McKinsey: Supply Chain Digitalization is Underdeveloped

McKinsey: Supply Chain Digitalization is Underdeveloped

A 2017 McKinsey study found that the average supply chain has a digitization level of 43 percent, the lowest of the five business areas examined.

These five areas were:

  1. Products (60%)
  2. Marketing and Distribution (47%)
  3. Processes (52%)
  4. Supply Chains (43%)
  5. Digitization of Ecosystems (48%)

According to the study, only 2 percent of the surveyed executives said the supply chain is the focus of their digital strategies. This provides an opportunity for those who prioritize supply and demand chain digitization.

According to McKinsey, “most of the disparity between potential and actual gains from supply-chain digitization can be explained by technology gaps and management choices.”

Integrated Business

By perceiving a business integral, it makes sense to take advantage of differences in digital maturity to provide the organization with transient on-stage and backstage competitive advantages (“transient” because in the digital world, most competitive advantages are easy to copy, thereby hard to defend, and therefore fleeting) while increasing the firm’s ability to increase customer satisfaction. 

Considering an operation holistically also leads to better financial results:

  • For instance, by boosting demand satisfaction rates by up to 80% (the amount of demand met by stock availability) or shortening the Cash Conversion Cycle (CCC or C2C).
  • Research showed that 75% of companies are more profitable due to more liquidity from a higher Cash Conversion Ratio (CCR).
  • According to McKinsey, highly digitized supply and demand chains could boost the annual growth of EBIT by 3.2% and annual revenue growth by 2.3%.

Grandmasters

The ability to run projects, programs, and business processes across the entire (digital) value chain (which includes both the supply chain and the demand chain) requires people with a breadth of perspective and a depth of expertise. We refer to these people as Grandmasters of Business™. They have the (soft) skills and experience, taken from diverse roles in (similar) organizations, and understand how to create and deliver value across a digitalized value chain.

Oracle on IBP: Think of modern integrated business planning, or IBP, as a mashup of supply chain optimization, financial planning and analysis, and operational best practices powered by a company-wide culture that’s all about delivering the speed, savings, and responsiveness of today’s consumers demand while managing risk. It’s usually implemented to unify siloed sales, supply, financial, and operational resources — before more nimble competitors relegate them to the former Fortune 500 list.

Author

  • Edwin Korver

    Edwin Korver is a polymath celebrated for his mastery of systems thinking and integral philosophy, particularly in intricate business transformations. His company, CROSS-SILO, embodies his unwavering belief in the interdependence of stakeholders and the pivotal role of value creation in fostering growth, complemented by the power of storytelling to convey that value. Edwin pioneered the RoundMap®, an all-encompassing business framework. He envisions a future where business harmonizes profit with compassion, common sense, and EQuitability, a vision he explores further in his forthcoming book, "Leading from the Whole."

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