprise and beyond,
encompassing suppliers on one end and customers on the other
• Research suggest that there is a link between IT strategy, sound business
processes, and supply chain performance.

• Companies that invest mostly in business processes do better than those who
invest in IT only and lack the appropriate business processes.
• Investments only in technology without the appropriate business processes
lead to negative returns

• In order to achieve supply chain efficiency, there is a need to measure:
- supply chain performance
- the level of maturity of the business process
- the information technology infrastructure that a company possesses
• supply chain performance  KPI’s
• level of maturity of the business process  SCOR model
• level of maturity of the IT  different levels

• four categories of business processes:
Level I: Disconnected processes.
Level II: Internal integration.
Level III: Intracompany integration and limited external integration.
Level IV: Multi enterprise integration.

• four different categories of IT systems
Level I: Batch processes, independent systems, and redundant data across the
organization.
Level II: Shared data across the supply chain. Decisions are made using planning
tools that apply data across the supply chain;
Level III: Complete visibility of internal data. Key suppliers and customers have
access to some of these data;
Level IV: Data and processes are shared internally and externally.

• Companies with mature business processes have lower inventory levels
• Improvements in certain areas demand IT investments
• Investing only in IT infrastructure leads to significant inefficiencies

GOALS OF SUPPLY CHAIN IT
• Collect information on each product from production to delivery or purchase
point and provide complete visibility for all parties involved.
• Access any data in the system from a single source of truth.
• Analyze, plan activities, and make trade-offs based on information from the
entire supply chain
• Collaborate with supply chain partners
 The primary goal of IT in the supply chain is to link the point of production
seamlessly with the point of delivery or purchase.
- information trail that follows the product's physical trail

• Collect information

• Access to data

• Analysis based on supply chain data
- there is growing use of machine learning (also called artificial intelligence) new languages
such as Rand Python providing strong built-in capabilities
- the ease of deploying cloud computing such as Amazon Web Services, Microsoft Azure, and
other cloud providers.

• Collaborate with supply chain partners
- supplier relationship management (SRM)
- customer relationship management (CRM)
- collaborative planning, forecasting, and replenishment (CPFR) (suppliers & vendors)
Blockchain is positioned to revolutionize the track and trace aspect and link with
Internet of Things

In ERP systems there are typical phases:
1. Immediate gains by consolidating disparate systems on a user-friendly
Platform
2. Increased decision support and benefits of data visibility in real-time, via a
"single source of truth“
3. Achieving new business opportunities through a more agile and open platform

SUPPLY CHAIN MANAGEMENT SYSTEM COMPONENTS
Decision-Support Systems (DSS):
• Data collection, analysis & presentation:
1) using business analytic tools that are general-purpose methods on data
that are extracted from ERP and other systems:
- Queries
- Statistical analysis
- Machine learning: - Regression (learning outcome)
- Classification (learning outcome)
- Supervised (type of process used)
- Unsupervised (type of process used)

2) using DSS that provide specialized interfaces that display and report
based on the specific problem being solved:
- Calculators
- Simulation
- Artificial intelligence (AI)

- AI typically refers to machines that can learn, reason, and act for themselves
- Machine Learning enables researchers, data scientists, engineers, and analysts
to construct algorithms that can learn from and make predictions based on data.
- The integration of predictive (AI) and prescriptive (stochastic and deterministic
optimization) is referred to as intelligent or cognitive systems.
- Experts systems capture an expert's knowledge in a database and use it to solve
problems.

How to apply AI in supply chain management?
• Planning: AI provides improved forecasting, which is always needed for
better planning and execution.
• Risk: AI helps companies identify and mitigate risk.
• Internet of Things: AI helps identify patterns and detect anomalies in the
data that smart sensors and devices generate. AI is often
used for predictive maintenance and operational
efficiency.

• Robotics: From the manufacturing floor, warehouses to transportation, AI
has expanded the opportunities to automate labor-intensive and
dangerous tasks such as intelligent robotic sorting. An important
application in transportation is self-driving trucks.
• Visuals: Ability to process scanner pictures, drone images, and process
for damage or faults as in critical inspection.

• Explainable AI (XAI): a set of processes and methods that allows human users
to comprehend, interpret predictions and trust the
results and output created by machine learning
algorithms
• two types of XAI: - explanations that help to understand the data better
- explanations that help to understand the model better.

Why is Explainable AI needed?
• Bias: the systems often unwittingly encode bias, since the data may
not be inclusive enough.
• Brittleness: since the contours of their encoded worldview are not visible, a
system that performs with human-like fluency can abruptly and
unexpectedly degrade into gibberish with a single changed word
that it had incorrectly learned as a key variable.
• The drivers of certain results need to be understood by the expert using them
such as a medical diagnosis or loan approval decision

Mathematical models and algorithms
• Exact algorithms: Given a particular problem, these algorithms will find a
solution that is mathematically the "best possible
solution," also called the optimal solution.
• Heuristics: These are algorithms that provide good, but not
necessarily optimal, solutions to problems

Factors that dictate the appropriate analytical tools to use for a particular DSS:
• The type of problem being considered
• The required accuracy of the solution-there may be no need to find the optimal
solution.
• Problem complexity-some tools may not be appropriate for very complex
problems, while others may be an overkill for relatively simple problems.

