The increasing frequency of supply chain disruptions – be it a shift in consumer patterns or the all-embracing impact of COVID-19 – is a huge challenge for retailers, adding to the already present thousands of SKUs, hundreds of suppliers and numerous consumer groups. This is why the retail industry is adopting digital solutions at an accelerating rate – so that they are able to address the increasing complexity of operations which, to some extent, people are no longer able to process efficiently.
This article examines the trends in digitalization, the potential approaches to and the way of thinking about digital transformation of supply chains. It also gives practical examples of digital change planning for inventory management and the implications for taxation efficiency with respect to robotization in Poland.
Trends in digitalization
PwC’s 2020 global survey on the impact of supply chain digitalization on the performance of businesses highlighted a very important finding: champions in supply chain digitalization not only enjoy more automated operations and customer service, but also attain tangible benefits of their investments in supply chain such as doubled levels of sales revenue growth and cost cuts.
Chart 1. Study on the impact of supply chain digitalization
Source: Digital Supply Chain PwC Study 2020.
We predict that the gap between digital novices and digital champions will widen further, because due to the dynamic changes on the markets and the turmoil caused by the COVID-19 pandemic, the adaptation of digital solutions among champions has accelerated and begun to encompass all levels of decision-making within organizations: from strategic to tactical to operational (see Chart 2).
Chart 2. Examples of supply chain management systems in the context of digitalization
Source: PwC analysis.
Today, the myriad of ready-made digital solutions available on the market allows companies to fully move their software operations to the cloud or to implement Control Tower (CT) solutions.
Some, for example, use BlueYonder and akin software solutions to build 4PL CT set-ups under which they shift the responsibility for ordering to the logistics service providers. Such solutions also provide high transparency of operations and responsiveness.
Others are working on quickly integrating strategic supply chain decisions into the tactical dimension using supply chain optimization software such as e.g. LLamasoft Supply Chain Guru. Solutions of this type enable more frequent, and even ongoing changes to be made to elements that have so far been perceived as fixed, such as logistics network topology, and demand forecasting mechanisms.
Finally, some integrate different solutions through ETL mechanisms like e.g. Alteryx. The flexibility and multiplicity of operational and transactional digitalization solutions enable greater efficiency in collecting and processing information and increase effectiveness of processes across supply chains. The examples below show how many different types of solutions can be used to digitally transform the various dimensions of designing, planning and executing supply chain operations in retail and wholesale companies, as well as others.
Chart 3. Examples of digital solutions applied in supply chain management
Source: PwC analysis.
Approaching digitalization
Companies may have very different approaches to digitally transforming their operations (Chart 4). Some focus on in-house solutions that they have worked out on their own or on dedicated software. Such solutions provide a high level of customization but they are also less prepared for change. Others base supply chain digitalization on integration through ETL mechanisms, which provides high flexibility and adaptation to the needs of the company. These types of solutions provide a very high level of flexibility and the ability to replace one set of building blocks with another. An even bolder approach is integration with supply chain modelling software which improves the visibility of flows and makes it possible to understand complex operations but requires the development of dedicated competences within the organization. Finally, some modern ERP suites have the ability to integrate various supply chain modules to meet virtually any need from the operational and transactional perspective.
Chart 4. Approaches to supply chain systems integration – pros and cons
Source: PwC analysis.
How to think about digitalization – priorities matter
When thinking about a digital strategy for the supply chain, it is worth starting with determining priorities, because there are many possible ways to act. Improved visibility of operations, higher efficiency, better insight into supply and demand, or increasing the adaptability of operations through “intelligent sensing” and automation – completely different areas among these may prove to be relevant to different businesses.
Chart 5. Approach to development of digital capabilities
Source: PwC analysis.
The various digital solutions identified above allow given problems to be solved or given objectives to be achieved to varying degrees. Therefore, digital change should be directly linked to strategic initiatives which, in turn, will dictate the type of skills which a company needs to develop both in terms of digital solutions and the skills to implement them. Looking beyond the supply chain, it is therefore essential to define the digitalization plans derived from the strategy.
How to plan for digital change – example of an inventory management system
In our opinion, it is best to spend the first 2–3 weeks analysing the existing operating model and identifying inefficiencies, so that they can be improved digitally, and also to already design digital solutions for the improved operating set-up. The next 2–3 weeks should be spent on defining the most suitable digital transformation scenario (from among the 5 mentioned above). The time spent on software integration will always depend on the target solution and deviations from existing processes, but basing the implementation on solid foundations will minimize the risk of time-consuming, costly changes and revisions at a later stage.
Digitalization with tax benefits
When planning investments in supply chain digitalization, it is worth considering the potential associated benefits. This is because, as part of building an innovation and investment-friendly tax environment, Poland’s Ministry of Finance has announced the introduction of a new CIT and PIT relief, the so-called robotization tax relief. It will allow for an additional deduction of investment costs incurred by Polish enterprises for robotization in 2021–2025.
According to the published assumptions, taxpayers who incur investment costs related to the robotization of their enterprise will be able to make an additional deduction of 50% of the costs incurred for that purpose from their income tax. This means that the benefit in the form of a tax refund may amount to up to 9.5% of the investment costs incurred. The only limitation is the planned list of eligible costs subject to deductions:
purchase or lease of new fixed assets such as robots and cobots;
purchase of software;
purchase of equipment (e.g. tracks, rotators, controllers, motion sensors, end effectors);
purchase of occupational health and safety (OHS) devices or training for employees who will operate the new equipment.
The legislator intends to allow all enterprises, regardless of their size or industry, to benefit from the robotization tax relief.
Due to the absence of final provisions governing the robotization tax relief, at present it is difficult to specify the exact scope of investments that will eventually be recognized as eligible for an additional deduction. However, it appears that investments in supply chain digitalization will also be able to fit into the planned robotization tax relief. This will effectively reduce investment costs. However, it will be necessary to identify individual expenses in terms of how they fit into the list of eligible costs and to calculate the amount of the deduction in accordance with the tax rules. We should be able to learn about the regulations themselves within the next few months, because the intention to introduce the new tax relief was announced in the National Reconstruction Plan on 26 February 2021.
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