What Is Supply Chain Digitization? Benefits, Challenges and Key Trends

The days when supply chain processes were discrete, always reactive, internally focused, and manually supervised are mostly over. The new norm: Supply chains that are digitized and automated end to end, from sourcing of raw materials to delivery of finished products.

The resulting improvements in collaboration, data-sharing, and visibility across supply chain processes have enabled participants in the ecosystem to lower costs, adjust to changing conditions in near real time—even anticipate potential disruptions. This guide will cover what supply chain digitization involves and why it’s essential for businesses of all sizes.

What Is Supply Chain Digitization?

Supply chain digitization is the use of technology to automate and optimize supply chain operations by replacing manual processes and ad-hoc assessments with automation and analytics. It covers the progression from manual and siloed methods to a more efficient, connected series of processes that use digital technologies.

There are many moving parts in a typical supply chain, from planning and sourcing through manufacturing, delivery, and returns. In the past, each stage had its own discrete systems, generating data that often wasn’t shared further down the chain. Plenty of details and opportunities for improvement fell through the gaps. And that’s without even factoring in ever-changing factors such as material availability and consumer tastes.

With digitization, almost every part of every stage can be measured and monitored, with real-time visibility to improve efficiency. Supply chains become more like an interconnected network of processes, some of them automated, than a chain of individual links.

The data generated by integrated planning, factory floor, logistics, warehousing, inventory, transportation, and other applications helps supply chain participants coordinate the movement of materials, components, and finished goods. Analyzing weather, labor, market, financial, and other data from third-party sources helps them react to supply chain disruptions more quickly. In some cases, AI-based data analytics can help anticipate such changing conditions.

Key Takeaways

• A digital supply chain allows businesses to see where there’s fat that can be trimmed, be it internal or by seeing how working more closely with a partner can help both save money.
• Generative AI built into a digital supply chain can provide insights into how production and business processes can be made more efficient.
• Companies must ensure that both new and longtime employees have the skills to make a digital supply chain work.
• Digital supply chains can to deliver more satisfied customers in a variety of ways.

Supply Chain Digitization Explained

As supply chain digitization spreads, it’s resulted in the development of numerous digital supply chain management solutions, ranging from the highly customized to off-the-shelf options to hybrids.

Before deciding on which are best for their business, supply chain managers need to take stock of their current processes—boil down what works and what doesn’t with existing planning, procurement, logistics, demand management, warehousing, and other systems and processes. Assess relationships with suppliers and retailers, then figure out how to improve that status quo.

Say a company producing transistors currently imports its silicon from a mass producer based abroad and tolerates a lack of visibility as the product is being shipped to get lower rates for buying in bulk. Switching to a supplier that offers the same discount and accommodates a digital supply chain could provide that visibility. With a supply chain management application and/or blockchain technology, all main parties—seller, buyer, transporter—could know where the silicon is at all times.

Supply chain digitization would also allow the transistor manufacturer to keep production running smoothly by giving it real-time visibility into whether it has enough materials on hand and in the right locations. Moreover, the manufacturer could oversee the flow of its finished product through warehousing, distribution, and into customers’ hands.

Even better, generative AI-powered analytics could help the manufacturer optimize its demand forecasting, production planning, and shipping routes. Additionally, by adding a human capital management application, the manufacturer could adjust employee levels to ensure that demand is met in a timely manner. Using an ERP financial module, it could ensure that payments are going out and coming in as they should. By taking data out of silos, it becomes available to inform decision-making.

These elements may sound familiar to supply chain managers in a range of industries—and they may already implement some of them. But true supply chain digitization brings all these processes, and more, into a single, unified system.

How Does Supply Chain Digitization Work?

Supply chain digitization works by removing manual processes that are often paper-based and siloed and implementing technology to deliver an interconnected, data-driven, and automated supply chain workflow. While digital supply chains work best when all parties at every stage are using technology to collect and share data, there are still notable benefits for organizations that have digitized even when those upstream and downstream of them have not.