Factors that dictate the appropriate analytical tools to use for a particular DSS:
• The number and type of quantifiable output measures.
• The required speed of the DSS-for operational systems such as lead-time
quotation and vehicle routing, speed may be essential.
• The number of objectives or goals of the decision-maker-for example, a DSS for
truck routing may need to find a solution with the minimum number of vehicles
and the least total distance traveled.

IT for Supply Chain Excellence
1) Strategic network design
Defines optimal number, location, and size of warehouses and/or plants; to
determine optimal sourcing strategy, that is, which plant/vendor should produce
which product
2) Tactical planning
Determines resource allocation over shorter planning periods such as weeks or
months.
- Supply chain master planning coordinates production, distribution strategies, and storage
requirements by efficiently allocating supply chain resources
to maximize profit or minimize systemwide cost.
- Inventory planning determines the optimal amount of safety stock and how to
best position inventory in the supply chain.

3) Operational planning systems enable efficiencies in procurement, production,
distribution, inventory, and transportation for short-term planning.
Demand planning generates demand forecasts based on various historical and other
pertinent information.
Production scheduling generates detailed production schedules based on
the supply chain master plan or demand forecasts.
Inventory management generates inventory plans for the various facilities in the supply chain
based on average demand, demand variability, and source material lead times.
Transportation planning produces transportation routes and schedules based on availability of
transportation on a lane, cost, and customer delivery schedules.

4) Operational execution systems provide the data, transaction processing, user
access, and infrastructure for running a company.
Enterprise resource planning traditionally spans manufacturing, human resources, and financials
but is now the backbone of most companies' IT infrastructure.
Customer relationship management involves systems that update and track interaction with
customers. These systems connect to order tracking and other back-end systems to provide
better information for customers and the service representatives who are trying to assist them.
Supplier relationship management provides the interface to suppliers for procurement,
transaction exchange as well as collaborative activities.
Supply chain management systems provide tracking of distribution activities in plants and
warehouses as well as the event management that tracks exceptions based on performance
measures.
Transportation systems provide internal and external access and tracking of goods in transport.

INTEGRATING SUPPLY CHAIN INFORMATION TECHNOLOGY

What about…
Technology Standards?
● IT Standards
● IT Infrastructure
● Web Services and Business
Processes
● Blockchain
● Internet of Things (IoT)

IT Standards
The IT field is evolving to a high level of standardization for the following reasons:
• Market forces: Corporate users need standards in order to reduce the
cost of system development and maintenance.
• Interconnectivity: The need to connect different systems and work across
networks has pushed the development of standards.
• New software models: The Internet has produced the need for software that
has new development and deployment characteristics.
• Economies of scale: Standards reduce the price of system components,
development, integration, and maintenance.

IT Infrastructure
• Interface/presentation devices
• Communications
• Databases
• System architecture

IT Infrastructure
• Interface/presentation devices
- Personal Computers
- voice mail
- terminals
- Internet devices
- barcode scanners
- tablets
- mobile phones

IT Infrastructure
- Legacy systems
evolved as departmental solutions using mainframe or
mini-computers that were accessed through "dumb“
terminals

IT Infrastructure
- Client/server computing
is a form of distributed processing
whereby some processes are performed
centrally for many users while others are
performed locally on a user's PC.

IT Infrastructure
• The Internet is a form of client/server where the local PC browser processes the HTML (hypertext
markup language) pages and Java applets (i.e., small applications) that are retrieved from servers-in
this case from all over the world.
• The client/server model is now evolving toward a web-centric model where the client is a web
browser connected to a web server.

IT Infrastructure
• The implementation of client/server systems has given impetus to the trend toward standardization
because each server needs to be able to communicate tasks and processes across the network. This
feature is called interoperability, which means two systems are capable of interacting in a
sophisticated way that is a built-in feature of their design
• The applications that reside between the server and the client are collectively called middleware,
literally the slash (/) in the term client/server. These are typically tools that facilitate communication
between different system architectures, communication protocols, hardware architectures, and so
forth.

Electronic Business (e-business)
• Electronic business(e-business) is the replacement of physical processes with electronic
ones and the creation of new models for collaboration with customers and suppliers.
• E-business has been in existence for many years, using private networks for corporations
(e.g., WANs) and public ones at universities and government agencies.
• Companies use Internet standards internally (intranets), as well as externally (extranets)
and exchanges. The difference between internets, intranets, and extranets is explained
mostly by who is allowed access to the system.
• Portal or Dashboard: a role-based entry into a company's systems. A portal aggregates all
the applications and sources of information employees need in order to perform their job
into a single desktop environment, typically through the web browser.

