Unlocking the true potential of digital twins in supply chains

Imagine the ability to test-drive the wildest ideas and plans without risking a single actual resource. That's the game-changing power of digital twins. Want to see what happens if you move that factory to Vietnam? Model it in the digital twin first. Curious how your supply chain would handle a 30% spike in demand? Fire up the virtual doppelganger and find out. By crunching data from sensors, IoT devices, and past records, digital twin technology can create accurate digital replica of an entire supply chain network, connecting suppliers, warehouses, distribution centres, products, and customers from start to finish. This means businesses can monitor everything in real-time, run simulations to test scenarios, and analyse every operational nitty gritty to help spot bottlenecks and disruptions before they happen. It's the stuff science fiction dreams are made of - except it's real, and it's powering supply chain innovation into the future.

According to a recent study by Market.US, the global supply chain digital twin technology market size is projected to surpass USD 2.8 Billion in 2023 and is projected to reach USD 8.7 Billion by 2033, with a compound annual growth rate (CAGR) of 12.0% from 2024 to 2033. Following are some key takeaways from the study -

• The Supply Chain Digital Twin Market is projected to be valued at USD 8.7 billion in 2033, with a CAGR of 12.0% expected from 2024 to 2033.
• In 2023, the Software segment held a dominant market position in the Supply Chain Digital Twin market, capturing more than a 65% share.
• In 2023, the cloud-based deployment mode emerged as the dominant player in the supply chain digital twin market, capturing a significant market share of over 70%.
• In 2023, Large Enterprises held a dominant market position in the Supply Chain Digital Twin market, capturing more than a 65% share.
• In 2023, the manufacturing sector emerged as the dominant end-user industry in the supply chain digital twin market, capturing a significant market share of over 20%.
• In 2023, North America emerged as the dominant region in the supply chain digital twin market, capturing a significant market share of over 32%.
• Some of the key players in the Supply Chain Digital Twin market include IBM, Oracle, SAP, Dassault Systèmes, AVEVA, Siemens Digital Industries Software, Kinaxis, The AnyLogic Company, Simio, and Logivations.

However, despite the growing popularity of digital twins, its adoption remains relatively low in supply chain management, primarily due to the intricate nature of supply chains themselves and misunderstandings about the technology's applications, capabilities, and potential value.

Many people incorrectly assume that digital twins are themselves sensors, 3D models, simulators, or applications of AI technology. Others mistakenly consider digital twins to be largely theoretical and not relevant for supply chain management or assume that a digital twin can be built only after the physical twin has been created — but neither statement is true. Digital twins integrate various enabling technologies, including sensors, cloud computing, AI, advanced analytics, simulation, visualization, and augmented/virtual reality, giving businesses the flexibility to tailor their technology mix based on specific needs and expectations.

Supply Chain Optimization with Digital Twin Technology

According to a paper published by the MIT Sloan Management Review, “what distinguishes digital twins and makes them so powerful is their ability to emulate human capabilities, support critical decision-making, and even make decisions on behalf of humans.” Many big businesses are embracing digital twins within their supply chains, leveraging these technologies for tasks such as consolidating shipments, optimizing transportation fleets, testing warehouse layouts, adjusting goods flows based on demand, and implementing predictive maintenance programs. Their application can be categorised broadly under three functional areas:

• Supply chain planning: By integrating data from sales history, market trends, and customer behaviour, digital twins enhance demand forecasting accuracy. Digital twin technology enables companies to simulate disruptions like supplier delays or transportation issues, facilitating proactive risk mitigation. Digital twins also provide a comprehensive view of the product lifecycle, aiding in supply chain planning for new product introductions and reverse logistics. More importantly, the ability to model and analyse energy consumption, emissions, and environmental impact allows digital twins to support sustainable supply chain strategies and circular economy initiatives.
• Warehouse management: Digital twins play a key role in optimising inventory management by mapping inventory levels and flows across the supply chain. They support strategies such as just-in-time delivery, safety stock management, and multi-echelon inventory optimisation. By offering a comprehensive, real-time view of inventory from raw materials to finished goods, digital twins enhance tracking and control throughout the supply chain network. They can also integrate sensor data to monitor environmental conditions like temperature, humidity, and other factors crucial for maintaining product quality during storage and transit. Furthermore, digital twins can leverage predictive analytics to anticipate equipment failures that may disrupt inventory flow. These proactive approaches allow for timely maintenance interventions, minimising downtime and ensuring smooth supply chain operations.
• Transportation management: Digital twins can optimise transportation routes, modes, and schedules by considering factors such as shipment volumes, fuel costs, traffic patterns, and vehicle availability. Using supply chain optimization algorithms and simulations, businesses can analyse and redesign their supply chain networks (including suppliers, manufacturing sites, warehouses, and distribution centres) to improve efficiency, reduce costs, and enhance responsiveness. Additionally, digital twins offer visibility into product returns, defective goods, and end-of-life product flows, supporting efficient reverse logistics and closed-loop supply chain processes.

Overcoming implementation and scalability challenges

While digital twins offer tremendous potential for supply chain optimization, their effective implementation poses several formidable challenges. One of the biggest hurdles is the seamless integration and interoperability of data from disparate sources across the supply chain network. Achieving consistent data quality, standardisation, and governance practices is critical for building an accurate virtual model. Additionally, the sheer scale and complexity of modern supply chains, involving numerous entities, processes, and variables, make creating and maintaining a comprehensive digital twin an extremely data-intensive and computationally demanding task. Furthermore, supply chains are dynamic environments that require real-time or near-real-time synchronisation between the digital twin and physical counterparts. Enabling this continuous synchronisation while ensuring cybersecurity and data privacy is another significant challenge. Change management is also a key consideration, as incorporating digital twins often necessitates substantial process re-engineering and cultural shifts within organisations.

Embracing the future of supply chain optimization

Overcoming these obstacles requires a strategic approach, robust data management strategies, advanced analytical capabilities, skilled personnel, and a clear roadmap for seamless integration of digital twins within the overall supply chain operations. Addressing these challenges is crucial for unlocking the full potential of this transformative technology in enhancing supply chain visibility, agility, and optimisation. According to Gavin Laybourne, CIO of APMT & Head of IoT & Automation Platform, “right now, the use of digital twins (or digital shadows) is limited to more controlled ecosystems, like vessels and warehouses. However, those only make up part of a full supply chain. In the future, we will start to see digital twins up and down the supply chain, used by many different supply chain actors.” However, to reap the full benefits of this technology, supply chain, as an industry, must collectively overcome the challenge of interoperability and responsible data sharing to create fully connected, resilient and green supply chains.