Building a 4.0 Digital Thread for Supply Chains

By taking a strategic and integrated approach to the adoption of multiple 4.0 technologies, manufacturing companies can create a powerful digital thread across their supply chains that allows them to share critical information across all parts of their business, including suppliers and customers.  

The past 18 months have been tumultuous, characterized by unexpected disruption, uncertainty, and risk. This is especially true of global supply chains. The pandemic has created a slew of supply chain issues and exposed pre-existing flaws. Most notably, the global crisis has widened the gulf between manufacturers who embraced Industry 4.0 prior to the pandemic and those who have either just begun to implement an Industry 4.0 strategy or remain skeptical of its benefits. The latter group has seen an even greater uptick in issues related to demand planning, transportation and logistics, financial resiliency, product complexity, and organizational structure.

Although the outlook of the pandemic’s effects on the global economy is improving, analysts project that companies will be navigating this challenging landscape into the first quarter of 2022.

A growing number of companies are preparing for the road ahead by digitizing elements of their supply chain. In fact, BDO’s 2021 Industry 4.0 Survey¹ finds that increasing operational efficiencies across the supply chain is manufacturers’ top digital priority this year. To achieve this, manufacturers are harnessing the power of Industry 4.0 solutions like enterprise resource planning (ERP), artificial intelligence (AI), machine learning (ML), simulation technology, Internet of things (IoT) devices and distributed ledger technology (DLT) like blockchain.

Increasing adoption of Industry 4.0 solutions not only helps companies overcome present supply chain-related hurdles, but it also empowers them to contribute to, and benefit from, the digital thread, an initiative that taps into collective intelligence and solutions which transcend the limited view of a single person, function, or entity.

To better understand the many benefits that Industry 4.0 technologies can provide, it is useful to examine how these digital supply chain tools have evolved from their traditional applications to offer targeted solutions aimed at gaining better visibility, mitigating risks, and planning for multiple scenarios to increase resilience and support business continuity.

Spurring Supply Chain Optimization

The following solutions are hardly new technologies for supply chains, but they are growing more widespread as companies seek to improve visibility into their suppliers’ suppliers and their customers’ customers. Manufacturers are expanding the push and pull of data across multiple tiers, which requires a level of sophistication only offered by the Industry 4.0 digital solution set. This information is then coupled with operational data to create a comprehensive digital thread of supply chain information.

Benefits related to enhanced visibility into departmental functions and data are a common theme throughout the following list of tools. The variety of Industry 4.0 applications, and the way these solutions interact with one another, allows manufacturers to digitize elements of the supply chain at a pace and cost that works for their unique industry sector and operation.

Embracing Blockchain

Manufacturers that previously dismissed blockchain technology, initially developed to support bitcoin transactions, as a fad are now reconsidering. In fact, distributed ledger technology has been around for many years, and leveraging blockchain can dramatically improve the security, accuracy, and processing of enterprise information.

Blockchain has been widely adopted by manufacturers looking to meet rising regulatory, investor, and consumer demands for provenance information. Prior to joining a partnership or adding a new supplier, companies conduct thorough due diligence to ensure their prospective partner or vendor won’t expose them to unnecessary risks. They need to ensure the products received meet required standards, which include origin tracking that has become an increasingly strong focus for the agriculture, food, and lumber industries.

It is also important to protect against vendor cybersecurity risks to ensure proper data protection. Blockchain allows for compliance rules to be hard-coded into the infrastructure that handles transactions and enables easy monitoring and verification of these transactions. Whereas legacy processes store transaction records in siloed databases, blockchain records each transaction in an immutable ledger shared between multiple institutions.

“Recent events have challenged traditional thinking around inventory management and cost management. Priorities have shifted to resilience, agility, and exceeding customer expectations. Digital supply chain solutions play a prominent and evolving role in this transition.

Blockchain also supports the use of other supply chain technologies and offers greater transparency for financial, maintenance, and delivery information. As all non-digital supply chains rely heavily upon third-party logistics providers for raw materials, sub-assemblies, and delivery of finished products to customers, the use of blockchain is accelerating to provide greater visibility and reliability for real-time tracking of materials over land, air, and sea. This visibility provides critical input to make the best decisions possible.

Smart contracts are another growing use for blockchain. For example, IoT sensors can indicate when a machine needs routine maintenance and then a service request can be automatically generated along with a smart contract for the necessary work. Once completed, the payment and maintenance history can be verified and added to the blockchain record.

The Digital Thread: Moving the Needle

The digital thread is a communication framework achieved through a confluence of technologies and information sharing across all parts of a business, inclusive of suppliers and customers. As the adoption of Industry 4.0 solutions expands, companies that lag behind with innovation can be at a significant disadvantage. Though some companies may delay upgrading elements of their supply chain for many reasons, inclusive of cost, complexity, and organization readiness, those upgrades will only become more expensive over time, and every day represents a missed opportunity. Technology evolves at a rapid pace, particularly with solutions developed for a complex sector such as supply chain management, so it’s critical to take a strategic and proactive approach to adoption.

It’s important for supply chain managers to pause and reflect on how much the world and global supply chains have changed over the past 18 months. Recent events have challenged traditional thinking around inventory management and cost management. Priorities have shifted to resilience, agility, and exceeding customer expectations. Digital supply chain solutions play a prominent and evolving role in this transition.

Adopting just one of the Industry 4.0 tools outlined above has the potential to optimize numerous elements of the supply chain, and implementing multiple tools in a strategic, integrated manner can be even more impactful for the enterprise and, ultimately, to the customer experience. Companies exploring the spectrum of available technology should do so through the lens of solving the challenges at hand and creating visibility across the extended supply chain, inclusive of customers and suppliers. It’s also prudent to have a long-term view and consider how embracing innovative supply chain management today can deliver widespread benefits for the years to come.    M

Footnotes:
[1] https://www.bdo.com/insights/industries/industry-4-0/2021-industry-4-0-benchmarking-survey