European A.T.

Kearney/WHU Logistics Study 2015

Digital Supply Chains:

Increasingly Critical
for Competitive Edge
European supply chain managers expect major
improvements to result from high digital investments.

Digital Supply Chains: Increasingly Critical for Competitive Edge 1

This seventh edition of A.T. Kearneys European
Excellence in Supply Chain Management study
is dedicated to the future role of digitalization
in global supply chain networks. This study,
conducted with the business school WHU, reveals
that supply chain managers of leading European
companies expect the most important digitali-
zation levers in the next three years to be rather
traditional topics such as IT integration (an area
where 70 percent of supply chain managers are
planning significant or high investments), more
comprehensive use of data (more than 50 percent
expect big-data analytics to have a clear impact
on reducing outbound inventories), and paperless
processes.Interestingly, newer technological
advances such as 3D printing, robots, and smart
labels are expected to be less relevant over the
short term. Managers investing in digitalization,
nevertheless, have high hopes to improve decision
making and to achieve increased flexibility, lower
cost, and lower risk. As a result of digitalization,
they also clearly plan to reduce employment
in operational logistics areas, while slightly
increasing staff for tactical and strategic supply
chain planning.
Introduction
Companies in various sectors throughout Europe are investing heavily to digitalize their
business models in general and their supply chain management (SCM) in particular. Take major
logistics service providers such as DHL, which has announced that it will rely increasingly on
big data to minimize risk, while trials it has conducted with employees using data glasses for
picking processes have increased productivity by 25 percent. Logistics provider DB Schenker is
investing in a digital mobility lab, and airlines with a strong cargo business, such as Lufthansa
and Emirates, are expanding their paperless e-freight offering, which includes data cleaning for
customers. Ocean carriers and forwarders, such as Kuehne + Nagel, use INTTRAs ocean freight
platform for e-payments, and global retailers Amazon and Alibaba have invested in robotics for
goods handling, drones for deliveries, and new apps for optimizing own asset-light delivery
services in cities.

What can be observed with logistics service providers and retailers is also notable in manufac-
turing companies as they digitalize their SCM. Automaker BMW is working on achieving a fully
digitalized factory and on a more dynamic, data analytics-driven supply-chain segmentation for
inbound parts. Referring to the 15th International Trade Fair for Logistics, Mobility, IT and Supply
Chain Management in Munich that ended in May 2015, head organizer Stefan Rummel told
industry journal DVZ: Where logistics people meet, they almost always talk about digitalization.

This seventh edition of A.T. Kearneys European Excellence in Supply Chain Management
study also focuses on digitalization. Conducted jointly with the Khne Institute for Logistics
Management at the German business school WHUOtto Beisheim School of Management, it
delves into the ways that digitalization in all of its formats impacts SCM, based on feedback from
60 industrial and commercial companies throughout Europe (see sidebar: About the Study).

About the Study

The 2015 European Excellence in
Supply Chain Management study
is the seventh edition to be
published since A.T. Kearney first
undertook this research with the
European Logistics Association
in 1982. For the purposes of this
edition, A.T. Kearney and the
Khne Institute for Logistics
Management of WHUOtto
Beisheim School of Management
conducted an online survey
on digitalization of the supply
chain in European industrial
and commercial companies
between December 2014 and
February 2015.
Overall, 60 companies partici-
pated, and more in-depth inter-
views were conducted with 15 of
them. Two-thirds of participating
supply chain managers could Companies come from 16
answer for the global SCM of their countries (including slightly
companies; another fifth was more than one-third from
answering with reference to the Germany) and a wide range of
European SCM. industries, including automotive,
chemical, pharmaceuticals,
Most participants route-to- building materials, machinery,
market is not expected to signifi- fast-moving consumer goods,
cantly change between 2013 and metals, electronics, aerospace,
2017. Fifty-five percent of wholesale, and retail.
revenues are generated directly
with end customers and users,
33 percent with resellers, and 12
percent via a three-step route-to-
market and based on a wide range
of as many as 650,000 SKUs. On
average, participating companies
use the following number of
logistics service providers in
Europe: land freight (109),
warehousing (13), ocean freight
(4), and air freight (3).

