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Wholesale Banking

Why small suppliers are key to digitalising production chains

Which factors could be causing such slow progress in the digitalisation of industrial production chains? It isn't the technology, but rather sluggish adoption and implementation. It's time for smaller manufacturing companies to scale up, collaborate and invest in ICT knowledge and skills to remain competitive and move toward their sustainable goals

Short-term productivity gains of digital production chains depend on the business case

In part 1 of this study, we found that many manufacturing companies could benefit from digitalising the production chain. In the short term, the individual business case is important:

  • When several chain partners already exchange automated data or are willing to do so, the IT investments can be recouped in the short term.
  • When there is a limited number of suppliers and a limited order flow consisting of more complex products, the revenue is lower due to the limited numbers and the many manual transactions that are then required. Order flows can be more autonomous for large serial orders of basic products without many changes.

Every manufacturing company benefits from automated digital data exchange in the long term…

In the long term, digitally connecting companies that already work closely together through mutual ordering and delivery strengthens the competitive position. This is also true of smaller companies which make more complex products in smaller quantities. This process takes place in two ways:

  • The more companies that have joined, the higher the revenues and the more often digital links will be a precondition for doing business.
  • Data from suppliers and buyers is needed in order to have an up-to-date and accurate picture of the current market situation. Loss of demand and disruptions in the supply chain will become increasingly visible as more companies exchange automated data with each other.

…both at the beginning and end of the chain

A digitally-linked production chain will therefore not only become a precondition for doing business it will also offer competitive advantages for manufacturing companies. On the path towards a 'smart industry' (Industry 4.0), manufacturing processes will work more and more autonomously. Software links between IT systems inside and outside the factory are necessary to receive the necessary data for process optimisation. This forms the basis for data analysis and process management. For parties at the end of the production chain, timely chain information about supply disruptions is particularly important. The risk of disruption increases with each additional link. Conversely, it is mainly the changes in demand at end manufacturers that gradually trickle through and lead to great volatility among parties at the beginning of the chain via a so-called bullwhip effect. Automated information provision is therefore important for the entire chain in order to be able to anticipate unforeseen circumstances more quickly. Something that is valued even more than before due to the recent experience with long-term chain disruptions.

Read the full report here