Is the linear supply chain on its last journey?
The supply chain, as the name suggests, was the creation of a world of linear thinking. Even today, its logic – from the upstream sourcing of components to the distribution of final products – remains very linear. In my books Platform Revolution and Platform Scale, I describe this as the pipeline model of business, where value flows linearly from producers to consumers.
However, a combination of forces is now beginning to emerge that is fundamentally shifting the supply chain from a linear logic to a more networked and systemic logic.
First, physical flows and digital flows are rapidly converging as real-world objects are embedded with sensors. In the world of monolithic ERP systems, these flows were decoupled, but increasingly products (and the components that lead to their creation) can be tracked in real-time. When aggregated and analysed, real-time data can inform and restructure the logic that determines stock movement. For example, the retailer Macy’s was able to better assess the inventory performance by digitising all its stock. It then restructured processes to better liquidate slow-moving inventory.
Second, machines and processes are merging through digitisation. Data captured from the performance of machines can restructure their processes. In turn, the output of processes can be used to inform the future behaviour of the machines involved. Machines showing signs of wear and tear can be prioritised for repair while work is shifted to other machines. Companies like Bosch are investing heavily to enable their clients to digitise their factory operations in such a way.
Beyond the restructuring of processes, a digitised supply chain also creates opportunities for entirely new revenue models. Specifically, the ability to track a product beyond the handover to the customer, and on to actual use, lends itself to a whole range of new business models. A digitised supply chain allows the shift from product-centric to service-centric business models. For example, with a constant flow of data about product usage, the customer could be charged based on outcomes.
Could this be true? Choudary is certainly correct that things like sensors allow physical and digital flows to converge. That is making greater visibility possible, which opens up all kinds of opportunities for shippers and transportation management companies like ours to better track and plan for flow and delivery.
That absolutely helps drive the rethinking of how stock movements happens, although I don’t think the technology alone drove that. We’ve been rethinking processes like that for years, simply because our experience told us we should.
Some of Choundary’s other ideas seem interesting in theory, but I’m not sure people or markets are ready for them. Tracking products after delivery to customers, and charging customers based on outcomes? There might be some specialty products where that sort of thing could meet with customer acceptance, but I don’t think it would be accepted on a very widespread basis even if the technology permitted it.
These are interesting thoughts, of course, and technology does offer new ways for suppliers to work with manufacturers. We’ve already seen that with sources like Amazon. But in the end, the supplies are still upstream. I’m not really sure how technology changes that.
The key to supply chain value is still in how you manage it. Technology provides more powerful tools than ever in helping us do that, but the end result is ultimately determined by how wisely and skillfully we use it.