In practice, digital supply chains capture real-time data from sensors in the field that provide visibility into where goods are, enterprise software systems including ERP, and suppliers and partners using electronic data interchange (EDI) systems to minimize paperwork. Cloud platforms facilitate data sharing and collaboration among supply chain stakeholders.

Robotic process automation (RPA) is used to automate repetitive tasks, such as order processing, invoice management, and data entry, using user-determined rules. Digital supply chains also incorporate automated workflows for processes including procurement, inventory management, and logistics. That minimizes errors and delays. Advanced practitioners are adding AI and ML algorithms that analyze data to predict demand, optimize inventory levels, intelligently route shipments, and warn of potential disruptions. Companies can use dashboards to track their own key supply chain metrics.

Benefits of Supply Chain Digitization

We’ve spoken briefly about how companies throughout the entire supply chain can benefit by moving away from analog processes, but it’s worth considering some in a bit more detail.

• Increased efficiency: Digital supply chains are inherently more efficient than their analog equivalents. Data is communicated in real time, while automation replaces slow manual processes and minimizes errors, which can be time consuming and costly to fix.
• Enhanced visibility: Reducing the number of blind spots within a supply chain is a key benefit of digitization. Inventory management is much easier to do if you know where products are at all times, while areas that are running suboptimally—a bottleneck in product delivery, for example—can be identified and improved.
• Greater agility: Having real-time visibility means that issues can be resolved quickly to maintain resilient supply chains. This can apply to changes in demand—a consumer product may have gone viral, and its manufacturers want to quickly ramp up production to take advantage—or if there are issues with supply, such as a raw material supplier being hit with tariffs, alternatives can be rapidly sourced and plugged into the supply chain to mitigate disruption.
• Better collaboration: Agility can be maximized by improved communication among the organizations that make up a supply chain. Taking the previous example of rapidly needing to increase production of an item, companies that are working together will be able to use data to assess the impact on their inventory, raw materials, and staffing capabilities so that they know if they will be able to cope with extra orders. While there may be some instances of this being done on the fly, having the relevant data to hand means that the impacted companies could play out “what if?” scenarios in real time.
• Stronger compliance and security: In today’s digital world, compliance with rules that keep data safe is of paramount importance, and digitizing the supply chain can support this effort. By tracing goods from their origins, all parties involved can be satisfied that they meet the relevant regulations, and when audit season comes around, there’s an easily accessible data trail that can prove compliance to authorities. Digital supply chains can also incorporate better checks and balances to minimize fraud and shrinkage.
• Improved decision-making: Digitizing the supply chain makes it much easier to accumulate, validate, and connect diverse information from all the organizations involved, providing data-driven insights on which to base business decisions. AI models can complement human expertise by identifying patterns and trends.
• Scalability: We’ve already considered how companies can benefit from digital supply chains by being able to ramp up production—and reduce it when required. But scalability also applies to supply chain technology itself. A company will only briefly experience the positives of digitalization if it adopts systems that could be out of date in a matter of years. By purchasing technology that continuously receives updates, the organization will experience benefits and be poised to grow.
• Sustainability gains: Whether a company has corporate ESG targets or not, improving sustainability is good for the environment and is generally welcomed by customers. Even on a simple level, digitizing the supply chain reduces paper waste, and by opting for cloud solutions, hardware won’t need constant replacement. Beyond that, improved inventory management leads to better use of resources and less product going to waste, optimizing logistics will cut vehicle emissions, and taking consumer feedback and tracking trends can result in redundant features being designed out of products.
• Customer satisfaction. Ultimately, digital supply chains need to deliver more satisfied customers. How? By letting people track deliveries, and getting items to their homes faster via routes optimized by AI. Customer needs and trend forecasts will help to keep products relevant and in stock, while new efficiencies will help keep prices down.
• Cost reductions: As ever, the bottom line is the bottom line, and fully utilized digitized supply chains will impact spending in a positive manner. All of the other benefits we’ve discussed play into this: Improved efficiency means fewer raw materials and finished products go to waste, while greater visibility and collaboration help companies be agile when they need to pivot to a new strategy. Data-driven decision-making means that businesses don’t need to take costly risks by working on intuition—the numbers don’t lie, and by using that information, companies will spend only on products and services they will profit from.