Digital Supply Chains: Increasingly Critical for Competitive Edge 1

This report summarizes our findings and explores in detail what SCM digitalization means for
business, how it affects investment in IT and analytics, and the areas where it will have the
greatest benefit.

Digital Technology Enablers and

Their Business Implications
Digital trends in SCM affect the overall business model

From sensors and cloud services to nanotech and big data, a number of technologies drive
digital trends. How fast these technologies advance in performance and cost will determine
how quickly they bring about change in SCM. In figure 1 we identify and describe six big
technology enablers that are digitalizing SCM.

Figure 1
Digital enablers and select implications for supply chain management

GPS-, GSM-, and Galileo-based positioning; sensors for filling

status, product quality, packaging quality, equipment status
Reliable all-time localization
More SCM information and event management requirements
(for example, temperature, humidity, opening, shock)

3D printing, microwave, Safe to operate in

laser-based production Sensors close man-machine
technologies and environment, cheaper,
New production geolocation more flexible (including
locations flexible renting and
Nanotech Strategy leasing schemes)
New supplier and 3D Robotics
configurations Picking
printing
New production Palletizing
Digital
materials (Un)loading
technology
enablers Automated CKD assembly
in smaller lot sizes
Multivariate regressions, UI and
predictive analytics, Big data display
large-scale innovation
Augmented reality,
scenario analysis
Cloud customer self-service
Demand forecasting scanning, in-store
services
Capacity planning navigation
Routing optimization Glasses-based picking
in warehouse
Contracted and flexible
contracted versus Displays on packaging
Connected devices, global real-time data
spot-capacity purchase Proliferation of interactive
consistency, fast distribution of analytics
optimization shelf displays
Cloud-based tracking
Advanced procurement Displays on products
with collaborative Cloud-based global real-time availability managed by the
optimization of SCM data and synchronized IT systems manufacturer

Note: GPS is global positioning system, GSM is global system for mobile communications, SCM is supply chain management, UI is user interface, and CKD
is completely knocked down.
Source: A.T. Kearney analysis

Digital Supply Chains: Increasingly Critical for Competitive Edge 2

A.T. Kearney has observed a number of general digital business trends not only with direct
effects on SCM, but also with much larger implications for manufacturing and retailing
companies overall business models (see figure 2). Obviously, each industry and company will
face different opportunities and challenges, even going so far as to completely question the
current business model or product configuration.
Figure 2
Select digital business trends and supply chain management implications
Digital business
trends Description
Analytics-driven cross- Using advanced analytics with increasingly
functional optimization diverse input to optimize complex
and predictive cross-functional trade-offs and facilitate
decision making value chain integration
From human judgment Multi-sensor information, algorithms,
to machine intelligence big data, and machine learning, leading
to the gradual replacement of human
judgment by machine judgment
Distributed resourcing Access to everything, anywhere,
and growing customer anytime. Growing transparency
buying power and access provide customers
with vastly increasing buyer power
Micro customization, Matching the long tail of demand, supply, and
matching micro production capabilities to create the ultimate
demand and supply customer fit and fulfillment
Complemented Driving new ways of engagement
reality-driven and productivity through augmented
productivity and virtual reality
Mounting digital Increasingly intertwined and ongoing
risk exposure activities with customers, suppliers,
and partners; growing exposure to digital
business risks and crimes
Sharing economy Sharing of proprietary assets via e-platforms
to increase utilization and tap into capacities
formerly outside of markets
From physical Using digital to extend, expand, enhance,
product transactions complement, replace, or go beyond physical
to consumption offerings. Using measurability, sensors, and
connectivity to charge for usage instead
of purchase
Note: SC is supply chain, and SCM is supply chain management.
Source: A.T. Kearney analysis
Digital Supply Chains: Increasingly Critical for Competitive Edge
Select supply chain
management implications
Leveraging of data to improve SC demand
forecasting and SC service procurement
Dynamic data analytics-driven SC
segmentation of parts and goods
More automated SC procurement processes
More automated SC event and risk
management based on expert systems
More complex inbound SCs with more
global suppliers and more variation
of direct and aggregated procurement
Leveraging of meta platforms to source
SCM service providers (for example,
trucking companies and couriers)
Need to connect with customers for
earlier sensing of demand and batch shifts
Managing SCs for very customized
demand and supply; smart and dynamic
SC segmentation
Optimized picking operations
Virtual testing of supplier parts and
new packaging
Reduction of need to distribute physical
sample products
Growing exposure to risk with connected
products, embedded automated services,
and automated cross-company processes
SC management to SC partners in risk
management and defense planning
Additional availability of industrial truck,
wagon, locomotive, and container capacities
Organization of SCM for services and
management of diminishing hardware
distribution, return logistics, and SC
for different rounds of life cycle
Management of post-sales SC service
to customers
More usage-oriented pricing with
SC suppliers
3
Supply chain managers need to manage
the implications of the digital transfor-
mation of their function and of the under-
lying business model at the same time.
SCM will be central to wider digital transformation

