Disruptive Times Require Adaptive Supply Chains

Stephen DeAngelis

November 06, 2018

Few if any economic sectors have avoided digital disruption. New business models are constantly challenging more traditional ones and supply chains need to adapt to these changing conditions. Kristi Montgomery, a Vice President at Kenco Innovation Labs, explains, “The rapid pace of technological advancement and adoption means that innovation is taking place all around us, from the way we communicate to how we get around cities — even to how we shop for groceries. In particular, the supply chain is ripe for innovation. Indeed, it’s a focus area for many companies to help them do business more quickly and efficiently — particularly as emerging pressures, like the demand for e-commerce, force them to rethink their current models.”[1] Scott Deutsch, President of Ehrhardt + Partner, North America, adds, “Technology is driving changes in consumer behaviors that are undeniable. One needs only to look at the Amazon Effect to see how quickly a new market entrant can irreversibly impact the entire go-to-market strategies of entrenched market incumbents.”[2]

The future of the supply chain

Supply chain transformation is not a new phenomenon. Supply chains have been around since people realized they had things worth trading. As new technologies emerged, supply chains transformed to take advantage of these technologies. As a result, transformation has been and remains an essential characteristic of supply chains. Nevertheless, the rate of transformation today is breathtaking. Below are just a few of the trends disrupting more traditional supply chains.

Direct-to-Consumer sales. The staff at Supply Chain Quarterly notes, “Twenty-three years after Internet retailing giant Amazon.com started selling books online, more and more companies are seeing significant growth in the direct-to-consumer market. This is true not just for young Internet-based companies, such as the meal-kit provider Blue Apron Inc. and Peloton Interactive Inc., which makes Internet-connected exercise bikes, but also for more traditional manufacturers such as the athletic footwear and apparel company Nike Inc.”[3]

Distributed Warehousing. Deutsch notes, “Today, waiting one week for an item to arrive is no longer acceptable. Overnight delivery is the new norm and two-day delivery is on the envelope of acceptable. What once was above and beyond is now commonplace.” Sean Halligan, Vice President of North American fulfillment for Nike, told the Supply Chain Quarterly staff, “If you want to innovate quicker, you cannot do that by having faster trucks, you do it by getting pins in the map in the right spots.” By that, he means, you have to locate warehouses closer to customers. The staff notes, “As a result of the expansion of its direct-to-consumer business, Nike is moving away from aggregating inventory in one central warehouse in Memphis, Tennessee, to putting product in facilities closer to the customer.”

Beige Glove delivery service. White glove service hearkens back to slower times when doormen, bellhops, and sommeliers greeted guests wearing white gloves. Recognizing that home delivery is the last opportunity for companies to impress customers, Jeff Hughes and Charles Schreiner, digital operations consultants with Capgemini Consulting, believe “beige glove” service will be more prevalent in the years ahead. They explain, “Beige-glove services could entail things like guaranteed delivery by drivers who consistently maintain a high customer-satisfaction (CSAT) score, addressing the customer by name, helping with assembly and installation, providing instructional demos, or other services tailored to the wants and needs of the target demographic of a brand.”[4] Such services obviously don’t come cheap; but, as baby boomers take advantage of e-commerce in their later years, such services may actually prove to be profitable. Hughes and Schreiner conclude, “We see an emerging trend whereby high-value brands make significant investments to take back control of last-mile delivery, and other crucial aspects of the customer experience.” The Supply Chain Quarterly staff notes Peloton, purveyors of connected exercise bikes, already offers such a service. They explain, “Peloton found that even though all installation and assembly advice could be found online, its customers still preferred to have delivery people help them onboard the equipment, connect them to their wi-fi, and explain key screens. The company is now using a combination of its own employees and delivery companies that it has certified to perform these services.”

Adoption of advanced technologies. The number of emerging technologies that could significantly impact supply chain operations is growing. Often mentioned technologies, include the Internet of Things, cognitive computing, blockchain, additive manufacturing, robotics, driverless trucks, augmented reality devices, and drones. Each of these technologies can help make supply chains more effective and efficient. Montgomery observes, “Emerging technologies such as the Internet of Things, drones, driverless trucks, and robotics all suggest endless possibilities for innovation — particularly to members of the C-suite. But it’s important to recognize that while these technologies will have a massive impact on the supply chain, the changes won’t happen today — or even the immediate future.” She correctly asserts a business case must be made for implementing each new technology. “Innovation is more than technology buzzwords,” she writes, “it’s a continuum of improvements and goals that advance the business to the next level. Some of those goals can certainly include adopting and implementing an emerging technology like wearables, but ‘adopting emerging technology’ shouldn’t be the singular innovation goal of the organization.”

