The Differences Between Digitization, Digitalization And Digital Transformation In Supply Chain

Updated: Sep 29


The Differences Between Digitization, Digitalization And Digital Transformation In Supply Chain

After the Covid-19 crisis, businesses have begun to realize that the Supply Chain and manufacturing ecosystem are becoming obsolete, making logistics optimization solutions more necessary than ever. "Digitization", "Digitalization" and "Digital Transformation" are the three buzzwords that are often mentioned in the present context, when supply chain businesses, from shippers to carriers alike are all seeking for a structural reform after the damages that social distancing has caused over the last two quarters.


Because of a multitude of definitions across different industries, those terms are often mistaken, and even being used interchangeably sometimes, which likely induces unwanted troubles for decision makers. With that in mind, clarifying the ambiguities between Digitization, Digitalization and Digital Transformation is an imperative for businesses before getting involved in any digital-related investment.


1. What are Digitization and Digitalization?


What are Digitization and Digitalization?

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  • Digitization is the process of converting information from a physical or analog format into a digital one.


For example: Mr. John scans his company's documents into PDF format and saves them to the C drive on his PC.


  • Digitalization is the process of leveraging digitized data to improve business processes.


For example: Mr. John scans his company's documents into PDF format and saves them to the drive C on his personal computer. He then uploads those files to his company's cloud platform so his employees can see and access them anywhere, anytime.


The difference between Digitization and Digitalization can be clearly seen in the two examples above. Mr. John has implemented "Digitization" but in a more advanced manner. It can be inferred that:


Digitization is the initial step towards Digitalization.


2. What is Digital Transformation?


What is Digital Transformation?

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  • Digital Transformation is the implementation of a series of technological and human changes to restructure the existing business models, thereby leading to new opportunities and values for businesses.


For example: Mr. John’s company implements a Transportation Management System (TMS). His current cloud-based documents have now been integrated with this TMS to facilitate the company's operation process. Mr. John also provides the training of this solution to his employees while readjusting the operation process to fit it best. Mr. John's company has now greatly reduced operating costs and working time. These resources can be used to enter new markets or reinvest in developing other solutions to create new values for the business.


3. The differences between Digitization, Digitalization and Digital Transformation


Digitization is the process of converting information from a physical or analog format into a digital one. When this process is leveraged to improve business processes, it is called Digitalization.


Digitalization and Digital Transformation are similar in the aspect of applying technologies to improve business processes. Said technologies can be as simple as uploading files to a company's intranet or as sophisticated as the Internet of Things (IoT), Machine Learning or Big Data Analytics, etc.


However, Digitalization and Digital Transformation are different in the human factor and sustainability value.


  • The human factor: firstly, for Digital Transformation, the operations themselves and the entire workforce from the board to the staff must be "renovated" to become more flexible, more technically proficient. According to McKinsey, four out of five factors that win companies Digital Transformation lie in the human element: leadership, capability building, empowering workers, communication and all the way to the last, tool technology improvement [2].

  • Sustainability value: secondly, Digital Transformation is an endeavor that needs to be thoroughly planned and takes a lot of time (3-5 years). Unlike Digitalization, Digital Transformation does not simply require businesses to apply a lot of advanced technologies into their operations nor can be completed in a single project [3]. Therefore, it can be inferred that a Digital Transformation roadmap will include many Digitalization (and Digitization) projects. In addition, the sustainability of Digital Transformation is expressed in many other factors such as the integration and solidification of technologies, or a customer driven growth mindset to name a few.


If Digitization and Digitalization are deemed the first and second steps. Digital Transformation is the third step in the breakthrough of businesses in the 4.0 economy.


Comparing Digitization, Digitalization and Digital Transformation

4. Digitalization and Digital Transformation in the Supply Chain


Digitalization and Digital Transformation in the Supply Chain

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Under the rise of the Internet of Things, 2.5 quintillion bytes of data are being generated every day. Consumers are among the most significant sources of this sea of data: their browsing history, past purchases and payments, all of which leave huge trails of information. According to the World Economic Forum (WEF), the value at stake from these sources can reach up to 900 billion dollars [4].


In tandem with this opportunity are the emerging technological and operational pressure for Logistics and Supply Chain businesses. The unprecedentedly large amount of data is overloading outdated technology platforms. Not only that, the growing consumer demand is putting operational burden on the Supply Chain. When a week is no longer considered enough, customers want their order “now”.


Under extreme market pressure and increasingly fierce competition, not only traditional brick-and-mortar businesses, but their rivals - ecommerce platforms are trying their best to take advantage of Digital Transformation [5]. Operational agility and advanced technologies can create strategic advantages over competitors. From there, businesses can shorten lead time by optimizing delivery routes and monitoring logistics activity in real time.


To accelerate the lengthy Digital Transformation process, many businesses in the Supply Chain sometimes resort to arbitrary platforms to gain immediate benefits [6]. For example, by using two separate platforms, shippers can achieve a fleetingly high turnover. However, the two platforms will cost a lot of time and money to integrate when needed. While still having to ensure competitiveness, a business is likely to lag behind its competitors by spending a lot of its resources to relocate separate platforms into a new integrated one.


5. Solving the Digital Transformation problem for the Supply Chain


Solving the Digital Transformation problem for the Supply Chain

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According to Accenture, successful Digital Transformation requires the Supply Chain to become more flexible in order to thrive in an environment of shorter lead times with higher frequency and uncertainty of customer demand. Business leaders need to improve their business processes to make their operation processes less cumbersome, thereby becoming less vulnerable to internal technological changes as well as potential risks of discontinuities from the Supply Chain. [7]


Companies will also need a micro-level visibility across the Supply Chain. Technological advances such as the Internet of Things will empower companies and their partners to monitor their logistics activities in real time. This will allow firms to respond better to rapid changes in consumer needs, help carriers and distributors significantly improve their logistics efficiency and enable retailers to manage their inventories more effectively. [8]


Finally, businesses also need a platform that can connect with others conveniently and undertake multiple functions to facilitate their Supply Chain management.


Abivin vRoute is an optimization platform for Logistics and Supply Chain management that encases all of the three proposed solutions. In addition, businesses are also supported with in-house deployment and training, hence reducing the cost and time for Digital Transformation to the lowest.


Conclusion


Business owners need to discern the differences between Digitization, Digitalization and Digital Transformation in order to develop a disruptive vision for maximum growth. To attain true sustainability, the Supply Chain needs to go through a vigorous and extensive process of Digital Transformation, which is generally a demanding journey involving a considerable amount of resources. However, with Abivin vRoute, company's time and effort will be utilized in the most economical and optimal way.


Contact us now to get started with Digital Transformation for your supply chain with Abivin vRoute!


References:

[1]https://workingmouse.com.au/innovation/digitisation-digitalisation-digital-transformation

[2]https://www.mckinsey.com/business-functions/organization/our-insights/unlocking-success-in-digital-transformations

[3]https://www.exelatech.com/blog/why-digitization-isnt-enough-difference-between-digitization-digitalization-and-digital

[4]http://reports.weforum.org/digital-transformation/wp-content/blogs.dir/94/mp/files/pages/files/dti-consumer-industries-white-paper.pdf

[5] http://info.forbes.com/rs/790-SNV-353/images/Penske_REPORT-FINAL-DIGITAL.pdf

[6]https://www.ey.com/Publication/vwLUAssets/Digital_supply_chain_-_its_all_about_the_data/$FILE/EY-digital-supply-chain-its-all-about-that-data-final.pdf

[7]https://www.accenture.com/_acnmedia/PDF-16/Accenture-World-Economic-Forum-White-Paper-January-2016.pdf



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