Supply chain managers who want to lead the transformation of their SCM into the digitalized age
not only will identify the opportunities and challenges facing their own function, but will also
consider the digital transformation of the entire company, its products and services, and the way
suppliers, customers, and other market partners interact with their company. How SCM can
contribute to the digitalization of the business model is as important as defining the digital
transformation agenda of SCM itself (see figure 3).

Figure 3
Digital supply chain framework

Shared products,
Connected Embedded Omnichannel
1 2 3 product as 4
products services distribution
a service
Digital business model

Digital supply chain

Digital Digital Digital Digital

planning supply manufacturing logistics

A Supply chain integration

B Supply chain automation

C Supply chain reconfiguration

D Supply chain analytics

Source: A.T. Kearney analysis

Digital Supply Chains: Increasingly Critical for Competitive Edge 4

In terms of the key dimensions for digital supply chain management, we differentiate between
digital planning, digital supply, digital manufacturing, and digital logistics. While this study
largely focuses on digital logistics, all aspects of digital supply chains are taken into account.
Key levers for digital SCM listed in figure 4 have been tested empirically as part of our study to
establish what supply chain managers will focus on and what investments they will make in
the next three years.

The SCM function is not digitalizing in a vacuum. While some elements of digitalizing the
SCM function are exclusively within the purview of the SCM departments, such as replacing
paper freight documents with digital ones, the overall digital transformation of the business
model can be thought of as a second dimension of digital outside of its control (see figure 5
on page 6). SCM decision makers who clearly understand the dynamics in this dimension as
well will be better able to address the challenges posed in each dimension. The extent to
which the SCM must transform itself will also depend on whether the company has entered
the market with a digital business model from the beginning as a digital native, or has
adopted it later on as a digital migrant.

Figure 4
Areas of digitalization and supply chain management levers and challenges

Areas for Select digital supply Areas for Select digital supply
digitalization chain management digitalization chain management
of the levers and challenges of supply chain levers and challenges
business model management

1 New SCM requirements for A IT integration across all areas

smart products (for example, of company
Connected chips in textiles) Supply chain IT integration with supply
products Shorter lead times and price integration chain partners
changes for electronic components Paperless freight document

2 New spare parts and B Smart packaging informing and

service requirements
Embedded Setup of online monitoring
services and second- or third-level support
New failure analytics due
to more possible reasons outside
of own products
Disposition and capacity
3
management of rented products
Shared Product and product parts
products, monitoring and replacement
product as planning
a service Logistics for relocation, maintenance,
refurbishing, and repair
Product software management,
including firewalls
acting on conditions of goods inside
Supply chain Radio or GSM tagging and tracing
automation of goods
Radio or GSM tagging and tracing
of packaging and containers
Smart labels communicating with
each other, creating decentralized
optimization intelligence
Robots and autonomous vehicles
C 3D printing and additive
manufacturing
Supply chain
E-platforms for direct carrier
reconfiguration selection and transactions
Use of app-based e-platforms for
express and parcel courier deliveries

4 Direct sales (bypassing wholesalers

or via online) to users and D Big data analytics for
Omnichannel consumers, with smaller lot sizes SCM improvement
distribution and different central and regional Supply chain
storage requirements analytics
Cross-border selling, partially
with own customs solutions

Notes: SCM is supply chain management, and GSM is global system for mobile communications.
Source: A.T. Kearney analysis

