Trend identification is a tricky business. Supply chain trends make it yet more complex because they represent the intersections of so many different domains.
What is a supply chain trend-spotter to do? Some pick out particular statistics to make precise, but meaningless forecasts. Others wave their hands and announce sweeping megatrends that sound impressive, but that lack supporting data.
A Different Perspective on Business Trends and Supply Chains
We take a different approach here. We explore six overall business and economic trends that have been progressing steadily and measurably over the last few years. Then we look at what might happen to supply chains if these trends now accelerated, perhaps exponentially.
Given that the world in general is moving faster and faster, ‘hockey stick’ curves in trends are something all organisations should keep in mind. Corporations have been caught on the hop before by rapidly developing trends, as the arrival of the Internet and the resulting redistribution of business power have demonstrated.
With this in mind, we draw one possible short-term game-changing conclusion for each trend, if it were to speed up dramatically, yet remain within the bounds of realism. You can then see for yourself how your own organisation with its strengths and weaknesses might fare in the light of these six trends and their accompanying ‘what if’ scenarios.
What Happened to These Trends? A 2018 Update
This article was first published in June of 2015. It received a lot of interest at the time and has continued to be a popular article over the last three years. Therefore, we thought it might be a good idea to revisit each of the trends listed below, with a brief update as to how the situations have developed, and a look at the state of play in 2018.
1. Software is Eating Supply Chains
According to venture capitalist Marc Andreessen, “software is eating the world” and therefore eating supply chains with it. Business around the planet is increasingly dependent on IT and software applications. More and more transactions, operations and processes are conducted within IT servers and data centres.
However, there is also a more fundamental change at work. Many former products have turned into services. This has already dramatically transformed the IT industry itself, as packaged software sold with one-time licences has become cloud-based services sold with a renewable monthly subscription.
In other fields, IT is being used to sell end-customers’ results, yet another step beyond products and even services. One of the most notable examples is in agriculture, where equipment, fertilizer and seed vendors are working together to sell farmers guaranteed crop yields. John Deere, DuPont and Monsanto use big data on climates and related conditions to make commitments accordingly to their customers.
Shock possibility: You will have to rejig your supply chain to deliver results, not products, or services.
State of Play in 2018
Software has eaten the world and supply chains with it. The service economy is booming and nobody just wants a product any more. In fact, even the concept of a service, which is vitally important in B2B commerce, is already losing ground in consumer circles to the idea of dealing in “experiences.”
Experience is everything in 2018 and without software—and supply chains—few if any businesses, can even exist, since there is no way to deliver the kind of experience that customers desire without either. In some domains, however, software is on its way to eliminating supply chains too, or at least shortening them significantly.
Additive manufacturing, perhaps better known as 3D printing, is a software-based process that looks increasingly likely to place manufacture of some products into the hands of the end customer, and where it does not achieve this, may nevertheless eliminate many supply chain stages and processes for products that can be created by this fully automated method of production.
Even if your company has rejigged it supply chain in the years since this article was published, the chances are that it’s still not optimised for best results, unless yours is one of the few enterprises at the leading edge of digital transformation and has also implemented a totally demand-driven supply chain strategy.
2. Goodbye Lean, Hello Agile
Companies that went overboard on stripping out waste, redundancy and cushioning of any kind have suffered all the more when one of the links in the supply chain snapped. Streamlining, rationalising and reengineering all have their place in supply chains, but too much leanness leads to brittleness and sclerosis.
Supply chains that are too lean leave no room for error or change, and lack resilience. Their ability to perform with excellence exists only while supply and demand conditions remain stable—which is a rarity in today’s environment of globalisation and on-demand consumerism.
If upstream partners fail, as in the case of Thai computer disk drive manufacturers (factories hit by flooding) or Japanese semi-conductor producers (the 2011 tsunami), supply chains running too lean may have no fallback solutions. If downstream demand changes, they may not have any other retail outlet options either. In short, an efficient supply chain is not necessarily an effective one.
The new mantra is ‘agility everywhere’. While the lean concept was born from the world of manufacturing, agility came largely from software development. The basic principle is to run projects or project phases in much shorter cycles than before. Continual incremental change trumps long drawn-out schedules in which enterprises often wound up behind the progress curve by the time deliverables arrived.
As supply chains shift emphasis toward the need to be close to markets, organisations will indeed need to be nimble to gain or maintain business advantage. More than this however, agility will need to be coordinated throughout the supply chain. There is no place in agile operations for the traditional, compartmentalised approach still fatefully accepted in many enterprises.
Shock possibility: Silo thinking in supply chains will no longer just be uncompetitive, but fatal.
State of Play in 2018
In 2018, the agile supply chain is a well-established concept—and so is the silo. Somehow, companies that find success with agile operations often do so with silos still in place. Tomes have been written about how to break down organisational silos, but translating the theory into reality is a task in which success seems evasive for many who try.
