The Terminology Debate in the Wave of Supply Chain Digitalization: Distinguishing Digitization and Digitalization
As supply chains move toward digitalization, the terminology debate between digitization and digitalization has surfaced. Based on industry surveys and expert interviews, this article analyzes the differences in definitions, application scenarios, and implications for business transformation, and highlights the importance of unified terminology understanding for supply chain collaboration.
Recently, when Supply Chain Dive was publishing a report on supply chain digitalization, the editorial team had an internal discussion about a wording issue: should we use "digitization" or "digitalization"? Are these two words synonymous? Does the choice of wording affect the accuracy of the report?
After some research and consultation with colleagues, the answer was not entirely clear—the industry has not reached a consensus on the definitions of these two terms. The editorial team ultimately adopted "digitalization," but editors from other Industry Dive publications suggested using the other term. The investigation also found that some companies hold strong positions on this wording difference, while others do not care or have not even noticed. For those with clear views, the difference between the two terms essentially reflects differences in how companies operate and the fundamental path to using digital data to achieve business transformation.
Is this a business process issue, or is it not even a problem at all? We launched a poll for our readers.
Although we did not specifically invite Michael Armanious to comment on the poll results, he might not be surprised by them.
"People often confuse these two terms," said Armanious. He is the vice president of sales and marketing at Datex, a company providing third-party logistics and warehouse management software.
"I think it is not just because the terms are similar, but also for a deeper reason: digitization and digitalization are complementary," he added. "For many people, these two concepts are seen as an interrelated, sequential process. Digitization adopts a standardized approach to normalize business processes, converting data from one form to a digital format. Then, digitalization uses this digital data to optimize operations and give them greater capability. From a certain perspective, this is an intuitive evolution from digitization to digitalization."
We could have stopped at Armanious's concise summary, but we decided to delve deeper. Of course, different industries and different people have varying definitions of these two terms, but let us start with Gartner's concise definitions:
- Digitization：The process of changing from analog to digital form.
- Digitalization：The use of digital technologies to change a business model and provide new revenue and value-producing opportunities; the process of moving to a digital business.
In short, digitization is the foundation of the pyramid, and digitalization builds on top of it.
Another way to understand it is: digitization replicates processes as they are, or optimizes them by eliminating paper documents and reducing manual operations.
"Digitization is a good start, but it is neither process digitalization nor digital transformation," wrote Pedro Robledo, a Spanish business process modeling expert, in a blog post. "Digitalization can use digital information to optimize business outcomes, create new revenue, reduce costs, improve customer experience... It can unlock significant value when applying digital technologies."
Jeanne Ross, chief research scientist at the MIT Center for Information Systems Research (MIT CISR), also explored this issue in MIT Sloan Management Review. Her view is: "Digital transformation requires rethinking a company's value proposition, not just its operations. Digital companies innovate to provide enhanced products, services, and customer interactions. Digitization is an important enabler of digitalization, but digitization alone cannot make a company truly digital."
Note: Not everyone agrees with the above definitions
Although we may have provided a strong argument for the usage of digitization and digitalization, not everyone in the supply chain industry agrees.
PwC analysts Stefen Schrauf and Philipp Berttram, in their 2015 report "Industry 4.0: How digitalization makes the supply chain more efficient, agile, and customer-focused," described both processes but used "digitization" as the preferred term throughout.
"Digitization breaks down (information silos), and the supply chain becomes a fully integrated ecosystem that is completely transparent to all participants," they wrote. According to the definitions above, this could indeed fall under digitization .
Digitization is the foundation of the pyramid, and digitalization builds on top of it.
Supply Chain Dive
However, they defined Industry 4.0 as "digitization"—involving "companies facing customers through e-commerce, digital marketing, social media, and customer experience... In fact, we are evolving toward a complete digital ecosystem." This sounds more like the definition of digitalization .
Does the wording difference really matter?
If companies want to ensure mutual understanding when discussing the application of digital technologies, having a common definition might help. But most people, when working with suppliers, do not rely solely on definitions—they discuss goals, expectations, and starting points. However, awareness is key to driving change, and Armanious believes this is crucial for maintaining competitiveness.
Digitization not only converts data from one form to another but also rethinks and improves the way work is done. Ross noted that in this digital age, only 28% of mature enterprises have successfully completed digitization. Perhaps when more companies complete digitization, they will begin to adopt unified terminology.
Digitalization is often referred to as digital transformation or becoming a digital business, and it is the next step after digitization. "In digitalization, digital data is used to optimize supply chain operations, improving efficiency, accuracy, productivity, and more. Due to the increasing complexity of today's warehouse, third-party logistics, and global supply chain operations, companies must move toward digital operations or they will lose competitive advantage and fall behind," said Armanious.
As with many things in life, actions speak louder than words. What matters is implementing digitization and digitalization, rather than never having undergone any digital change.