Digital Supply Chains: Increasingly Critical for Competitive Edge 5

Figure 5
Interdependence between digitalization of business model and supply chain management

High
Current state

Future state Company A: Digital natives

Digitalization of the business model

Connected products ts
ran
Embedded services al mig
igit
Shared products, product as a service C: D
nd
s Ba
Omnichannel distribution a nie
mp
Co

Company D: Rare case

Low

Low High

Digitalization of supply chain management

Supply chain integration Supply chain automation
Supply chain reconfiguration Supply chain analytics
Source: A.T. Kearney analysis

Digital to Drive Heavy Investment in IT Integration

and Big Data Over the Next Three Years
IT systems integration remains the hottest topicinternally and externally

European supply chain managers tell us that the key digitalization topic for their companies
is SCM IT integration. This is where they anticipate the greatest impacts and where planned
investments are highest. More than 80 percent of respondents expect the integration of IT
systems and data within their group to offer significant, high, or very high potential for improve-
ments to their SCM, and 77 percent anticipate the same from IT networking with partnering
suppliers and customers in the supply chain. A core finding of the study is not just that businesses
expect IT integration internally and externally to deliver strong benefits in the next three years,
but also that 70 percent of respondents intend to make considerable investments in internal
IT integration (42 percent relevant investments and 28 percent high investments) and 53 percent
in external IT integration with supply chain partners (see figure 6 on page 7).

For many companies, IT integration remains a Herculean task. They still have large numbers of
stovepipe solutions that do not interface or share data seamlessly with other systems. Arriving at
and maintaining globally standardized supplier, material, and product data remains an equally
big challenge. When a supply chain spans multiple countries and partners, new challenges arise
whenever acquisitions are made or partners change. Jan Keller, group vice president for supply

Digital Supply Chains: Increasingly Critical for Competitive Edge 6

Figure 6
Digital levers worth investing in for the supply chain

% of respondents expecting % of respondents planning

significant, high, or very high relevant and high investments
improvement (20152017) (20152017)
IT integration across all 82% 70%
areas of own company

IT integration 77% 53%

with SC partners

Big data analysis for

72% 48%
SCM improvement

Paperless freight document

68% 37%
processing and archiving

E-platforms for direct carrier

45% 43%
selection and transactions

New and innovative

43% 27%
computer software

Use of app-based e-platforms for

40% 22%
express and parcel couriers

Radio or GSM tagging and tracing

35% 13%
of packaging and containers

Radio or GSM tagging

33% 15%
and tracing of goods

Smart packaging informing and

33% 8%
acting on conditions of goods

New and innovative

25% 17%
computer hardware

Smart labels communicating

20% 3%
with one another

Robots and Significant improvement

18% 7%
autonomous vehicles
High improvement Relevant investment
3D printing and
15% 7%
additive manufacturing Very high improvement High investment

Note: SC is supply chain, SCM is supply chain management, and GSM is global system for mobile communications.
Source: European A.T. Kearney/WHU Logistics Study 2015

chain at ABB, states: As a rule, our internal IT systems are managed locally. The objective has to
be a unified product base thats identical in every country.

In addition, some businesses remain cautious about IT integration with suppliers and
customers. The potential benefits of streamlining their IT may be clear, but a number of
respondents state that they lack a sufficiently trustful relationship with SCM partners to
engage in more intensive data sharing. Alexander Moldenhauer, chief supply chain officer
at Avanco GmbH, explains: Many of our raw material suppliers have started downstream
activities and turn into competitors, so sharing data calls for a special degree of trust.

Moving forward, the larger companies intend to invest more heavily in IT integration along
the supply chain than the smaller companies. This is hardly surprising, given that they are in a
better position to set standards within their supply chain and thus extend IT integration
outside their own organization. Expected benefits are first and foremost substantially lower
inventory levels and more flexible delivery times and batch sizes.

Digital Supply Chains: Increasingly Critical for Competitive Edge 7

Demand forecasting and planning is focus for IT investments

Digital trends are affecting all supply chain IT systems. This not only refers to general needs, such
as seamless integration and interfacing within and across companies, but also includes real-time
synchronization of data, global standardization of implemented work flows, and rising demands
on cyber security. These trends challenge the core of supply chain IT system functionalities and
features, requiring them to evolve to best support areas such as integrated, automated data
gathering, tactical planning, procurement, and execution (see figure 7).

