The Algorithmic Supply Chain


Earlier this year, I read a Fortune article, “The Algorithmic CEO”, by Ram Charan. He describes how this new world of algorithms and the internet of things (IOT) will be an engine of creative destruction to our business world, obsoleting time-tested business models while enabling new ones.

The IOT and use of algorithms to sense, understand, predict and act will transform all businesses, especially the manufacturing and trade industries. For those who can transform their organization to take advantage of the data influx can achieve real-time direct feedback from customers and respond automatically to adjust product, price, promotion, packaging, and place.   To secure your business for the next technology leap, you cannot ignore the new capabilities that are available to manufacturers.

Why is this transformative? The information flow from the customer through the distribution channel to the manufacturer has been serial for decades.   Retailers collect information from consumers, distributors from retailers, and manufacturers from distributors.   Manufacturers’ decision making was only as good, and as fast, as the information that was provided through their distribution channel.   This is no longer the case.

We are entering a new stage in the evolution of supply chains.   In the first stage, before the industrial revolution, there were one-to-one transactions between artisans and their customers.  Next came mass production and mass marketing.  Businesses then evolved to market segmentation and greater collaboration across the supply chain thru electronic communications.  The information flowed faster, but still serially.  The big leap forward with the real time, frictionless flow of information is actually a big leap backwards to the artisan model; the market segment of one.

What Mr. Charan suggests is that “To some degree, every company will have to become a math house.  Every organization will have to make use of algorithms in its decision-making…”   While I agree that every organization will have to make use of algorithms in its decision making, I doubt that all manufacturers and distributors will invest in data scientists and become a “math house” as Charan calls it.

How will these companies realize supply chain math house capabilities?   By leveraging smart software offerings with the algorithms built-in, companies can bring together the optimization capabilities of smart software with the transactional, big data, already resident in their current ERP systems. SAP is on the forefront of enabling the real time supply chain with in-memory computing;  which is the technological break-through that enables greatly simplified data structures, and speeds processing up to 10,000x faster.

SAP’s S/4HANA suite is the platform to enable the creative destruction of the old business models.  And specific to supply chain, S/4HANA  Simple Logistics will transform ERP from a transactional system of record to a real time optimization and execution engine.   With a simplified data structure enabling processing speeds up to 10,000 time faster than traditional database technology, S/4 delivers the computational and processing power to enable the Algorithmic Enterprise.

The second blog in this series will focus on the predictive and simulative capabilities of SAP S/4HANA that will enable the Real Time, Algorithmic Enterprise.

To read more about Real-Time Business, visit this blog by itelligence Chief Solutions Officer, Mark Mueller.

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