Why digitally native supply chains are more resilient and agile

Explore the shift to digital-first supply chains, leveraging AI and cloud technology for market agility and operational efficiency.

In brief

• The digital revolution underway in supply chain management is driving greater transparency and more informed and strategic decision-making.
• Truly integrated technology ecosystems allow businesses to automate processes so supply chain leaders can focus on more strategic functions.
• Adopting a digitally native approach to supply chain management can be an important step to rapid transformative success.

We have Marc Prensky, a technologist and educator, to thank for really capturing a major shift in society with two important words. He coined the term “digital native” to describe that first generation of humans born into an always-on, connected digital world. The rest of us, who adapted and had to do so, are “digital immigrants.” When we apply this concept to business, we think of a digitally native supply chain as one that was designed from scratch using modern digital technologies and automation to facilitate an interconnected network of products and services that move seamlessly from suppliers to producers to the end consumer.

Establishing a natively digital supply chain

How do supply chains go digital? First consider what features should be prioritized when establishing a natively digital end-to-end (E2E) supply chain strategy. This requires a clear and detailed understanding of the needs of your customers and your market to enable the right selection of technology enablers. Implemented and built in the right ways, with appropriate technologies, digitally native supply chains embrace the power of digital technologies to automate and optimize the supply chain ecosystem from the ground up, with extra attention focused on the linkage between systems.

Things have moved quickly. Rapid advances in Generative AI (GenAI), machine learning (ML), the Internet of Things (IoT) and digital twins now arm supply chains with advanced visibility and intelligence to help companies adapt to market fluctuations more dynamically. These digital innovations enable smarter forecasting, real-time inventory management and streamlined logistics, bolstering collaboration across multiple enterprises.

Companies must recognize that merely implementing new technologies as an end in itself — a strategy we might call “digital-for-digital” — is insufficient to unlock true value. To truly capitalize on the potential of the latest advancements, including GenAI, businesses must pursue a transformative approach that yields tangible returns within months, not years. This strategic integration of technology not only drives efficiency and innovation but also serves as a magnet to attract and inspire top-tier supply chain talent. By doing so, companies can confirm that their digital investments are not just leading edge but also deeply integrated with their overarching business objectives, talent development and process optimization.

For instance, consider the traditional separation of demand and supply planning within organizations. In an era where digital tools are increasingly taking on the analytical workload, one must question whether this division still serves a purpose. Would a unified approach to planning be more effective? Similarly, warehouse management and transportation management could benefit from a more integrated, seamless interaction. These are the types of questions that emerge when adopting a digital native mindset to re-evaluate and enhance digitalization use cases in your business.

Capabilities and technologies

Improved E2E visibility and traceability can be enabled by a combination of modern technologies and capabilities that are currently readily available in the market. IoT devices can facilitate direct interaction with service providers and create real-time data and analytics, allowing for improved planning and execution capabilities. AI-enabled forecasting tools now achieve high levels of accuracy in demand planning, supply planning and early risk detection. Dashboarding tools and business intelligence platforms can aggregate large volumes of information into user-friendly displays when qualitative judgments are required in addition to quantitative measures.

Digital twin technologies have been fully adopted by 28% of organizations. These can help an organization simulate physical supply chains and conduct increasingly critical scenario planning, with use cases that range from warehouse floor plan optimizations to global product flows. Visibility and workflow tools can also link multiple organizations’ data and inventory systems to help automate the flow of products and information across many partners in the supply chain, saving considerable manual effort. Anchoring these technologies in the cloud provides the scalability needed to meet fluctuating demands across multiple enterprises without compromising information security.

Ecosystems: seamless scalability and accessibility

To design a natively digital supply chain, stand-alone systems that exist within your four walls are only the first step: individual enablers, tools and capabilities need to be linked in a thoughtfully constructed ecosystem to achieve their full potential.

Digital demand sensing can be combined with integrated planning tools that perform best when market data is available in real time and analyzed by AI-powered supply chain software. AI-supported sourcing platforms can derive the material requirements for production runs to minimize lead times and work-in-progress (WIP) inventory value, which makes contract lifecycle management tools more effective for supplier relationship management activities. Demand projections and digital twins enable product design and prototyping to allow for better cost controls in procurement activities, as well as improved manufacturability. Optimized delivery routes help to facilitate vendor-managed inventory programs via retailers, who can then issue wire transfer payments enabled by three-way match accounts payable systems.

When digital supply chain tools are connected intelligently, it is possible to unlock hidden value. A digitally native organization can respond to early warnings of shifts in demand trends, update their material requirements accordingly and scale their distribution systems appropriately to meet the full extent of their client’s needs.

Steps to get started

When planning how to enable a natively digital supply chain, many factors must be evaluated. These include short- and long-term roadmaps, company culture, change management and many other industry-specific considerations. As a starting point, organizations should strive to standardize technology tools and prepare their data to enable the specific capabilities they want to develop. Understanding which aspects of supply chain decision-making are best handled by automation vs. employees is a reasonable place to begin.

It’s important to know that finding the optimal balance between human touch and automation for core processes is easier than it sounds. Automation can drive increased efficiency and cost savings, while reducing the opportunity costs for managers to act strategically based on key objectives from corporate leadership. When routine, repeated tasks are managed through AI technology accelerators, and customer outcomes improve, resulting in higher levels of satisfaction and employee engagement. The EY philosophy of “Humans at Center, Technology at Speed, Innovation at Scale” helps to guide our approach to this topic when we advise our clients.

Is your business ready to go natively digital?

Parag Jategaonkar, Principal, Ernst & Young LLP and Eric Perman, Senior, Ernst & Young LLP also contributed to this article.