Fifty-seven percent of surveyed supply chain managers plan to invest significantly in demand
forecasting over the next three years (see figure 8 on page 9). This is some 20 points higher than
for other IT systems in SCM. For example, Fortaco, a Finnish production engineering company,
has integrated a forecasting system into its enterprise resource planning (ERP) system which,
Fortaco CEO Lars Hellberg explains, covers downstream customers and suppliers. Not all supply

Figure 7
Implications of digitalization on supply chain IT systems

Classic IT systems for Degree of change Examples of digital supply

supply chain management caused by digital chain transformation

Demand forecasting Very high Integration of big-data predictive analytics

and planning

Inventory planning Very high Integration of big-data predictive analytics

and management Analytics-based dynamic supply chain segmentation

Warehouse management High Fitness for augmented reality

Better integration of manual and robotics processes and
self-coordinating robots handling packaging beyond RFID

Network and routing Very high Integration of big-data predictive analytics

optimization External interfacing for automated
updating of capacities and schedules

Transport management High Integration with advanced procurement systems

Seamless interfacing with e-platforms for booking
and reservations as part of the standard configuration

Tracking and event High Implementation of more sophisticated machine judgement

management Advanced scenario planning
Process-integrated risk management

Freight document handling Very high End-to-end digital document handling

and archiving Interfacing and integration of all documents and
document handling systems

Transport and logistics High Collaborative optimization

procurement App-based spot-market tendering to truck brokers and truckers
Seamless interfacing with TMS systems

Interfaces with suppliers, High More standardization of interfaces (including due to more
customers, and supply chain shipper-carrier interaction and more independent providers
service providers of specialized supply chain services)
E-platform proliferation

Note: RFID is radiofrequency identification, and TMS is transport management system.

Source: A.T. Kearney analysis

Digital Supply Chains: Increasingly Critical for Competitive Edge 8

Figure 8
Investment in IT systems

% of respondents stating this system % of respondents planning

is part of current supply chain significant investment by 2017
Demand forecasting 58% 57%
and planning

Electronic interfaces 52% 38%

with carriers

Inventory planning
63% 37%
and management

Warehouse
72% 35%
management system

Transport
40% 32%
management system

Tracking and event

52% 32%
management

Electronic freight document

43% 30%
handling and archiving

Network optimization and

42% 20%
routing optimization system

Source: European A.T. Kearney/WHU Logistics Study 2015

chain partners are tied into the system yet, but the company is one of just a few to have deployed
a fully integrated solution of this kind. Under Nico Weidel, the management team member
responsible for supply chain management at CHRIST, the company has developed its own
forecasting system and integrated it into its existing ERP system.

Advanced big-data data analytics will be a hot topic in SCM

Seventy-two percent of the surveyed companies say that big data is capable of delivering
strong improvement effects in SCM over the next three years, as we saw earlier in figure 6.
Companies making more than 80 percent of their products to stock see significantly
greater effects (20 percentage points) than companies making more than 80 percent
of their products to order, underlining the high importance of big-data analytics for
make-to-stock businesses.

Nearly three in five managers plan to invest

significantly in demand forecasting.
According to Manuel Galitschke, director of process management and operations at Cadenzza,
one thing is clear: Theres no shortage of data. What he considers crucial is picking out the
important data, analyzing it, and incorporating it into the ongoing business. And Franz-Peter
Kayser, head of transport and replenishment at German retailer Tchibo, confirms: The data is
already there. It just needs to be utilized and evaluated appropriately. For him, the principal

Digital Supply Chains: Increasingly Critical for Competitive Edge 9

goal with big data is to achieve the required transparency to expose process disruptions and
enable changes to be implemented quickly.

What supply chain managers expect more than anything through big-data analytics is substantial
reductions in outbound inventory: Fifty-two percent of respondents see clear or even very clear
effects here, versus 40 percent for inbound inventory. Forty-five percent expect improvements in
optimization of batch sizes, and 43 percent expect to reduce SCM risk (see figure 9).