Perhaps it is fortunate that the issue is so pervasive. After all, it may well have saved the existence of many enterprises that would otherwise have failed as competitors became exponentially more agile and coordinated. As it is, even Amazon’s full potential is stifled by the existence of silos, as revealed in a Wall Street Journal report in 2017.
The trouble is, breaking down silos is immensely difficult, which is why some organisations are switching focus from elimination attempts, to a process of improving the connections between them.
Meanwhile, the need for agility in the supply chain is greater than ever, and fortunately, information technology, in the form of big data and advanced analytics, is increasingly enabling companies to react quickly to the swings and shifts of hyper-volatile global markets.
3. BRICs Are Moving to Buying, Not Just Making
How long will offshoring last? While local knowhow or co-location of raw materials and early-stage manufacturing may make sense, the cost advantages that many enterprises expected may now be drying up.
Offshoring cost advantages were often a delicate matter in any case: lower worker wages had to be balanced against increased freight charges, duties, taxes, and damages during transit. Now differentials in workers’ pay are disappearing as countries like Brazil, Russia, India, and China (the BRIC countries) grow richer and develop into consumer giants.
Near shoring is an alternative, but not for everyone. Companies in the United States can outsource to lower cost manufacturing resources in Mexico, but Australia is seeing IT and high-tech jobs migrating to ‘nearshore’ New Zealand. Elsewhere, business playing fields continue to be leveled as new products and technologies are ever more rapidly copied or rivaled. Companies will need to improve performance in terms of customer satisfaction and profitability in new ways, as cost reduction through cheaper production (whether in BRIC countries or others) becomes a less practicable option.
Shock possibility: Your suppliers will be your customers. Now you will really have to be nice to them.
State of Play in 2018
While offshoring certainly hasn’t died a death, the number of companies shifting manufacturing jobs back home is certainly on the rise, particularly in the United States, where re-shoring and foreign job announcements in manufacturing sectors rose substantially in 2017.
However, the increased emphasis on domestic supply is due to a number of factors and is not simply a response to rising labour costs overseas. In fact, some of the most important drivers of re-shoring are related to points 1 and 2 in this article. For example, many companies perceive a need to place manufacturing operations closer to the marketplace as part of an effort to become more agile.
Technology too is playing an important part in the resurgence of domestic supply, as AI and robotics solutions advance apace, increasing the range of tasks and processes that can be turned over to automation.
Indeed, automation is now seen in some quarters as a far greater threat than offshoring, in terms of the impact on manufacturing jobs.
4. The End-Customer Is Not Going To Let Up
The end-customer has power, knows it, and enjoys it. Pampered by extraordinary choice in consumer goods, customers expect the same quality and devotion from their business suppliers too. IT is a case in point. Consumer-grade products like tablets and smartphones have been outstripping professional ones in almost every category, including power, user-friendliness, and price.
End-customers also want sustainability. Being ecologically friendly is ethically desirable—and even fashionable in the eyes of today’s consumers. Municipalities in many countries feed that fashion by encouraging waste sorting and offering citizens chances to demonstrate their concern for the environment.
As a result, the collective power of consumers is enough not only to oblige brand owners to prove their own sustainability, but also to require that their B2B partners are active in preserving the planet too. Supply chain scandals cast a spectre over corporations that do not respond to consumer concerns, like the use of palm oil in food products.
What additional spillover can be expected from the consumer to the business world to impact supply chains? One candidate is omni-channel distribution. Today’s consumer increasingly expects to be able to order a product online, pay for it in one shop, and take it back to another shop for a refund if dissatisfied with the purchase. If companies like Amazon get up to speed with drone delivery, customers may even be able to leave unwanted products on their lawn for pickup and exchange.
Distribution channels are crisscrossing like never before, and customers expect each supplier to offer a single, unified brand experience, whether via web, phone, social media, or physical retail outlet. With omnichannel becoming the norm in consumer markets, it is only logical that B2B commerce will move in a similar direction.
Shock possibility: Get ready to put drone ‘last mile’ networks in place or lose business customers.
State of Play in 2018
Well, we did say it was a shock “possibility” and not a certainty… Drone deliveries are slowly gaining ground, but are hardly close to becoming a mainstream feature of B2C or B2B supply chains. In the meantime, though, B2B retail is certainly gravitating strongly toward providing an omnichannel experience for end-customers.
Progress varies from company to company and some challenges, such as the relationship-based pricing environment and the application of credit and discounts, prove tricky to overcome (although this is something which, like many of the other issues raised in this article, will doubtless be solved by some kind of technology-as-a-service in due course).
However, there is no denying the fact that business customers want the same convenience and high-quality experience from their suppliers as they have come to expect – and receive – in their personal lives as consumers.
5. Knowledge Emerging as Resource Number One
Supply chains have become a major source of competitive differentiation because they are difficult to copy. The complexity of a successful supply chain and the particular circumstances of the organisation deriving the benefit mean that what may work for one firm can result in failure for another.
