The digital economy is putting pressure on traditional supply chain models to conform to the “now” generation. To avoid disruption, companies must give customers what they want, when they want it and how they want it. Look no further than headlines about the “sharing” economy exemplified by Uber, AirBnb and the likes; Amazon’s experiments with drone delivery; or the Internet of Things, which promises to revolutionize supply chain management efficiency by directly connecting millions of “smart” components. In the face of rapid innovation, modern supply chains must evolve to ensure end-to-end visibility, advanced analytics and cross-functional collaboration.
Within the last few decades, the field of supply chain management has experienced an accelerated rate of change. It started with the introduction of mechanization and was quickly followed by computerized inventory and routing and record keeping. More sophisticated enterprise resource planning (ERP) software enabled better forecasting and management. These changes were necessitated by the growth of globalization in manufacturing, which demanded logistics strategies capable of supporting complex, international networks.
Today, digital advances such as big data and optimization tools, remain the most visible driver of change in the supply chain. However, they are not the only trends that are exerting a major influence. Here are five trends driving the digitization of the supply chain:
1. Collapsing product lifecycles
The cycle of development, launch, growth, maturity and decline is accelerating in many market sectors and particularly for consumer electronics, software and other tech products. Product lifecycles are estimated to have halved over the last decade and will likely shrink by another 50 percent by 2020 – thanks to growing practices like 3D printing.
What does this precarious environment mean for supply chain management? It calls for more proactive forecasting and planning using prescriptive and predictive analytics, as well as the use of on-demand warehousing models. This increases accuracy and helps avoid the costs of obsolete inventory.
Time-to-market is another piece that is an increasingly important success metric for brands. The pressure to ideate, design and deliver at the speed of digital is raising new risks and cost concerns.
2. Outsourced Manufacturing
Unimaginable a few decades ago, outsourcing manufacturing services has become a common practice in almost every industry. This trend is particularly pronounced in electronics manufacturing where product differentiation increasingly comes in the form of software innovation.
The last decade brought significant growth to Electronic Manufacturing Services (EMS), with no signs of slowing down. With more original equipment manufacturers focusing on their core business, the EMS industry is estimated to grow to $580 billion by 2020.
In exchange for the reduced financial risk that outsourcing affords, new supply chain risk is introduced in the form of complexity. Companies that outsource must develop better visibility and supply chain orchestration tools and processes while picking outsource partners that can manage the additional risk.
Thanks to improved transportation, communications and IT systems, companies now have the ability to select suppliers located anywhere in the world. By 2020, 60 percent of companies expect to be sourcing from more countries than they do today. Trade-offs for lower labor costs can include supply chain interruptions ranging from natural disasters to political unrest and even military operations. Predicting and planning for these issues requires local insights, powerful technologies and domain expertise.
4. Generational Expectations
Millennials and Gen-Z consumers have radically different expectations when compared to any other generation. The modern supply chain is being transformed to accommodate these technologically savvy customers, who:
- Want instant access to customized products
- Do their research before buying
- Favor socially responsible products and companies
- Embrace the sharing model
5. Supply Chain Savvy in the C-Suite
There is growing recognition in today’s organizations that the supply chain is more than a tactical function of the business – it is essential to success.
The transformation of the Chief Procurement Officer into the Chief Supply Chain Officer demonstrates the expanded scope and importance of this role. Supply Chain professionals are claiming their seat at the table when it comes to discussions involving sales, operations and even design. Digitization is enabling broad access to supply chain visibility, which is quickly becoming a prerequisite for competing in the global marketplace.
After many years of incremental advances, supply chain management is poised for a major shift in its demands and capabilities. Organizations hoping to compete amidst these emerging trends and market drivers must redefine their supply chains to embrace complexity. By utilizing actionable insights and intelligence, companies now have the power to thrive in today’s rapidly changing digital economy.