Figure 9
Expected effects of investing in big-data analytics in supply chain management

% of respondents seeing clear or very strong effect by 2017

Reduced outbound inventory 52%

Optimized batch sizes for ordering, production, and shipment 45%

Lower SCM risk 43%

Shorter delivery times without increasing inventories 42%

Reduced inbound inventory 40%

Improved transport routing, transport mode selection 33%

Continued growth of large forwarders 18%

Improved mix of contracted and spot buying of logistics services 17%

Improved contracted logistics and transport sourcing 15%

Improved spot market transport sourcing 15%

Note: SCM is supply chain management.

Source: European A.T. Kearney/WHU Logistics Study 2015

However, several of the supply chain managers expect big data to also give rise to major
challenges such as the need for culture change (as a consequence of putting faith in data
without necessarily striving to understand causalities) and the creation of capabilities to
network and evaluate the data effectively.

E-platforms, smart tagging, and 3D printing: Few companies confirm high SCM optimization
potential during the next three years

Just 40 percent of the surveyed companies currently use transport management systems and
software to optimize their transport networks and routing. The picture is similar with respect to
using software for electronic management of freight documents.

In transport sourcing and routing, as well as in optimization of mode selection, considerable

differences are evident between very large enterprises (such as those with revenues of more
than 10 billion) and others. Among the former, the share of those expecting advantages from
big data is almost twice as high.

Only a third of respondents see potential to deliver significant efficiency gains in the three years
ahead by attaching GSM or radio transmitters to products, packaging, or containers to improve
tracking. Insufficient IT integration with other partners in the supply chain, directly or over a

Digital Supply Chains: Increasingly Critical for Competitive Edge 10

shared platform, and the lack of a clear business case for the investment are explanations.
Torben Weilmnster, director of supply chain management for the pharmaceuticals and
consumer division at Merz, acknowledges the advantages of radio-based tracking but
adds: Radio/GSM tagging isnt business-critical. The technology cant generate higher
sales as such. The ability to locate goods precisely at any given time does not yet offer
anyone within the supply chain a sufficiently valuable information advantage to warrant
the higher expense.

Although supply chain managers do not expect e-platforms to drive a marked shift in the
purchase of logistics services toward direct carrier selection and transactions in the next few
years (only 10 percent of respondents support this notion), 45 percent see e-platforms as
becoming of high significance in the optimization of their supply chains.

Only a small group of respondents expect to see appreciable improvements result from
automation technology, in particular through greater use of robots or self-driving vehicles.

Supply chain managers see greater

transparency leading to better decision
making as the main benefit of going digital.
Just 15 percent of supply chain managers expect 3D printing to deliver significant improvements
in the near term, whereas more than half of respondents do not expect it to have any impact at
all in the next three years. One of the respondents adds that 3D printing has not reached a level
where it can replace traditional production techniques and lead to a whole new production
setup, as the range of printable raw material is still quite limited.

Considering all of these focus areas for digitally driven change and investments, what benefits
do supply chain managers expect from digitalization?

Digital Benefits: Strong Effects for Inventory Levels,

Delivery Times, and SCM Flexibility
Focused on cutting inventories and delivery times

Forty-three percent of the companies expect digitalization to clearly lead to more just-in-time
procurement and lower inbound inventories (see figure 10 on page 12). Dr. Stefan Nken, an
executive board member at toolmaker Hilti, explains: A fully integrated system provides
visibility of inventory levels throughout the entire value chain and thus helps us to reduce
inventory levels substantially.

SCM followers (the companies that self-report their supply chain performance as below
average) see greater benefits of digitalization than SCM leaders (companies rating their
supply chain performance as above average or clearly above average) in every dimension.
The difference between perceptions is particularly large with regard to the potential effects of
digitalization on inventory reduction (62 percent of followers versus 35 percent of leaders).