• The ability to share processes electronically is particularly applicable to supply
chain management.
• An application for sharing processes is collaborative planning, forecasting, and
replenishment (CPFR), a web-based standard that enhances vendor-managed
inventory and continuous replenishment by incorporating joint forecasting. With
CPFR, parties electronically exchange a series of written comments and
supporting data that include past sales trends, scheduled promotions, and
forecasts.

• Voluntary Interindustry Commerce Standards Association (VICS) is a non-profit
organization that focuses on improving product and information flow throughout the
supply chain. It is responsible for establishing rules and guidelines for Collaborative
Planning, Forecasting and Replenishment (CPFR), when customer and supplier decide to
work together. (https://ibf.org/knowledge/glossary/voluntary-inter-industry-commerce-
standards-vics-298)
• The VICS committee created the CPFR Voluntary Guidelines (9 steps) to explain the
business processes, supporting technology, and change management issues associated
with implementing CPFR

1. Develop guidelines for the relationships.
2. Develop a joint business plan.
3. Create a sales forecast.
4. Identify exceptions for the sales forecast
5. Collaborate on exception items.
6. Create an order forecast.
7. Identify exceptions for the order forecast.
8. Resolve/collaborate on exception items.
9. Generate orders.

Web Services & Business processes
• Service-Oriented Architecture (SOA) was the design of choice in 2010’s (applications in Java, using tools
such as IBM WebSphere and Oracle WebLogic)
• Once cloud infrastructure went mainstream, computer resources and storage networks were suddenly
available at incredibly low cost and were so convenient that people didn't have to buy physical
hardware or build their own servers.
• The other crucial factor was open-source software (OSS). Open-source has been around almost as
long as software has, but for decades remained on the fringes of the commercial software realm.

• In tandem with the cloud, open source became prolific and ubiquitous, and not just the operating
systems. Open source moved into databases: SQL databases, in-memory databases, relational
databases, and more.
• Microservices break up the complexity of a full, rich application into a series of discrete services
connected through Application Programming Interface’s (APIs).

Blockchain
• Blockchain is a secure distributed ledger technology where everyone has the same record of all
transactions, so tampering with one instance is impossible.
• It underlies cryptography that allows agents to securely interact-transfer assets, for example-while
also guaranteeing that once a transaction has been made, the blockchain remains an immutable record
of it.
• Blockchain provides an opportunity to have a "single point of truth" for transactions that require
multiple steps and partners. It has the potential to eliminate paperwork and speed up transactions
while providing trust and a permanent record.

Blockchain
How blockchain works?
1. All members have a copy of the shared database. When a member wants to send an
asset to another member, a data "block" is created to represent the transaction.
2. The block is shared with the group yet remains cryptographically private. The network
recognizes the block because its secret digital signature is linked to a public signature.
3. Once a block is confirmed, all members add the block to their copies of the database.
4. Complex math ensures a consensus among database copies, which prevents tampering.

Blockchain
• With blockchain technology, whenever a transaction takes place, it is signed digitally
through a public key cryptography.
• You can use public keys to sign and encrypt messages being sent; only the recipient can
decrypt the message using a private key of their own.
• One of the best things about the blockchain is that, because it is a decentralized system
that exists between all permitted parties, there is no need to pay intermediaries
(Middlemen) and it saves you time and conflict.

Blockchain
Advantages:
• Transparency: The data entered into the blockchain network is considered public; all
the details are embedded within as a whole.
• Immutability: Centralized databases can be corrupted and will need trust in third
parties to maintain accuracy of the information

Blockchain
Advantages:
• No need for intermediaries: In our traditional way of doing things, most
transactions going to involve two parties, and they
would also have an intermediary that would work with
them.
• Users are empowered: With the blockchain technology in place, users can
control every transaction they make.
• Integrity with Processes: Because of blockchain technology, commands will be
executed exactly as they are given.

Blockchain
Advantages:
• Enhanced security: Blockchain technology stores data across its network,
and so has fewer risks regarding keeping data.
• Trustworthy transactions: Blockchain technology is ideal for those who wish to
transact with people who don't trust each other and
think the one is about to cheat on him or her.
• Safer Safekeeping of Data: With blockchain's capability as a decentralized
database, you can't lose your data in just a single
event.

Blockchain
Challenges:
• Privacy: Blockchain makes it difficult to erase data, which can be a
problem for adhering to Privacy regulation
• Standardization: The blockchain technology also faces various integration
concerns
• Inefficiencies: Keeping multiple copies of information requires more storage
space
• Governance: Blockchains need a governing body to control and to maneuver
the system.

