Supply chain digitization vs. digitalization – why understanding the difference between the two is still important

There has been a great deal of action around digital supply chains in recent years, and most organizations are engaged in digital initiatives to transform their supply chain of one kind or another.

However, these initiatives vary significantly – the majority are siloed or individual initiatives that deliver value at certain points in the supply chain, and fail to translate the value potential across further functions. Others fix problems or take care of the basics (digitization), but don’t have the transformative character to disrupt and give access to next-generation revenues (digitalization).

A question of terminology

With this in mind, it is critical to understand the difference between some similar and often misunderstood terms:

• Digital – a word that describes how the amount of information and its connection to business resources has and continues to increase. This relates to more than just analytics, big data, mobile, cloud, the Internet of Things, virtual or augmented reality, and artificial intelligence. Anything can become digital by simply applying current and emerging technologies to business resources.
• Digitization – the process of applying these technologies to change the performance and cost profile of an organization by substituting manual work and legacy IT solutions with new digital technologies. Although digitization enables an organization to participate in the digital economy, it doesn’t deliver a digital capital – which exclusively comes from “digitalizing” the business.
• Digitalization – the process of transforming “digitized” resources into new sources of revenue, growth, and operational results to create capital for the organization. Digitalization delivers a performance and profit gain as an organization innovates faster and to greater effect than their “digitized-only” peers.

While digitalization provides an abundance of opportunities to develop the entire organization, accessing these new opportunities requires organizations to embrace change and implement new digital business models.

Digitalization and the supply chain ecosystem

Digital business models are characterized – among others – by generating revenue from outside of what we would consider an organization’s core business, products, and services. The impact on the supply chain is obvious – they need to be able to support these new business models and innovative services that may not exist to date.

Not only does digitalization exert an effect on an individual organization’s supply chain, it also impacts the entire ecosystem a particular organization interacts with – including customers, vendors, suppliers, partners, and governments – which, in turn, also impacts their supply chain. For example:

• Customers – digitalization transforms industry segments at a different pace and maturity level, which impacts a customer’s respective supply chain.
• Vendors, suppliers, and partners – digitalization has the same impact on their supply chains as it does for customers. However, the interaction between these entities changes – and in the case of logistics partners and suppliers (2/3/4PLs), digitalization has an added effect on an organization’s supply chain.
• Macro-economic and geopolitical trends – on top of all of the above, these trends have the potential to significantly change freight flows, documentation, information, and payment flows.

The supply chain as a growth enabler

How can you transform your supply chain into a true growth enabler? First and foremost, your organization needs to truly embrace and adopt digital, become highly digitized, and be or become:

• Ready to absorb the requirements of next-generation business models and services.
• Setup as ecosystem orchestrating platforms.
• Open, connected, yet secure.
• Digital, in the sense above
• Flexible, agile, automated, with a “no touch” supply chain being the target
• Hybrid, by fostering human-machine (hardware and software robots, AI) interaction and outcomes.
• Data-driven, by providing and managing correct, seamless, and real-time data

Second, by supporting and even driving your organization’s (new) business through building on the above, and starting to monetize and capitalize on its digital capabilities.

Learn more about Capgemini’s Digital Supply Chain Practice  can increase your competitive advantage by strengthening your business drivers and focusing on your end customers, contact: joerg.junghanns@capgemini.com

Read Capgemini Research Institute’s “The Digital Supply Chain’s Missing Link: Focus” report to learn more about how organizations across consumer products, manufacturing, and retail understand the digital initiatives they are adopting, the benefits they are deriving, and the way they are transforming their supply chain.

Jörg Junghanns leverages innovation and a strategic and service mindset to help clients transform their supply chain operations into a growth enabler.