Digital Supply Chains: Increasingly Critical for Competitive Edge 11

Figure 10
Impacts of digitalization on supply chain management

% of respondents seeing clear or very strong effect by 2017

Increase JIT sourcing, reduce order-to-stock 43%

Decentralize inventories to meet delivery time requirements 30%

Streamline route-to-market by taking out wholesalers orretailers 28%

Turn multi-day deliveries in Europe into 24-hour deliveries 27%

Reduce overseas delivery times 25%

Individualize shipment batch sizes 23%

Turn next-day deliveries into same-day deliveries 22%

Reduce number of logistics partners in transportation 20%

Reduce order batch sizes 20%

Reduce shipment sizes 18%

Turn fixed-day deliveries into time-definite deliveries 17%

Turn LTL into parcel shipments 17%

Reduce number of logistics partners in warehousing and value-added services 10%

Turn make-to-stock into make-to-order (or purchase-to-order) 10%

Note: JIT is just in time, and LTL is less than truckload.

Source: European A.T. Kearney/WHU Logistics Study 2015

Almost one-third of participating companies expect digitalization to lead to more decentralized

warehousing in order to shorten delivery times. While around 40 percent of SCM leaders expect
to see this effect, less than a quarter of SCM followers do. Assessments differ widely between
companies that generate more than 80 percent of revenue through direct sales to end customers
and those that market most of their products through resellers: while in the former group only a
few companies (18 percent) expect more decentralized warehousing, a majority (56 percent) of
the latter group hold that expectation. Torben Weilmnster at Merz sees a trend toward inventory
centralization at his company: Decentralized inventories are costly and, in Europe at least, not
absolutely necessary. Here, we can get goods to customers within 48 hours, no matter where
they are.

More than a quarter of respondents expect to see a reduction in the number of stages in the
selling chain through to the end customer. Interestingly, companies that generate 80 percent
or more of their revenues through indirect sales channels are not more inclined than other
companies to use digitalization to circumvent intermediate stages in the selling chain.

Better SCM decisions, less risk, greater flexibility

The study assigns the expected benefits for companies into the categories of improving
customer value (which can translate into higher sales volume, higher prices, or higher
customer bonding), improving supply chain agility and reducing supply chain risk, and
reducing supply chain costs.

Digital Supply Chains: Increasingly Critical for Competitive Edge 12

Overall, supply chain managers see greater transparency and, thus, better SCM decisions as being
the foremost benefit that the digital levers can deliver, and 65 percent of SCM leaders expect
to see a clear or very strong benefit in terms of SCM flexibility from digitalization in the next
three years (see figure 11). This comes as no surprise to one experienced supply chain manager
in the mechanical engineering sector who took part in the survey: The more transparent a supply
chain, the greater the number of options that can be explored in the decision-making process.
Today, few companies actually have the transparency to see how much vendors charge on
various routes. I think there are sizable savings to be found here.

Figure 11
Positive impacts of supply chain digitalization

% of respondents seeing clear or very strong positive impact from digital levers
Better overall SCM decisions
70%
thanks to greater transparency

Increased SCM flexibility 65%

Lower inventory and

52%
warehousing costs

Lower supply chain risk 48%

More efficient or differentiating

45%
delivery supply chain

Higher product and service quality 42%

More efficient or robust

38%
inbound supply chain

Lower transport and logistics

38%
administration costs

Freed-up time for tactical

32%
and strategic tasks

Lower supply chain complexity 32%

Lower transportation cost 23%

Note: SCM is supply chain management.

Source: European A.T. Kearney/WHU Logistics Study 2015

While 61 percent of companies that market their goods primarily through intermediaries see
digitalization offering a clear benefit in terms of an increase in product and service quality, the
same is only true of a third of companies that generate more than 80 percent of their revenues
through selling directly to end customers.

SCM departments expected to shrink as a result of digitalization

While only one participating supply chain manager expects a revenue decline for his company
when comparing 2017 with 2013, 23 percent expect overall SCM costs to go down during this
period. And although one-third of participants expect their companys revenues to grow by 10
to 25 percent during this period, less than half see an increase in SCM costs in the same range.

Digital Supply Chains: Increasingly Critical for Competitive Edge 13

Forty-three percent of supply chain managers polled expect digitalization to lead to a reduction
in SCM headcount in the next three years (see figure 12). By contrast, only 15 percent expect the
headcount to increase.