Those are just a few of the trends affecting how supply chains are likely transform over the coming years.

Some beneficial outcomes of supply chain transformation

Today there is a lot of focus on reshoring manufacturing. Most analysts point out that even if significant reshoring does occur, it won’t create a lot of jobs since most new factories will rely heavily on robotics and automation. The greatest impact on jobs from reshoring will come in the supply chain. As I recall, experts estimate between 6 and 8 supply chains jobs are created for each new manufacturing job. Kevin O’Marah (@komarah), Chief Content Officer at SCM World, notes the increase in distributed warehousing will have implications for “network topology, job design and materials management. … Secondary cities will thrive, as internet connectivity and cost-of-living disparity tip new household formation away from big cities such as New York, Chicago and San Francisco [to places like Fall River, MA].”[5] Many of those secondary cities are in desperate need of such jobs.

Mercedes Delgado, Research Director and Research Scientist of the MIT Innovation Initiative Lab, and Karen Mills, a senior fellow with Harvard Business School and Harvard Kennedy School, believe the U.S. should be focusing on creating more supply chain jobs.[6] They note, “The U.S. supply chain contains 37% of all jobs, employing 44 million people. These jobs have significantly higher than average wages, and account for much of the innovative activity in the economy.” That might come as surprise to many people who perceive the supply chain as an unexciting and bland area in which to work. Delgado and Mills explain why they believe the supply chain is so innovative and so important to the U.S. economy. They write:

“The intensity of Science, Technology, Engineering and Math (STEM) jobs, a proxy for innovation potential, is almost five times higher in the supply chain economy than in the B2C economy. Patenting is also highly concentrated in supply chain industries. Why are supply chain industries the source of so many high-paying jobs and so much innovation? One reason is that supply chain industries have downstream linkages to multiple industries, which allows the innovations they create to cascade and diffuse across the economy, potentially increasing the value of those innovations. … Supply chain service jobs include many different labor occupations, from operation managers, to computer programmers, to truck drivers. They comprise about 80% of supply chain employment, with an average annual wage of $63,000, and are growing rapidly. Taking the work one step further, within the supply chain services category, we have identified the subcategory of supply chain traded services — i.e., those that are sold across regions like engineering, design, software publishing, cloud computing, and logistics services, among many others. This subcategory has the highest wages and STEM intensity in the economy ($80,800 and 19%), with average wages 3 times higher and STEM intensity 18 times higher than Main Street services, and these jobs are growing fast.”

Although disruptive technologies may be changing supply chain operations, the sector remains essential to America’s economic health. Delgado and Mills conclude, “Our supply chain economy framework leads to a more optimistic view of the economy.” To help ensure the outlook remains bright, they recommend four things: Invest in skilled labor; support regional industry clusters; ensure suppliers have access to capital and, “shift U.S. policy solutions to focus on cultivating the supply chain service jobs that will drive America’s economy forward.” Ensuring supply chains keep pace with disruptive business models, helps promote healthy economic growth.

Footnotes
[1] Kristi Montgomery, “A blueprint for successful supply chain innovation,” Supply Chain Quarterly, 29 May 2018.
[2] Scott Deutsch, “What Does the Changing Technology Landscape Mean for Your Supply Chain?Supply & Demand Chain Executive, 14 June 2017.
[3] Staff, “Disruptive business models require disruptive supply chain strategies,” Supply Chain Quarterly, 2 October 2017.
[4] Jeff Hughes and Charles Schreiner, “Delivery: The Last Face-to-Face Touch Point for Brands in a Digital World?SupplyChainBrain, 15 June 2018.
[5] Kevin O’Marah, “Future of Supply Chain: Three Contrarian Predictions,” Forbes, 7 September 2017.
[6] Mercedes Delgado and Karen Mills, “The Supply Chain Economy and the Future of Good Jobs in America,” Harvard Business Review, 9 March 2018.