The rise of the digitally driven supply chain ecosystem
The digital age is transforming industries worldwide, and companies that fail to adapt are dying. We examine how you can adapt to keep up with the pace.
Emerging digital technologies are disrupting all industries by attracting new entrants and competitors who operate under different rules and deploy new technologies more rapidly and skilfully.
Established organizations are generally bound to a heavy legacy asset base and struggle with the innovators’ dilemma – how can they choose between maintaining and developing the existing business and venturing into new areas?
One of the areas most in need of attention to meet this challenge is the supply chain. For traditional companies, these are frequently not set up to adapt as rapidly as this age of digital disruption demands. Meanwhile, the emerging start-up challengers are inventing their businesses without any legacy issues, meaning that they can move fast.
Established businesses are increasingly finding that failing to get close to the start-up’s innovative source or having access to their own digital innovation capabilities can be a significant competitive disadvantage. Corporates are at risk of being marginalized by the next disruptive innovation – as Uber did with transportation or Airbnb with hospitality.
Moving at the speed of digital
There are examples of digitally driven disruption in every industry and sector, all over the world. The auto industry is a great case in point.
The industry average development time for carmakers to bring a new model from design to market has long been five to seven years. But now, newcomers are entering the market, such as Arizona-based Local Motors. The company’s development time from design to delivery? Just 18 months.
As with many emerging disruptors, Local Motors has leveraged digital technologies throughout its supply chain and development cycle. It worked directly with its buyers to understand its customers’ desires, then brought in a group of auto enthusiasts to collaborate in designing the car, before building the vehicles in micro-factories. It was a whole new approach to the classic auto industry supply chain model – an interconnected product ecosystem that could adapt and respond to shifting demands by itself.
Learning from fast fashion
Elsewhere, in the highly competitive fashion market, Spanish retailer Zara stands out as a company with an outstanding information-driven approach to customer relations.
By keeping track of customers’ evolving preferences at the sales counter, Zara is able to incorporate information and insights rapidly into product design. Rather than wait on the regular six-monthly cycle of the fashion industry – driven by the main Spring and Autumn fashion weeks in Paris, London, New York and Milan – this has enabled Zara to turn around new ranges in a six-week lead time, from design to store, greatly reducing its exposure to the risks of changing fashion tastes.
Zara’s supply chain is fully digitized and vertically integrated to maximize efficiency from design to production to distribution. It distributes to stores twice a week to maintain maximum freshness, often direct from locally based factories rather than warehouses. This in turn encourages its customers to return regularly to check the latest offerings, rather than rely on the traditional new fashion seasons and sales to encourage footfall. And, of course, their preferences at the checkout feed back into the next round of designs and production.
Focusing on your value proposition
There are two primary ways to ensure that you adapt to deliver a strong value proposition to your customers in this age of digital disruption. The decision you make over which way you choose is likely to place your organization at one of two possible extremes: “order qualifiers” or “order winners.”
One way is to focus on optimizing production flows in terms of quantity, location and timings within your supply chain – sourcing globally to get the best prices and constantly pushing for supply chain efficiencies (order qualifiers). This can not only speed up your time to market, but also help you compete on price. This is an evolution of the traditional model.
Alternatively, you can focus on optimizing the interrelationships of your supply chain ecosystem transforming toward being an “order winner.” Like Zara and Local Motors, this approach focuses on developing and integrating a broad network of customers and suppliers through encouraging collaborative product development, orchestrating and connecting information across the supply chain, and managing an ecosystem of suppliers and partners within it.
The best approach will likely involve elements of both, depending on the nature of your particular business and its emerging opportunities and challenges. But one thing is clear – in this time of rapid technological change, you will need to adapt to survive. The impact of digital disruption is clear: 52% of Fortune 500 companies have disappeared since 2000 – don’t let your business join them.