Figure 12
Impact of digitalization on employment in supply chain management

Distribution of responses
Supply chain strategic and tactical planning 10% 60% 30%

Transport and logistics procurement 18% 72% 10%

In-house transportation service execution
22% 73% 5%
(for example, own drivers)
In-house warehouse and value-added services 25% 58% 17%
In-house transportation asset management
27% 71% 2%
(vehicles, ships, containers)
Operational SCM 28% 54% 18%

Customs handling and global trade administration 28% 62% 10%

In-house production logistics 30% 57% 13%

Transport and logistics administration 47% 48% 5%

Overall effect on SCM full-time-equivalent employees 43% 42% 15%

Decrease No change Increase

Note: SCM is supply chain management.

Source: European A.T. Kearney/WHU Logistics Study 2015

The larger the company, the higher the expectation that staff will be cut: close to three-quarters
of the companies with annual revenues of more than 1 billion anticipate making workforce
reductions because of digital trends. Employees working in transport and logistics adminis-
tration functions will be affected the most. In this segment, 47 percent of the companies
expect cuts. The situation is similar in the customs and shipping processing functions.

In contrast, strategic and tactical supply chain planning is becoming more important: it is the
only area in which many companies are planning to increase headcount. As one respondent
explains, Many of the processes directly involved in SCM can be automated and greatly
simplified. Parallel to this, strategic SCM activities will gain greater importance and play a key
role in creating a competitive advantage.

No Revolution, but High Expectations for Continued

Digital Supply Chain Evolution
The study clearly shows that evolutionary changes will take place in select areas. Supply chain
managers expect big benefits from continued digitalization in their supply chains. Namely,
they expect greater transparency and flexibility, plus a reduction in inventories and delivery
times, particularly through better integrated IT systems within their own company, along their

Digital Supply Chains: Increasingly Critical for Competitive Edge 14

entire supply chain, and through big-data analytics, which has climbed very high on the ranks
of importance for supply chain managers.

However, it seems no revolution is in sight for the digitalization of supply chains. Supply chain
managers do not plan on transacting directly with carriers rather than using freight forwarders,
and there are no major moves either to eliminate stages in the selling chain to the end customer
or to significantly change batch sizes at each processing stage. Over the next three years,
neither the self-declared SCM leaders nor the SCM followers are planning to make significant
changes to the number of logistics partners they work with. Three-dimensional printing, a
potentially disruptive technology that could change supply chains entirely by printing parts
at the point of need, is expected to only play a minor role until 2017.

The pace for digitalization may increase significantly as cross-industry initiatives aim to better
connect supply chains among companies to achieve next-level cost and delivery speed optimi-
zation. Linking customer data, sales forecasts, historic differences between plans and reality, and
forward-looking SCM data can create much-improved supply chain planning. On the other hand,
linking the transport and logistics procurement systems enabled for collaborative optimization
with operational systems will be one of the tasks that go largely unsolved. Linking virtual produc-
tion simulation to SCM simulation is another item that goes unchecked on many action lists.

The degree of transformation for supply chains will depend on the industry sector and company,
but we expect it to create significant productivity benefits overall, both within the next three
years and beyond. We strongly believe that companies may achieve exponential gains by acting
on some of the supply chain digital levers not presently judged as creating revolutionary change
over the next three years. In manufacturing, many companies that make smart investments in
disruptive supply chain configurations will be able to create a competitive advantage for the
entire business model; 3D printing will be one of them. For the short term, laying the IT and data
groundwork, this study shows, is the highest priority.

A.T. Kearney Khne Institute for Logistics Management,

WHUOtto Beisheim School of Management

Dr. Bernd Schmidt, partner, Dsseldorf Prof. Dr. Carl Marcus Wallenburg,
executive director,
Vallendar and Dsseldorf
wallenburg@whu.edu

Dr. Sven Rutkowsky, Lukas Einmahl,

principal, Dsseldorf research associate, Dsseldorf
sven.rutkowsky@atkearney.com lukas.einmahl@whu.edu

Ingo Petersen, consultant, Munich

ingo.petersen@atkearney.com

Felix Kltzke, consultant, Berlin

felix.kloetzke@atkearney.com

Digital Supply Chains: Increasingly Critical for Competitive Edge 15

About A.T. Kearney

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About WHUOtto Beisheim School of Management

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