Turning Yesterday's Supply Chain into Tomorrow’s Demand Chain

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Turning Yesterday's Supply Chain into Tomorrow’s Demand Chain

By Michael Forhez - 10/02/2017

In this week's post, Michael’s guest thinkers are Kimberly Knickle of IDC Manufacturing Insights and Mario Vollbracht of Oracle’s Consumer Markets Industry Solutions Group.

Michael Forhez: There was a time when “Stack it high, watch it fly!” worked for consumer goods markets. Suppliers made and shipped as much product as they could. Retailers built distribution systems to get products to the floor and used displays, discounts and various other marketing and promotion strategies and tactics to entice shoppers. What’s changed and why is this moment like no other?

Kimberly Knickle: In many ways, 2018 will be a year of transition for the supply chain as old, analog processes give way to new, digital ones. Although I can't yet share IDC’s Top 10 Predictions for 2018, digital transformation is the key, overriding theme. My colleague Simon Ellis, sums it up well: "The supply chain is undergoing almost unparalleled levels of change. The older measures — productivity, quality and service — still apply, of course, but we now see the specter of digital transformation poised to change everything. Whether it's the way that manufacturers and retailers plan, procure or fulfill, digital transformation is both opening up new opportunities and presenting new challenges."

Mario Vollbracht: I’m in full agreement with Kimberly’s (and Simon’s) assessment on where we find ourselves as an industry. The supply chain is undergoing a transformation like we’ve never seen before. The focus on the hyper-connected consumer has led to the mechanisms governing supply and demand becoming much more intertwined. Disappearing are the days where manufacturers and retailers can simply use historical data to forecast future production and consumption, making and stocking what they expect — or hope — to sell to the consumer.

The digital world has led to a multitude of (near) real-time inputs that will constantly need to be collected, collated and analyzed in order to balance supply against demand with greater consideration for consumer need states.

MF: For years, as well, we held “The Last Mile” as the most critical final step in the supply chain network. Why and how will the supply/demand chain of the future need to change to accommodate "The Mile After the Last Mile?”

KK: For consumer goods manufacturers, much of the change has to focus on the customer and the consumer, from product design to the end-user. Let's look at both ends of this spectrum from design, to delivery and, finally, to service:

Design: More effective product-success rates start with manufacturers better understanding consumer needs and wants. A big part of this is working collaboratively with retailers to capture consumer sentiment and sales — with the right context: where, when, why, etc. But another part is for manufacturers to collaborate directly with consumers through cloud-based crowdsourcing and even virtual reality. We can't forget that consumers will probably use mobile to share their feedback on what they'd like, as well as feedback on products they already own.

Delivery: I'm sure you've already seen examples of how delivery is changing, starting with the expectation that consumer goods manufacturing supply chains and ecosystems have the capability (either in-house or outsourced) for direct-to-consumption shipments and home delivery. From a business perspective, this adds pressure to have access to a more distributed fulfillment capability and a micrologistics network to position finished goods closer to the customer. Your supply chain visibility and execution — transportation management, warehouse management, etc. — has to be top-notch. But we also see more truly innovative and often still experimental approaches here, and not just because of robotics and drones, but also through 3D printing.

Service: Post-sales service has many meanings in the consumer goods industry, depending on the product. Yes, there's some aspect of warranty or quality guarantees, but more and more, it's about the customer/consumer experience. Every interaction must be personalized to this new connected consumer, and that requires a convergence of technologies, from mobile and social to cloud and, increasingly, sophisticated analytics including cognitive computing.

MV: Placing a bit more focus on the delivery component, the "Mile After the Last Mile" has intensified fulfillment pressures, requiring greater sophistication for means and methods. To serve an increasing number and variety of delivery locations — whether to the store, through click & collect, via lockers or direct to home — trading partners will need to reexamine and reimagine much, if not all, of their individual and shared supply chain processes.

There already are quite a few third-party outfits that have sprung up to enable various pieces of the puzzle, with viable options for smaller players. And larger organizations are looking at vertical integration to support "Mile After the Last Mile" delivery. Finally, we should keep our eyes on up-and-coming technologies such as driverless cars, Internet of Things, 3D printing, and drones. These, too, will scramble the calculus for what it means to serve in a "phygital" age.

MF: With “Commerce at the Speed of Thought” only accelerating, what other options should we explore to serve the "Connected Consumer" of today and tomorrow? What's the payoff if we succeed? What's the cost if we fail to try?

KK: Manufacturers need to take stock of their supply chain capabilities today, to make sure they're ready for increasing levels of digitally enabled experiences and ecosystems. And we have the numbers to demonstrate manufacturers' rate of change: IDC's "Digital Transformation MaturityScape Benchmark Surveys" from 2015 and 2017 show how much progress manufacturers worldwide have already made, from 20.5% in the two most advanced stages in 2015 to 30.9% in 2017.

MV: The way consumers have come to expect products — increasingly customized products — to be delivered wherever they are, whenever they want has resulted in every player needing to completely re-tool its value chain processes and their underlying technologies. What is important to understand in all this is that disruption is the new norm. You’re either all in or, very likely, you're on your way out! Sure, a lot of “pressure” has been added, but this moment presents an incredible opportunity for real, breakthrough innovation driven by leaders who can align their organizations for the challenges ahead. This is not the time for complacency, and it certainly isn’t for the faint of heart. But the potential payoff, as we are seeing, is incredibly significant for those who, every day, dare to try.

MF: To my two guest pundits, thanks for the words of knowledge, wisdom and inspiration. And to you readers: If you missed Oracle OpenWorld, where Kim and Mario elaborated in greater detail on this discussion, just reach out to them as they’d be happy to keep the conversation going.

Hail the Consumer!

Kimberly Knickle, research vice president for IDC Manufacturing Insights, is responsible for research and analysis of business and IT issues for manufacturers. She leads the IT Priorities & Strategies program, which focuses on hot topics and technologies that are changing the way manufacturers buy and use IT, including for digital transformation, big data and analytics, cloud, IoT, mobility, and 3D printing. 

Mario Vollbracht recently joined Oracle’s Consumer Markets Industry Solutions Group. As a global director with over 20 years of management consulting, Vollbracht’s background in IT management has traversed the entire value chain within consumer markets with a focus on the integration and connection of the supply chain with the customer experience.

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