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Digitalization of Supply Chains

A case study of value adds by digitalizing the supply chain

Written by A. Hermansson, P. S. Möller

Paper category

Master Thesis


Business Administration>Supply Chain & Logistics




Master Thesis: Supply chain transformation In order to understand the transformation and digitization of the supply chain, it is very important to understand the overall situation of the supply chain. This chapter introduces the theory of supply chain and describes the current supply chain that X Company aims to achieve digitalization. In addition, it reviewed previous researches on supply chain digitization projects. 3.2.1 Supply chain When analyzing and explaining how the supply chain is designed, several factors need to be considered. First, we must understand the meaning of the supply chain. According to Chopra and Meindl (2016), the supply chain consists of all parties involved in ensuring that customer requirements are met. These parties can participate directly or indirectly. The supply chain includes not only manufacturers and suppliers, but also transporters, warehouses, retailers and customers. In addition, the supply chain involves the continuous flow of information, products, and funds between different stages. The term supply chain is usually interpreted as the movement of products or supplies along the supply chain between suppliers, manufacturers, distributors, retailers, and customers. However, it is important to also include the flow of information and funds (Chopra & Meindl, 2016). Korominas et al. (2015), pointed out that the supply chain is a network of cooperative units that provide products or services to customers and users. The term network means that the supply chain has a more complex structure, and the flow between units is an integral part of the supply chain (Corominas et al., 2015). However, the appropriate design of the supply chain depends on the needs of customers and the roles played by different departments (Chopra & Meindl, 2016). The focus of this research is to study X company's internal project Y project. The long-term goal (LTO) of the project is to digitize the old supply chain and redesign it into an efficient, modern, digital and automated supply chain. However, the first step is to connect the supply chain of a particular type of product. In the old supply chain, orders flowed from one silo to another, mainly through manual processing. The supply chain has been divided into five silos. All manual handling between the five silos is time-consuming and expensive. Project Y aims to vertically integrate islands and create automated processes throughout the chain to reduce delivery time and supply costs. All large organizations tend to be divided into units called organizational silos. Silos are usually based on functions, such as sales, orders, manufacturing, supply, finance, etc. (Hinshaw, 2014). This type of organizational structure is sometimes necessary for companies. 3.2.2 Supply chain goals According to Chopra and Meindl (2016), the organization's supply chain goal should be to generate the greatest overall value possible. Supply chain value is the difference between the perceived customer value of the final product and the total supply chain cost of satisfying customer needs (Chopra & Meindl, 2016). However, the perceived customer value of the final product may vary. The most common and simplest definition is that customer value corresponds to the maximum amount that a customer is willing to pay for a product or service (Chopra & Meindl, 2016). In order for companies to sell products with lower profits and lower prices, they need to reduce supply chain costs to obtain positive supply chain value. 3.2.3 Value-added brought by the digital transformation of the supply chain In this study, value-added is defined as the performance improvement brought about by the digitalization of the supply chain. According to Zhu and Kramer (2005), these performance improvements can be divided into three categories: • Upstream business improvement • Internal business improvement • Downstream business improvement Upstream business improvement refers to the improvement of activities related to the flow into the organization. Examples of upstream operational activities are procurement and inbound logistics (Garrett, 2015). For example, improvements in upstream operations can reduce procurement costs, reduce inventory costs, and improve coordination with suppliers (Zhu & Kraemer, 2005). The second category, the improvement of internal operations, involves the improvement of the activities necessary to achieve the goals of customers and shareholders within the organization (Garrett, 2015). For example, these activities can become work processes or employee utilization, thereby improving internal process efficiency and employee productivity (Zhu & Kraemer, 2005). The third and final category, the improvement of downstream operations, refers to the improvement of activities related to the process from the organization to the customer. Examples of downstream operations activities include outbound logistics, marketing, and sales and service (Garrett, 2015). Improvements in downstream operations can increase sales, expand market segments, and improve customer service and experience (Zhu & Kraemer, 2005). According to the literature (Dong et al., 2009), these three dimensions of performance improvement all represent the improvement of supply chain processes. A resource-based view (RBV) is a concept that regards the resources owned by an enterprise as the key to enterprise performance. Dong et al. (2009), studied the value of IT-supported resources to the organization. Read Less