Challenges of Supply Chain Digitization

Convinced to ditch your traditional supply chains for digital solutions now? Let’s just take a pause. As with any development, there is rough to go with the smooth, so it’s important to think about some of the issues that may arise with digitized supply chains.

• High implementation costs: Digitizing an analog supply chain will require a significant investment in technology. These costs should be weighed against the potential for long-term savings and benefits, but it is also possible to reduce the short-term sticker shock. By opting for a cloud-based supply chain management system, the technology can be paid for via a subscription model rather than significant capital outlay. Companies may also decide to introduce digitized processes over time to spread out any upfront costs that are required.
• Integration complexity: Besides spreading out costs, a phased approach to supply chain digitization can ease issues with making existing systems interact with new additions. By analyzing the legacy technologies that won’t be compatible with incoming ones, these can be replaced first, helping data flow between systems, removing silos, and minimizing downtime. A scalable cloud offering is also flexible enough to work with different environments, while collaborating with technology consultants can result in tailored solutions that match a business’s specific needs.
• Change resistance: There will always be employees who resist change—maybe existing systems work, so why fix what they don’t perceive to be broken? In this instance, education is key. Management should spell out clearly what the plan is and how it will benefit individuals and the company as a whole. Once data starts to be collected—maybe after a few months, a digitized conveyor belt system is helping workers pack more boxes an hour—supply chain managers should be keen to show it off to indicate that they are on the right path.
• Limited digital skills: Another reason for resistance could be a lack of digital expertise among the workforce. Consultants can suggest ways to fill the skills gap. Assistance could come through targeted recruitment or training for existing employees, with relevant courses available via specialist external learning platforms so that leaders can have confidence that their people are being upskilled in a suitable manner.
• Supplier and partner adoption: As suggested previously, while a digitized supply chain will benefit businesses with the technology, processes work better if all participants are on board. If they are not, this can lead to gaps in visibility, uncertain data, and delays. These challenges be mitigated by implementing a flexible and scalable cloud-based system that can deal with partners’ legacy systems in the same way that it can deal with a business’s own, while longer-term encouragement about the benefits of moving away from disparate systems—such as sharing data about wins that have come about through digitization—can help everyone in the supply chain get on the same page.
• Data quality and accuracy issues: Data-driven decision-making is only as good as the data it’s based on, so inputs must be accurate, complete, and up to date. Education and training will play a key role here, not just for a business’s own employees, but for other members of the supply chain—a baker’s dozen won’t cut it these days: either guarantee that 12 loaves have been sent or record it as 13. Errors can further be reduced by introducing processes that look for them, such as an AI model trained to automatically identify numbers that appear outside of an expected range.
• Data security and cyber risks: Cybersecurity is at the forefront of most people’s minds when they consider the challenges of digitization. It’s understandable, given that supply chains feature all manner of sensitive information, such as customer information, proprietary product designs, and financial transactions. However, today’s digital tools are built with robust security measures, continuous monitoring, and updates to help stay ahead of threats. People play a key role in data security too; regular training will help staff remain mindful of their responsibility in keeping systems secure.
• Regulatory and compliance challenges: Digitizing supply chains requires awareness of regulations that protect information. Companies must adopt robust data security technologies and practices to stay ahead of threats. Compliance with rules, such as customer data storage duration, is also essential. Entering this regulatory landscape can seem daunting. However, businesses can collaborate with experts to ensure compliance with relevant regulations.
• Technology dependance risks: Digital technology can run into difficulties from time to time, but it doesn’t mean that supply chain processes will grind to a halt. System failures, network outages, and software bugs can cause disruptions. Staying proactive can minimize the frequency and impact of unexpected downtime. Regular maintenance and constant monitoring are also essential. Timely installation of updates helps systems run smoothly, while manually tracking important data during disruptions ensures that it can be entered once operations resume.
• Scalability constraints: Cloud-based technology allows supply chain systems to scale up or down easily. However, human factors are important when considering global operations. Individuals and companies in some countries may struggle to keep up due to costs, lack of digital skills, or unsupported technology. To address this, sharing the benefits of digitization and providing education can be effective. Ensuring that your own systems are interoperable will also promote better data flow.

