Evolution of Supply Chains: How Digitization Is The Answer To Smarter Supply Chains

by | Aug 20, 2021

4 min read


From 18th-century merchants who lost goods during trade and transport, to 21st century’s supply chain managers who rely on technological infrastructure to manage goods and deliver products on time effectively – they’ve all had one evergreen problem.

Inventory management.

Inventory management is one of the primal industrial challenges that have led to the transformation of supply chains.

Brief Timeline and Evolution of Supply Chains

1760-1840The industrial revolution began in Europe and the U.S.
It marked the transition from hand production to machine production using steam power and led to the development of machine tools, paving the way for mechanized production.
1900Trade increased, and products were transported from Great Britain to other parts of the world.

However, the supply chain was inefficient, and ship transport required a lot of effort.
Early 20th centuryGasoline and diesel power trucks were invented.

The next breakthrough was the introduction of pallets for storage. It facilitated better space management and efficient goods handling.
World War IILogistics received a massive boost.

This led to faster manufacturing and faster transporting of military hardware and supplies to the soldiers at war.
1940sAdvanced industrial engineering improved storage facility efficiency.
1950sIntroduction and standardization of containers for all modes of transport leading to faster transfer of material and better margins.
1960sRoadway transport gained popularity.

The evolution of pallets continued along with better handling equipment and containers.
Late 1960sIBM developed the first computerized inventory management and forecasting system.
1975The first real-time warehouse management system was installed. It rapidly increased efficiency with a better order, inventory, and distribution tracking system.
1983The term ‘Supply Chain Management’ was coined in 1983 and it first appeared in an article in The Financial Times.

Enterprise Resource Planning (ERP) systems were introduced along with mapping and route planning.

Tracking goods and shipments became easier with the introduction of RFID cards.
21st centuryThe information age began.

Supply chains adopted artificial intelligence and machine learning.

Trade and Transport Challenges in Early Supply Chains

In the early 18th century, before the Industrial Revolution, transporting goods from the farm to the mill, and then from the mill to the market was a tedious, time-consuming job.

After the Industrial Revolution, with the development of railways, transportation became easier over longer distances. However, trade was still an international affair.

With the growing size of ships and improvements in industrial technology, waterways became a popular way to transport goods. As a result, international ocean trade became a reality.

But inefficient loading and losing goods in the process led to losses for merchants, discouraging cross-border trade.

With the introduction of semi-trucks running on gasoline, logistics became way easier.

However, gasoline trucks weren’t fuel-efficient.

Challenges in Supply Chain Operations before Digitization

As truck technology increased, logistics improved and transport became faster.

Both domestic and cross-border trade picked up speed. But with fast transport came another challenge – where would all the goods be stored?

Storing more goods meant warehouses had to expand. And operating a warehouse facility only got more and more complex with time.

Manual logistics reports and data recorded on paper were far from accurate and therefore led to issues with inventory management, warehousing, and trade.

Moving on to airway trade, freight optimization was limited to route mapping. Which benefited the freight companies more than the suppliers because suppliers lacked real-time tracking data.

Spreadsheets weren’t enough anymore.

With a dire need to include a more robust and efficient inventory management system, digitization of supply chains began.

Supply Chain Digitization and Smarter Supply Chains

Supply chain digitization is the integration of planning, tracking, and optimizing production solutions to create a transparent supply chain that gives you access and visibility to every touchpoint of the chain.

According to this McKinsey study, the average supply chain has a digitization level of only 43%.

The study also states that on average, companies that proactively digitize their supply chains can expect a boost in annual gross earnings by 3.2 percent.

This means that most supply chains are not reaping the full benefits of having a digitized supply chain.

Let’s look at how visibility in supply chains transforms companies.

Benefits of AI in Supply Chain

1. Improved Warehouse Efficiency

Optimizing logistics in a warehouse is one of the major supply chain challenges. Digitization enables holistic visibility throughout the supply chain. This helps to monitor various operational processes simultaneously in real-time without wasting time and manpower. It reduces supply chain operational costs significantly and increases gross annual revenue by a substantial margin.

2. Accurate Inventory Management and Improved Collaboration

The ultimate goal of an eCommerce business is to perfect order fulfillment. Delivering products to their customers on time, in less time, consistently can be achieved when inventory is managed effectively. AI in supply chains helps you achieve enhanced order management using advanced analytics.

Digitization of supply chains eliminates manual processes to have a single, fluent communications channel between multiple interdependent parties and departments.

3. Reduced Lead Times

The longer a product stays in inventory, the lesser its value.

Every item in the inventory has a physical cost attached to it.

These overhead costs compound to increase transportation costs – which may reduce supply chain efficiency, resulting in increased lead time.

However, the average time required for procuring raw material is reduced massively by a digital supply chain.

With real-time tracking systems, you can predict the demand and supply ratio and avoid excess inventory influx.

Balancing inventory based on order demand and product inventory leads to faster, efficient order execution.
For example, with access to real-time inventory overview, making critical decisions and enabling timely deliveries using JIT helps reduce risk and save emergency recovery costs significantly.

4. Planning through Data Visualization

Advanced analytics and data visualization simplifies complex data and makes supply chain management less daunting.

Collecting, analyzing, and sharing data using AI helps predict future requirements, estimate product demand, map manufacturing dependencies, and make planning logistics easy and accessible.

5. Reduces Financial Burden and Overhead Costs

Digitized logistics decreases capital investment by reducing the need for excess stock stored in a warehouse. It also helps increase cash flow with better tracking and following up on payments.

A holistic overview and automated supply chain management also helps the timely review of supplier-carrier contracts and catches leaks in revenue before it’s too late.

A digitized supply chain can avoid out-of-stock or excess stock situations easily with a clear picture of inventory stock.

Avoid financial mishaps and save costs by digitizing and optimizing your supply chain. Book a free demo here.

Topics: Shipping Data, Supply Chain, Supply Chain Management

See Sifted LI in Action

Check out related resources at Sifted.