THE NEW SUPPLY CHAIN MANAGEMENT IS DISRUPTIVE INNOVATION

THE NEW SUPPLY CHAIN MANAGEMENT IS DISRUPTIVE INNOVATION

--Speed Is the New Competition--


Disruptive Innovation (DI) is an innovation that creates a new market that disrupts an existing market or industry.  It displaces/replaces the existing firms.


The concept of disruptive innovation/disruptive technologies originated from an article by Joseph Bower and Clayton Christensen¹.  Disruptive innovation (DI) is viewed as a way of growth.


It was discussed in terms of companies. The take was with corporations whose customers were businesses, not individual shoppers.  The product or process becomes last behind assigning a company name to the disruptive innovation.


That is a narrow view.  This paper presents a different take on DI.  It is about the service that drove a new selling reality that is now global--the New Supply Chain Management (SCM).


Context.


Disruption is how a company used a new service to make a new market niche and to dominate it.  That service—the New Supply Chain Management—is the innovation, the disruptive innovation, that drove Amazon's success.


Early online selling was often by individuals using free delivery as a reason to buy. The delivery performance for these sellers was inconsistent.  There was no real supply chain, let alone strategy, and it was not consistent and standard for customers.  


Against this, incumbent store retailers basically ignored e-commerce.  They were unable to understand what was being done and how it worked. They failed to see the threat.  These companies did not see the growth from doing it—and the loss from not doing it.  Until Amazon caused the retail apocalypse. Retail paid the price for ignoring e-commerce and for its lack of robust movement into it and transforming to the New Supply Chain Management.


Borrowing from Christensen, this may be comparable to what happened to many mainframe computer manufacturers.  They missed personal computers that changed the computer industry.


Amazon's success was a twenty-year in the making overnight sensation. The game-changer was when a small company, Amazon, offered and provided two-day order delivery at no cost.  Two-day delivery!  They performed as promised.  They did what no other online seller had done.  And they did it because of the New Supply Chain Management.  


E-commerce is not a disruptive innovation. Nor is Amazon, another who sold online.  It is the new supply chain that drives customer buying and made products more accessible to customers. 


Customers were used to going to stores to buy products. They often made small purchases. Nothing that retailers noticed since they looked at macro/overall store sales and foot traffic metrics, not at the individual customer micro level.  Customers were provided with stores and were expected to come there to buy.


At that time, retailers looked at statistics as to the number of stores and foot traffic to show how they were doing.  These measures are about where the company is now, and customers were viewed as a mass of present buyers. They assumed what customers wanted.


Think of it this way.  Why was it not a leading retailer, seeking to better serve customers, that was the leader in making online buying such a powerful way of selling directly to end customers.  These customers have names and are not just people who go to a store.


E-commerce was a new-market approach.  There was no such thing as order delivery velocity—two-day or any firm day.  What was done not only exceeded customer expectations; it created customer expectations.  As it progressed, customer expectations grew with the buying convenience and order delivery performance. These small order customers were now empowered.  


What happened was that the New Supply Chain Management is about customers. It created customer expectations and defined customer service beyond a label.  And, it provided a path for the rise of customer power.


With e-commerce, the size of this market segment has been recognized and defined. Go to the store or use e-commerce with fast, free delivery. As they say, the results are history. The retail apocalypse.  E-commerce, not store sales, is dominating retail growth.


Online order delivery speed is driven by the strategic and weaponized supply chain management.  It is a very different approach and process.  And from it, a company and a market arose.  The New Supply Chain Management is disruptive innovation. 


This can also be seen as to how few firms have transformed to it.  Instead, with everything, they are staying with the fundamentals of the old supply chain with a few adaptions to try to gain the performance of the New Supply Chain.


Alibaba in China is basically a platform for third-party sellers. Amazon sells both products it owns and those for third parties.  And their success, especially with their products, validates the New Supply Chain Management.


As a result of order delivery speed, retail is omnichannel with e-commerce and stores (or clicks and bricks).  The convenience of buying online is shifting retail to online sales at the expense of store sales.  Leaders here have strong supply chain performance, thanks to the New Supply Chain Management.


