Tag: digital transformation

OM in the News: How Applications, Automation, Analytics and AI Transform OM

Digital transformation, writes the INFORMS magazine Analytics (June 2020), is leveraging modern technology and innovation so that an organization can help its people achieve maximum capability and the company processes can run optimally. Digital transformation also helps a business focus on its greatest means of success: its customers. Its main technology drivers come from the “Straight A’s”: applications, automation, analytics and AI. Technology, which we discuss in Chapter 7, is a great enabler for organizational productivity, creativity, efficiency and improved profits.

Applications: Ideal business applications help organizations manage business processes and enhance productivity. There are cloud-based business application platforms that provide solutions for end-to-end business processes right from strategy development, product development, work management, project management, field services, customer services, and operations.

Automation: Automating business processes to remove manual, redundant tasks, which can free staff from repetitive, time-consuming work items.

Analytics: Using actionable analytics, organizations can access relevant data and relationships to take immediate action on business initiatives to achieve stronger outcomes.

AI:  With AI, companies can literally transform business processes into intelligent systems that will help identify patterns, gain deeper insights from data, and leverage data science to improve fact-based decision-making.

Classroom discussion questions:

  1. What is data analytics, and why is it an important OM tool? (Hint: see Module G in your Heizer/Render/Munson text)
  2. Why is automation so important to U.S. supply chains?

OM in the News: Making Sense of Supply Chain 4.0

McKinsey, Cap Gemini and the Boston Consulting Group all suggest Supply Chain 4.0, digital transformation, is about applying digital technologies– Artificial Intelligence (AI), Machine Learning (ML), the Internet of Things (IoT) and Blockchain– to operational processes and creating improvements.

 If digital transformation is to “transform” SCM, then it must as efficiently as possible match supply to real demand, writes IndustryWeek (Nov. 2, 2018). In SCM, there are 3 key factors that impact the ability to match supply to demand: (1) Demand uncertainty and the inability to accurately forecast demand; (2) Production uncertainties leading to changes in supply; and (3) Lack of synchronization among supply chain partners.

(1) Traditional forecasting methods can be impacted by one-time events (such as economic changes, special promotions, fashion trends, or a spike in social chatter) that affect the stability of historical sales patterns. Digital transformation can improve traditional forecasting methods in 2 ways. The first is to gather new data, such as sentiment information from social channels, weather inputs, economic performance or information from new IoT or Fog Computing sensors that can provide insights into customer demand. The second is to use ML to continuously “learn” from this data to determine the contributions of these factors in predicting demand.

(2) Digital transformation can use IoT to continuously monitor machines on the shop floor, track key performance metrics and then use predictive analytics to understand what these performance metrics mean for yield, quality or the likelihood of machine failure.

(3) At one end of the supply chain, a retailer may determine a particular demand based on what end consumers are buying. This demand signals the next tier in the supply chain, which sends its own demand signal to the next tier and so on. The end result is a view of demand a few tiers into the supply chain that is very different from the original demand requirement from the retailer. The supply chain, in effect, becomes unsynchronized.  Blockchain is a distributed ledger, with information instantly visible to all parties of the blockchain and ensures a single version of the truth – such as a single understanding of true end-customer demand – in the supply chain. This is what synchronizes all supply chain partners.

Classroom discussion questions:

  1. How does digital transformation differ from traditional forecasting?
  2. What is IoT? Give an example.
  3. What is blockchain and how can it help SCM?

 

Good OM Reading: Embracing Digital Technology

Companies routinely invest in technology, and too often feel they get routine results. But a new MIT Sloan Management Review (Oct., 2013) study makes it clear that companies that are aggressively engaged in “digital transformation” tend to perform better. Why? According to the authors, “the current wave of digital innovation is about connecting companies to customers, and companies can’t afford to miss out on opportunities to improve efficiency, service, sales and performance. Companies must succeed in creating transformation through technology, or they’ll face destruction at the hands of their competitors that do.”

Researchers divided companies into 4 categories in terms of their commitment to digital transformation, then tracked the companies’ performance over time. “Digital transformation” refers to overall intensity of the effort to align a company’s operations with its business model through successful uses of digital technologies as a replacement for older processes. The 4 categories of enterprise were:

Digirati: Those companies that have gone all-in on digital transformation. This relatively small percentage of companies outperformed all others across the board.

Conservatives: Companies that have been slower than average to move toward digital transformation. Conservatives performed worst in revenue creation at -10%.

Fashionistas: Companies that publicly say transformation is important to them and may even throw a lot of money at transformation efforts, but whose efforts don’t match their rhetoric. Fashionistas scored worst in profitability at -11%.

Beginners: These performed worst among all the companies in terms of profitability (-24%) and 2nd worst in revenue creation and market valuation.

Results mean, for example, that automating an e-procurement system doesn’t just reduce the amount of paper being shuffled; it also gives a firm more accurate data that can help negotiate lower prices from vendors. Transforming warehouse management doesn’t just reduce headaches for shipping managers; it also can lower the amount of money tied up in inventory. And digital transformation of fleet management not only saves fuel and improve drivers’ efficiency; it also can help a company quickly and cost effectively serve customers and earn more and bigger orders. The bottom line: companies aggressively committed to digital transformation excel.