Are you ready for the digital value chain?

By Rüdiger Stern and Matthias Ziegler August 2013

Music, books, art, maps, the ways we communicate—these and countless other things that used to be primarily physical or analog are now digital as well, and that has changed the ways we live, work, learn and play. But that is just the tip of the iceberg. Today, technology is enabling the digitization of almost everything—even manufacturing. Want your own special protective case for your mobile phone? One device manufacturer has made available digital files that will let consumers design a custom case for their phone, then have the case made on a 3D printer.

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In fact, innovative examples of digitization are arising across the entire corporate value chain—not just manufacturing but also new-product development, sourcing, marketing, distribution and service (see chart).

Sooner or later, every company will have to deal with the impact of digitization on its business model. Innovative digital solutions can reduce costs and add value at every stage of a product’s lifecycle, both within each stage of the value chain and across its entirety. Digitization enables businesses and governments to operate with greater transparency and efficiency, and it boosts consumers’ access to everything from innovative products to public services.

Although the focus of media reports is often on specific examples of digitization, it is essential for businesses to see the bigger picture—the truly revolutionary possibilities available by harnessing the synergies of a fully integrated digital value chain. Companies also now need to see data management as a core competence. In the digital age, data is a strategic asset. A company’s data must be able to yield the relevant information for improved or new products and services across intelligent, digital networks.

Innovative applications across the digital value chain

How is digitization altering specific steps in the value chain, and even optimizing the makeup of the chain itself? The marketplace is seeing vibrant innovation in many specific areas; the next step will be to integrate these one-off innovations to help create an end-to-end digital value chain that creates unparalleled business opportunities.

Sourcing and procurement: eKanban
Kanban is a scheduling system for lean and just-in-time production. For decades, Kanban has been helping companies keep inventories low by ensuring that goods and equipment arrive just before a production run begins. Today, electronic Kanban (eKanban) uses the Internet to route messages to external suppliers, providing real-time visibility into the entire supply chain. These methods can lead to a host of benefits, including lower inventory stock levels, less physical transportation, a reduction in working capital and increased liquidity.

Auto manufacturer BMW implemented an eKanban system together with Lear Corp., a supplier of car seats. Based on BMW’s daily demand and supported by an enterprise resource planning system interface, forecast delivery schedules are sent to Lear in real time, and the supplier then has 300 minutes to produce and deliver the seats directly to the assembly line. In its first year of operation, the eKanban system produced savings of more than $82.6 million.

Manufacturing: RFID
In addition to the 3D printing innovation mentioned earlier, other digital developments are helping to make the overall supply chain more intelligent, which, in turn, makes the manufacturing process leaner and faster.

For many companies, the inability to locate a crucial component in the warehouse can jeopardize an entire assembly cycle. Today, technologies such as RFID tags are enabling organizations to transform their existing hybrid supply chain structures into more open, agile, flexible and collaborative digital models. For example, TAP Maintenance & Engineering has introduced state-of-the-art RFID technologies into its daily engine-maintenance operations. As part of the new solution, RFID ultra-high frequency labels are codified, printed and attached to the engine components undergoing maintenance. This process enables the engine-maintenance department to identify each component in all the subsequent processes, providing transparency and visibility of information that supports faster and more error-free maintenance.

Marketing: Gamification
Digital channels are enabling companies to create deeper and longer-term relationships with those who buy and use their products. Consider how 100-year-old alpine equipment company Rossignol is developing “gamification” tools as a way to move closer to its customers. Tapping into the fact that skiers and snowboarders love to gather at the end of the day and relive their best runs, Rossignol’s mobile Ski Pursuit app helps track users’ daily and season-long performance. Ski Pursuit also enables skiers to share details of their statistics via Facebook and Twitter.

The companies mentioned above are important pioneers. At the same time, these function-oriented innovations are only the first step. As the industry moves forward, the more important development will be in creating truly intelligent digitized value chains.

Creating an intelligent value chain

What are the possibilities for companies when digitization does not just improve one part of the value chain but optimizes multiple aspects of it? One peek into the future is happening today at Trumpf, a German producer of intelligent machine tools and industrial laser systems. Going beyond just improving the efficiency of manufacturing, Trumpf is mining the information provided by its machines to gain deeper, actionable insights and also to network those machines together in an intelligent way to create smart factories. Connected in this way, the machines can autonomously exchange information, trigger actions and control one another.

Several advanced technologies are at the heart of the system. A cloud-based platform provides remote diagnostics. Trumpf software for production control takes the inventories and the urgency of order processing into account and allows the production status to be remotely monitored via an application. In the future, machines will be controlled using iPads, and laser lenses will be equipped with RFID chips that will signal when it’s time for them to be cleaned.

Is your business ready for the next wave of digitization?

One important way to prepare for the coming of the digital value chain is to perform a short diagnostic, a self-assessment that can help executive decision makers plot a course toward their digital future. Areas of inquiry include:

  1. What impact will digitization have on your products, services, organization, processes and end-to-end value chain?
  2. What opportunities do you have to leverage digital technologies such as 3D printing, eKanban or RFID in your products, services, organization and processes?
  3. What steps are you taking to embed digitization into your value chain—R&D, marketing, sourcing, production and service, as well as upstream and downstream value chain processes?
  4. What data will be required to optimally digitize your value chain, and what portion will come from internal vs. external sources?


All industry sectors are likely to be transformed by the increasing digitization of the value chain. Although pursuing point solutions in one part of the chain is a good start, it will also be vital to adopt an end-to-end and holistic digital mindset. That perspective can help identify the potential for intelligent products and networks across extended value chains, and help companies stay relevant to digitally empowered consumers around the world.