Modern supply chain management (SCM) is currently entering the third wave of a multi-decade progression. Unlike previous waves,today’s SCM is moving towards greater levels of sophistication in addressing increasing levels of product variety, fulfilment options, and customer engagement, at the lowest possible cost.
The first wave of supply chain solutions was enterprise resource planning (ERP)or point solutions that ran on mainframe computers. However, there was a lack of integration capabilities to allow users to see the big picture. This limitation led to the second wave, which was the start of the implementation of real SCM solutions combining multiple business functions in centralised platforms.
Now, an ecosystem of advanced technologies, a rise in customer demands,and an increasingly challenging tradeenvironment, has established a breakpoint for the advent of the third revolution.
Pressure to increase profit margins through cutting expenses is also an added element.
Examining the trends
While previous technology-led revolutions were the work of a single or a few foundational technologies, the revolution we are currently seeing seems to be driven by a mixture of factors that are all coming together simultaneously and at full force. This is why it is important to look at the different elements that lead the transformations of SCM. Only then will the industry be able to stay relevant and competitive in the industry.
- Customer-centric, supply chains of one Everyone has heard of the common saying, “the customer is always right”, but the phrase is not limited to retailers providing refund to a demanding customer. In the third wave, the customer transcends importance to become the singular independent variable in supply chain management decision making. This is the fundamental difference compared to the previous waves.This means that companies need to align themselves to customers’ demands and expectations. An efficient supply chain will provide customers with the right pricing while delivering the expected products within the agreed timeframe. One industry player that reflects this customer-centric nature is Amazon, which initially started as a platform selling books online. Over the course of the next two decades, it quickly provides an assortment of more than 300 million products in 2015. The missing ingredient thus far has been profitability. However, raising prices would be counter to its business model. The Amazon business model would have to change to a standard business model – one based on a balance between profitability and growth. This is where investing in the third wave will make the difference.
- 3D Printing/additive manufacturing
While widespread adoption of 3D printing has been slow, some experts believe more industry players will embrace this technology in the near future as new printing machines are being developed to create more at a quicker pace. From multinational corporations, such as HP, to start-ups, such as Stratasys, the printer industry are constantly working towards new technology breakthroughs to boost the transformation of the manufacturing industry.The technology is not only useful in the private sector. It can be vital in meeting niche needs, like for emerging markets. For example, in India, where it may take a long time to develop modern highway infrastructure throughout remote regions, the highway can simply be digitised through 3D printing.
- Sharing economy and crowdsourcing
Attitudes towards consumption and ownership today are shifting as the sharing economy influences customers’ purchasing decisions. The sharing economy, adopted by players such as Uber, Airbnb and Spotify, are basically IT-enabled two-sided markets. However, while supply chain is the original champion of collaborative working, the sharing economy is typically more popular in the B2C scene, rather than B2B.That may change. Developers at Vlerick Business School in Belgium have developed an algorithm that creates opportunities for logistics firms to collaborate. According to Professor Robert Boute, currently one in four delivery trucks are driving around empty, while the rest are on average just over half full. To increase efficiency, BBaRT (which stands for bundling, backhauling and round trips) is developed to handle datasets of any size, and provide users a list of opportunities ranked by their potential cost savings and environmental benefits. It is only a matter of time for similar technologies to appear in Asia Pacific.
- Digitisation of everything and internet of everything
Thanks to the Internet of Things (IoT), our fridge can tell us when we are out of eggs and our smartphone can automatically monitor our movements, location and workouts. When it comes to SCM, IoT is critical when it comes to asset tracking. This allows industry players to transform their supply chain and logistics operations by providing them the tools to make better decisions and save time and money. Delivery company DHL and tech giant Cisco estimated in 2015 that IoT technologies could have an impact of more than US$1.9tr in the supply chain and logistics sector.While asset tracking is not new (freight and shipping companies have used barcode scanners to track and manage their inventory for years), new developments are making legacy equipment (e.g. scanners) obsolete, as they can only collect data on broad types of items, rather than the location or condition of specific items. Newer asset tracking solutions offer much more vital and usable data, especially when paired with other IoT technologies.
- Data science
Data science is frequently used in predictive analysis through the collection of big data, which is an important foundation in SCM as the process gets more accurate, reliable and at a reduced cost over time. From a predictive analytics perspective, about 90 per cent of problems in supply chain stem from inaccurate forecasting, starting with the demand forecast and letting that trickle back through the process to procurement and logistics planning.The power of big data is based on its rapid growth in volume, velocity and variety. The data science collected can then be leveraged for competitive differentiation through predictive analytics, prescriptive analytics, and machine learning. However, this can only be done if a company has a critical mass of data science competency. One important area where predictive analytics reign is inventory tracking. Companies need to know when to order for re-stocking or to prepare for high sales, such as during festive seasons.
What does the trends mean?
The trends show that the third wave is happening at this moment and the industry players need to embrace the transformation fast by understanding their consumers and adopting the right technology. Otherwise, they will continue to be stuck in the second gear. In this unforgiving industry, it may just be the unfortunate company’s final nail on the coffin.