It takes knowledge of all the moving parts, including upstream supply and downstream distribution, to make these supply chains what they are. That knowledge is often in the heads of the operators and managers. When these people leave the company, supply chain knowledge leaves with them.
The problem of knowledge storage and retrieval affects supply chains more than many other business areas. Rules and theories about running supply chains are at best approximate. Unlike accounting, which functions according to precisely documented principles, supply chains often depend as much on experience and judgment to work optimally as on mathematical models. To compound the difficulty, supply chain workers’ knowledge is in greater danger of disappearing in logistics in particular, where the average age of workers is higher and therefore closer to retirement age.
Just storing data is not a problem. IT offers huge possibilities with one-click data retrieval into the bargain. However, data is not knowledge, and storing knowledge is a different kettle of fish. Conventional IT is not designed to handle knowledge. New IT solutions are emerging to allow people to record their knowledge in the way that they think it, rather than trying to force-fit it to standard data formats. If they work, companies may at last be able to avoid having to design supply chains from scratch when upgrading their infrastructures.
Shock possibility: Supply chain knowledge will be an asset you can store outside people’s heads.
State of Play in 2018
The value of supply chain knowledge (and broader business knowledge too) has indeed enjoyed greater recognition over the last few years. It is not so much that knowledge has become an externally storable asset. Really it always has been. It is just that enterprises, instead of being exclusively preoccupied with the increasing value of data, have begun to acknowledge—and act on—the need to retain and propagate “tribal” knowledge.
Again, the solution has been (and continues to be) sought in the use of information technology. With the aid of knowledge management strategies, knowledge repositories, knowledge bases, and similar tools and models, companies are learning to store knowledge as data, and to share it in a way that perpetuates an ongoing process of institutional memorisation.
Knowledge management disciplines are being widely adopted by larger corporations especially, ensuring that “brain drains” don’t threaten to erode future performance in the supply chain, or elsewhere in the organisation.
6. Love-Hate Relationships Flourishing in Logistics
On retail or reseller shelves, brand owners slog it out, box for box and can for can, one against the other. Yet as participants in distribution networks, they may be the best of friends, sharing facilities, reducing costs and even reaching out together in unified efforts to access new markets.
The point is that systematically fighting all the way along the supply chain is wasteful, particularly in those parts that are invisible to end-customers and offer better opportunities for joint cost reduction than for competitive advantage.
Enterprises in different sectors have reached the same conclusion. Examples range from competing pharmaceutical companies sharing expensive temperature-controlled distribution centres to white goods manufacturers jointly contracting with the same freight company—but why stop at logistics?
If an activity is not a core competence, an enterprise can outsource it or work with another company with the same need to achieve better, faster, more cost-efficient solutions. Manufacturing and hi-tech companies can source the same components (anything from spark plugs to processors). They can also design or manufacture products together, differentiated only by trim and brand at a later stage in the supply chain. Examples include the joint ventures between automotive companies Peugeot, Citroën, and Toyota for small cars or Peugeot, Citroën and Fiat for people movers and vans.
Speed of change in markets and concerns about profitability could push companies into elaborate interlocking love-hate supply chain grids, in which from one end to the other they are allies or enemies at different stages. In this case, their destinies will be increasingly intertwined. Enterprises will need to be careful in trying to grind competitors down for fear of upsetting a profitable symbiotic relationship at some other stage in the supply chain.
Shock possibility: Killing off competitors without due care could seriously hurt your own supply chain.
State of Play in 2018
No clear strengthening or weakening of the trend in “coopetition” appears to be evident three years after the publishing of this article. Collaborating with competitors continues to be a part of the strategic toolkit for progressive enterprises and is still perhaps most prevalent in the auto manufacturing industry.
However, there is evidence that an increasing number of SMEs are finding ways to work together to compete with much larger corporations in their industries, and hence, survive and thrive during a commercial age in which the business delisting rate is six times faster than it was 40 years ago.
In the End, Make the Trends Your Friends
Financial traders in currencies, commodities, and shares know that the trend is their friend. Statistically, they have a better chance of making money by following the trend than by going against it. Likewise, it’s typically more prudent to follow, rather than buck, major supply chain trends.
There are always exceptions of course, but when cloud computing is already nearly a $300 billion market addressing all sectors, BRIC nations are set to fuel 40% of the world’s economy, and almost two billion consumers are leveraging the power of mobile technology, organisations need very good reasons to pit their supply chains against such trends.
That is where the similarity between supply chains and finance ends. Unlike financial trading where performance is measured as a price, a magic one-number supply chain metric does not exist.
It takes several indicators to understand how well a supply chain is doing. There is also usually a need to balance performance between them and prevent excessive success in one area from hurting performance in another. Dealing with today’s interconnected trends is a further balancing act that supply chain teams must accomplish. However, previous experience in internal supply chain ‘plate-spinning’ should give them a head start to make friends out of these external trends, rather than enemies.
This post was originally published in June 2015 under the title “6 Supply Chain Trends that Could Truly Shake you Up.” It has now been revamped and updated with more comprehensive and current information.