Blockchain
Applications of Blockchain in SCM:
• The Wall Street Journal (WSJ) reports on June 25th, 2018, that Walmart and nine other
companies have partnered with IBM in order to release a blockchain for tracking food
globally through its supply chain
• The Food Trust blockchain, which includes Nestle SA, Dole Food Co., Driscoll's Inc.,
Golden State Foods, Kroger Co., McCormick and Co., McLane Co., Tyson Foods Inc., and
Unilever NV, has been collaborating with IBM on the initiative since 2016
• IBM and Chainyard have started a blockchain-based Trust Your Supplier network. IBM has
partnered with Fortune 500 companies (Anheuser-Busch InBev, GlaxoSmithKline, Lenovo,
Nokia, Schneider Electric, and Vodafone are founding participants) to launch the network,
which is aimed at automating the validation and onboarding of buyers and suppliers.

Blockchain
Applications of Blockchain in SCM:
• Global shipping giant Maersk uses IBM technology to track shipping containers, making it
faster and easier to transfer them and get them through customs.
• Everledger, a company started in April 2014 with the intention of creating a blockchain-
based registry of every certified diamond in the world, already has 2.2 million diamonds in
its registry.
• SAP is experimenting with replacing paper pallet chaos with blockchain. Which data, such
as pallet type or location, ultimately should end up in the blockchain and how they can be
optimally used, are currently being evaluated by the participants in the pilot project.

Internet of Things (IoT)
Radio Frequency Identification (RFID)
• The Internet of Things (IoT), refers to billions of physical devices around the world that are
now connected to the Internet, collecting and sharing data.
• Adding Radio-Frequency Identification (RFID) tags to expensive pieces of equipment to
help track their location was one of the first IoT applications.

• Radio frequency identification (RFID) is a technology that deploys tags emitting radio
signals and devices, called readers, that pick up the signal.
• The tags can be active or passive, that is, they either broadcast information or respond
when queried by a reader.
• They can be read-only or read/write and one-time or reusable.

• Two important drivers motivate companies to start experimenting with RFID applications:
1) the mandate by some major channel masters and procurement agencies
2) the immediate benefits that can be gained from implementing the technology
• RFID has been making inroads in the supply chain. It is also an important key technology
in the new world of IoT, which aims to connect physical objects around the world through
the Internet in order to send and receive data.

• RFID adoption across an enterprise, enables the company to better fulfill out of stock
merchandise, increasing product availability, and maximizing sales potential. It has also a
meaningful impact on the fast and accurate replenishment of goods on the selling floor
via periodic scans to determine what merchandise needs to be replenished from stock
areas.
• In retail, RFID continues to be adopted for apparel tagging above all other applications by
volume
• RFID technology use has migrated from the warehouse to the store where there are even
more advantages to its use such as inventory availability, product traceability, and theft
prevention

Benefits of RFID
• Improved performance and today’s low cost of RFID tags
• Rise of the omnichannel supply chain: More stores are actively connecting consumers to
the supply chain through rewards programs, online orders, and storefront-as-a-
distribution center shipping options.
• Using item-level RFID technology, retailers can decrease out-of-stocks, improve loss
detection, boost sales margins, and expedite returns.
• Reduced inventory
• Store and warehouse labor reduction

Benefits of RFID
• Increase on-shelf availability of products.
• Improve forecasting
• Increased trust and more effective communication between retailers and their suppliers
• Reduction in the bullwhip effect

Benefits of RFID
• Shorten the time it takes to check an order before shipping.
• Improve order accuracy.
• Reduce negotiations with retailers over missing product.
• Curtail shrinkage at DCs, at warehouses, and in transit.

Sources - References
• Simchi-Levi D., Kaminsky P., Simchi-Levi E., (2021), Designing and Managing the Supply
Chain, McGraw-Hill Education
• Sengupta, K. (2021), "Blockchain Applications in Supply Chain", Baker, H.K., Nikbakht, E. and
Smith, S.S. (Ed.) The Emerald Handbook of Blockchain for Business, Emerald Publishing
Limited, Bingley, pp. 325-339.
• Shoaib, M., Zhang, S., Ali, H., Akbar, M.A., Hamza, M. and Rehman, W.U. (2023), "Robust
framework to prioritize blockchain-based supply chain challenges: the fuzzy best-worst
approach for multiple criteria decision-making", Kybernetes, Vol. ahead-of-print No.
ahead-of-print. https://doi.org/10.1108/K-01-2023-0046
• Khan, M.Z., Kumar, A. and Sahu, A.K. (2023), "Blockchain applications in supply chain
management: a systematic review of reviews", Global Knowledge, Memory and
Communication, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/GKMC-
12-2022-0296

DIGITAL TRANSFORMATION AND STRATEGY_final.pptx

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