Trends in Supply Chain Digitization

Supply chain technology is constantly advancing. The onset of digitization began the transformation, but it was the pandemic and its related supply chain challenges that really kicked it up a notch—and that momentum has continued. With that in mind, here are some of the current hot topics for supply chain managers to consider as they undergo their own transformations.

• Evolution of AI: Artificial intelligence can already be found in many supply chains, and that trend is set to continue. As an example, automated pickers not only speed up movement around warehouses, they also ensure inventory records are kept accurate and up to date. By taking masses of data, generative AI can analyze logistical plans, automate procurement, predict consumer trends, and create content—and that is barely scratching the surface of the possibilities.
• Geopolitics: There was a time when supply chain managers could only be reactive to what was happening in the world around them, but digitization can help them get a step ahead. This guide has already laid out cost-saving possibilities, which could help businesses eke out profit if other costs increase, be it through tariffs or supply chain disruption caused by warfare and/or sanctions. Digitized supply chains can help them get ahead of this by using AI to run “what if?” scenarios that set out a Plan B ahead of time, so it can be immediately put into action if required.
• Risk management: Having alternative plans in place will certainly help build resilient supply chains, but cybersecurity remains a key consideration. Digitization will result in sensitive data being put online, so it’s imperative that security measures like data encryption, network security, and regular training and audits are put in place to not only ensure that the information remains safe but to reduce the chance of reputational damage that can be caused by a leak.
• Changes in the workforce: While digitization leads to a greater amount of automation, there still need to be suitably skilled humans around to work with the technology. Through upskilling and reskilling, companies can not only ensure they have people who can work with and maintain the supply chain technology, but also those who can recognize, source, and train new talent. Additionally, digitization means that homeworkers are still able to perform their functions, allowing them to manage their work-life balance and businesses to manage their on-site spaces accordingly.
• Consumer expectations: The most important part of a supply chain for consumers is the final mile to their homes. Faster deliveries with accurate tracking and intuitive chatbots are becoming expected by many people, and all are possible for businesses of any size once they fully digitize their supply chains. There will also be some who will value sustainable supply chain processes, so factoring in reduced emissions, minimized waste, and biodegradable/reusable/recyclable elements can help to keep them happy too.

How to Digitize the Supply Chain

Digitizing your supply chain involves implementing technology to add efficiency, visibility, and responsiveness throughout the entire process. This can include adopting digital tools such as inventory management systems, cloud-based software, and data analytics platforms that allow real-time tracking of goods and resources. What’s important is to get started and continually work toward greater use of AI and other advances.

