Supply chains are evolving, but is our approach to supply chains?

Maria Rey-MarstonBy Maria Rey-Marston, Partner Advisory Supply Chain & Operations, Ernst & Young LLP.

In June 2007, the revolutionary iPhone came into our lives. If my memory is correct, over 700,000 units were sold over the first weekend. And thus started our evolution from physical beings to “phygital” beings. I use the word “phygital” for the world of interplay between physical and digital! With a few million people across the world connected to the internet, primarily through their smartphones, this interplay is changing business processes, operations and supply chain management, and also how we eat, play, work, date and live.

I agree that organizations are certainly exploring the potential of this interplay significantly. But we are only beginning to do so in areas such as cloud computing, the increasing connectivity and the computing power of smartphones. Not to mention the Internet of Things* that some industries are employing in innovative ways — smart coolers in the beverages sector, smart oil fields in oil and gas, and connected insulin pumps in health care, to name a few.

The digital revolution that happened over the last decade is forcing us to change the way we look at supply chains. The traditional way of operations ran on two assumptions:

  1. Demand was unknown, so we needed to forecast demand.
  2.  Capacity was limited, be it production, distribution or labor capacity.

These assumptions are not relevant anymore. Firstly, demand has become a known parameter. If we are connected with at least a few thousand of the billions of people carrying smartphones, we have a good statistical representation from which real-time demand of the whole market can be obtained. Secondly, connectivity and shared economies have made capacity a less constrained parameter. Platforms that connect providers and customers are plentiful. People can avail themselves of the services of any number of people anytime without having to employ a single person.

All of this forces us look at the supply chain as more of a supply network — the demand response network (DRN). It also changes organizations’ strategies. In this new world, they should be responding to demand, instead of focusing on creating products — a shift that might be of interest, and is certainly one of relevance, to CIOs.

Why?

  • Because it is the CIO’s function that can help enable and empower supply chains and operations — by helping them harness information about consumers, shoppers, suppliers, plants and production lines, and thereby build their own demand curves
  • Because organizations would need the CIO’s help on areas such as cybersecurity, infrastructure, connectivity and data to harness demand signals and help harvest them with minimum distortion and latency
  • And finally, because organizations would require help from the CIO’s office to connect them with providers that have the capacity to execute at lower cost-to-serve, and respond to demand in the fastest and most profitable way

DRNs could be introduced to a company by a CIO who takes the initiative to create awareness on the benefits of cutting-edge technologies and trends. It can also come as a requirement from the market. Either way, the move to a DRN never happens as one gigantic project; it happens gradually, like an evolution.

What could slow, or might already be slowing, this evolution is push-based product-centric views of business instead of the pull-based demand-driven view that a DRN demands. With a DRN, organizations should aim to fulfill demand signals when, with the traditional model, they create products and then decide whom to sell the product to. To run a sustainable demand-driven model, they need to harness and harvest demand signals accurately. Getting there might take time.

Learning to operate a network with resources that we don’t own will also be important. This change in mindset might also not be immediate.

Where there is change, there is also likely to be resistance — especially from those who are disrupted. However, to me, the change to a shared capacity and sharing economy model seems to be inevitable. Luckily for us, the views of the younger generations on property and ownership seem to be more aligned to the shared capacity models than those of my generation.

How are organizations going to respond to these changes in the coming months and years? How will the workforce adapt? I’m eager to see the interesting and inspiring events unfold. I hope you are too. And, I’m also positive that, even if organizations don’t have all the answers right now, they’ll figure things out, maybe with help from others, on their way.

If you’d like to learn more about creating a fit-for-future supply chain, check out a new series of short films from Maria Rey-Marston or read her viewpoint — When on-demand is the norm, can your supply chain respond?

Note
If you are interested to learn more about the Internet of Things, drop us an email to receive a personal invite on our upcoming webcast on this topic leveraging our recent thought leadership.


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