The shift to digital technology is taking place during a difficult time for the agriculture industry. On average, the growth rate for the companies in the study was flat from 2011 to 2013, and it has been declining since then. Most recently (2015), revenue for all the companies in the study declined year over year by 15 percent. Operating profit growth, as represented by EBITDA (earnings before interest, taxes, depreciation and amortization), has also been slowing, down 11 percent from 2014 to 2015.
The supply chain can play a vital role in helping agricultural chemical companies improve their performance and get out of the financial doldrums—and digital technology is key to improving the supply chain. Most appear to recognize this opportunity. Indeed, 80 percent of the study respondents reported that they have developed a digital supply chain strategy within the preceding 24 months—a clear indication that they see the digital supply chain as a valuable set of capabilities during a complex, disruptive time in the industry.
The industry’s path to digital
The study asked agricultural chemical companies where they expect to see the greatest impact from their supply chain-related digital technology efforts. Topping the list was “planning,” where digital improvements can help companies respond to supply chain disruptions and changing customer needs. Second was the “end-to-end supply chain,” which suggests that companies see potential digital benefits by looking across the whole supply chain from supplier through customer and everywhere in between. From a bottom-line impact perspective, 80 percent of the participants selected either “cost/efficiency “or “working capital/cost of capital” as the primary benefits they expect to see from investments in digital technologies. And companies are tracking results, with many saying that they are linking investments in digital to broader financial metrics within the organization.
Where is the industry targeting its digital technology investments? Companies have been focused on mobility, collaboration and cloud (see Figure 1), and in general, their investments are paying off. Respondents said that they have seen improvements in business performance from all five of those technologies. However, collaboration and big data/analytics were cited most often. All the respondents have seen some improvement from those two technologies, with 80 percent and 60 percent, respectively, saying the improvements have been “significant.”
Looking ahead, the focus shifts somewhat. In the next three to five years, more companies expect to be investing in Industrial Internet of Things (IIOT) technology—a necessity for the kind of enhanced visibility that will facilitate greater efficiency and responsiveness in the supply chain. Investment in big data/analytics and mobility is expected to decline, and no respondents expect to be investing in collaboration technologies in that time frame. Here, today’s high level of investment in collaboration technology may simply be giving companies a sense that they could be “done” on that front within a few years.
Interestingly, most respondents said they are neither satisfied nor dissatisfied with investments in digital technology to date. That is somewhat surprising, given the improved business performance companies have seen from digital investments, and their plans for continued investment. But that response may reflect their high expectations for the technology. That is, they are still early in the deployment of digital technology, so they may see that there is still potential to be realized.
Companies may also have their eye on some of the challenges still to come. When asked about the barriers to obtaining value from digital technology, “existing workflows” and “organizational culture” topped the list (see Figure 2). Fewer respondents pointed to issues such as cybersecurity or the immaturity of technology. The challenges, it seems, are centered more on a company’s ability to use the technologies sustainably than on the technology itself. Changing existing organizational behaviors and workflows is not easy, and building a “culture of digital” requires a strong commitment from senior leaders.
Nevertheless, the industry is clearly sticking with digital technology. Companies view it as a work in progress and seem to have confidence that it will deliver on its promise, tracking financial metrics to see that it does.
The research points to three areas where agricultural chemical companies can focus their digital supply chain efforts to help ensure success.
Move from descriptive to predictive analytics. Companies should begin moving from descriptive to predictive analytics, which can help them not only understand changes in the supply chain, but also react to those changes more quickly⎯and in a more automated fashion. For example, most respondents see analytics as being a key tool in the coming years, with a majority expecting the storage and processing of unstructured data and machine learning to gain importance in the next three to five years.
Address organizational issues. At the same time, companies will need to address organizational issues. As the study shows, they recognize that simply implementing digital technology does not, by itself, create new business value. Instead, they will need to rethink the embedded culture and existing processes to fit with their increasingly digital operations. They will also need to reassess their approach to talent. That will not only mean attracting new hires with the right skills and/or retooling existing talent. It will also mean creating a “liquid workforce” that draws on full-time staff, contractors and partner-company employees to create an agile, on-demand talent pool. That kind of workforce will help companies to truly leverage the more advanced supply chain capabilities made possible by digital technology.
Align digital strategies with business strategies. Finally, agricultural chemical companies need to make sure their digital strategies are closely aligned with their business strategies. The industry is focused on using digital technology on the front end to help its customers achieve key outcomes, such as increased yields, lower costs and greater sustainability—that is, on delivering the right “farmer experience.” If those commercial efforts are to be effective in the long run, they will need to be backed up by a supply chain that achieves new levels of efficiency and agility—and that is what a digitally-enabled supply chain can provide.
It continues to be an exciting yet disruptive time in the agricultural chemical industry. Digital strategies are gaining momentum and taking hold in more significant and impactful ways across all parts of the industry. And, digital disruption is only just beginning. Accenture will continue to monitor this trend, and we look forward to sharing the results of our 2017 study next year.
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