1. Assess current processes: Whether a business is operating an analog supply chain or has started its digitization journey, there will be areas to prioritize. Before starting, identify existing inefficiencies and areas that can be made better, such as logistics, wastage, or inventory management.
2. Define goals and strategy: Once you establish what needs to change, implement a way to measure improvements. Consider what key performance indicators make sense based on your strategy—for instance, if deliveries currently take a week, see how much quicker they can reach their destination—so that the objectives of the digital transformation are clear and provable with data.
3. Adopt cloud-based solutions: Digital technologies based in the cloud allow businesses to reduce initial capital outlays in favor of a subscription-based model. Once in place, these systems enable real-time visibility to data, remote access, and straightforward collaboration with suppliers, partners, and customers.
4. Implement IoT and automation: As well as reducing the possibility of human error, automating the supply chain greatly improves efficiency and tracking. IoT technology allows businesses to better manage warehouses through RFID and robotics, track the performance and condition of their fleet and drivers, and extract the data gathered by the network to further improve business processes.
5. Integrate AI and analytics: While an IoT network can gather a wealth of data, AI is key for optimizing how it is used. In real time, it can predict future trends to lessen the impacts of fluctuations and disruptions, plan for more efficient logistics strategies, manage inventories and automate procurement based on the data, and generally help supply chain managers make better-informed, fact-based decisions.
6. Enhance cybersecurity: Cyber threats are only going to grow as more sensitive data is stored online, so keeping systems secure is paramount. Consultants can help businesses know how these threats could manifest and help provide training for all employees so that they are aware of their responsibilities. Keeping on top of security updates should be at the top of the to-do list for all companies.
7. Ensure supplier and partner alignment: As mentioned earlier, the more businesses that are party to digitizing supply chains, the more the collective can benefit. The upsides are clear for a single company, and these are compounded the more that use them, as data quality will be better resulting in better analytics, each will be able to be more agile, all parties can scale when required, and efficiencies will be felt throughout the supply chain.
8. Train and upskill the workforce: Supply chain digitization will only work if there are people who know how to operate alongside it. Businesses need to ensure that existing staff are brought up to speed with the digital processes, new hires come with those skills, and training is continuous to reiterate best practices and update employees as the technology evolves.
9. Continuously monitor and optimize: The amount of analytical data being produced by digital supply chains means that businesses can—and should—keep improving how they work. Is there stock on shelves earning nothing for too long? Are there members of staff who could better utilize their skillsets? Could fewer but larger deliveries work out to be more cost-effective in future? The data required to optimize these processes is available at supply chain managers’ fingertips.
10. Scale and expand: Digitizing a supply chain is not a one-and-done event—it’s a constant process that grows and evolves as a business does. Whether it’s a case of cascading in cloud-based solutions to replace outdated technologies, increasing capacity as orders grow, or transforming to encompass national or global markets, digitization will support businesses of all sizes run their supply chains in the most optimal fashion.

Digitize Your Supply Chain with NetSuite

Build resilient supply chains that provide operational efficiency, real-time visibility, and business intelligence with NetSuite. By selecting NetSuite supply chain management solutions, businesses large and small will be able to oversee the flow of materials and goods from the supplier to the manufacturer and on to the retailers and customers.

With a single source of truth from start to finish, businesses can keep track of the quality and quantity of raw materials being bought. The inbuilt inventory management system can track what is brought in, while generative AI is able to automate the procurement process to keep levels where they need to be. This can be ascertained by predictive analysis that can identify potential trends in demand and any potential risks to the supply chain.

NetSuite supply chain management solutions will help businesses to account for lead times in production and automate elements that can increase efficiency and reduce errors. This all maximizes product availability to prevent stock outs.

Predictive AI models will also ensure that logistics occur in the most efficient and practical way possible, to not only keep inventory management in check, but also to delight customers with predictable, on-time deliveries.

Throughout the process, NetSuite experts will be on hand to offer their expertise to help businesses as they embark on—or continue—their digital transformation. With a seamless transition from sales to service and support, companies can be reassured that they will get the help they need through implementation, education, and beyond.

Collaboration is key when it comes to supply chain digitization, with data sharing and real-time visibility across all partners being vital to improving operational efficiency, cutting costs, and providing end users with the products and services they are paying for in a timely manner. Analog processes based on disparate systems are the past—embrace the future and all of its benefits with digital supply chain management.

Supply Chain Digitization FAQs

What is the impact of supply chain digitization?

Digitization has had a major impact on supply chain management for businesses of all sizes. It helps reduce costs, enhance accuracy, improve inventory management, increase communication and visibility between partners, and allow businesses to produce and deliver what customers want in a more efficient manner than with traditional supply chains.