Amazon's e-commerce dominance can be seen in the February 24, 2020, Forbes online article titled, "Target Emergences as 8^th Largest eCommerce Retailer – Here's How Their Marketplace
Strategy Is Entirely Different To Amazon and Walmart", by Kiri Masters.  It shows Amazon with 38.7% of e-commerce sales.  Walmart at #2 has 5.3%. Target, the subject of the story, has 1.2%.  Leaders and laggards—and those who do not even register on the sales charts.

Supply chain management is the real disruptor.  It made e-commerce more than a retail novelty.  Speed is the new competition, and that is achieved with the New Supply Chain Management.

While Amazon gets the attention, it was the New Supply Chain Management that is the real topic. A service, supply chain management based, turned retail on its head.  The order delivery paradigm that Amazon started is driven by a New Supply Chain Management. Now retail incumbents are struggling to copy it.

Old Supply Chain Management.  

To give some perspective on what the New Supply Chain Management is, here, first, is an overview of the supply chain management that had been, and for many, is still used.  It can be described as a monolith and one size fits all.

The traditional supply chain is defined by its logistics, especially warehousing and transportation. This can also be seen in its organization that arrangement hinders the ability to improve performance, especially for what is needed with the new selling reality.

Most of the focus is on the downstream, or outbound, part of the supply chain. This is the part, often domestic, that goes from factory to the buyer or from warehouse to the store.

A key performance supply chain metric for the C-suite is logistics costs.  As such, SCM was basically viewed as a cost center necessary for making and selling products.  Note, there are other KPIs, but they are internal to supply chain management, such as for order picking.  

This supply chain is operated and designed as node/link or stop/go.  Inventory is an asset, and inventory rich, even when being out of stock of other products, is often accepted.  Warehouses are located based on transportation costs.

Outsourcing is common, usually for cost reduction. Putting an outside party into the supply chain adds complexity and can work against achieving the required velocity of the new selling.

Another example is the Last Mile.  This is about the shipping cost from the e-tailer/retailer/manufacturer to the end customer. This practice contrasts with the common activity of shipping larger size shipments to stores. Focusing on this transport cost creates misdirection from order delivery performance.  What is notable too is that leaders who use the new supply chain are not ones complaining about the Last Mile.  

Many retailers and consumer goods manufacturers do not see the significance of what the new supply chain is doing. They seem to be focused on maintaining some degree of status quo with stores and present operations, despite it is now about customers.  Non-leaders also see online orders as fulfillment and not as part of a bigger picture of total supply chain management.

New Supply Chain Management.

What has happened is not an evolution, and revolution is not an adequate term of how SCM drove and continues to drive Amazon's success with order delivery.  This New Supply Chain

Management is strategic and weaponized.  Remember, Amazon changed retail with the New Supply Chain Management's performance with 2-day order delivery.  And it is dropping to one day and same day. 

E-commerce has become customer convenience and customer expectations. All because of the New Supply Chain Management. This customer experience is giving customers more than they already have—greater value.

The more descriptive term of what the new supply chain has done is perfect order performance.

Customers receiver complete orders of what they ordered and delivered as they expected/specified. Complete orders. No mistakes. Delivered on time.

Contrast this with e-tailers who deliver orders in multiple shipments and delayed. Think too of store retailers with out of stock shelves. The out of stock delay also occurs with manufacturers.  In these cases, customers are left to deal with the failings of sellers.  This is a reverse of the new SCM and its customer empowerment.

For starters, no business activity is more complex than end-to-end, nonlinear supply chain management. None.  That is a major differentiator for what it does and why.  And, importantly, it is central to what it can do.

Essential elements of the new supply chain include:

·       Recognize the end-to-end supply chain

·       Understand supply chain complexity and its nonlinearity

·       Extend focus upstream to where the supply of supply chains begin

·       Build end-to-end inventory velocity

·       Compress time

·       Align the warehouse network with customers

·       Use metrics that the C-suite appreciates

·       Integrate process and technology

Achieving order delivery speed is not about fulfillment. It is about end-to-end supply chain velocity creating inventory velocity.  Speed is the new competition.

End to end is important.  It means the supply chain, inventory, velocity, visibility, technology, and process. Any other view means gaps.

This SCM has a different structure with integrated process and technology. The organization is based on velocity upstream and downstream.  Technology is part of this SCM group.

Metrics are elevated and have a company view.  The Perfect Order—delivered (not shipped) on time, complete, and accurate—is the best customer service measure. 


Inventory velocity—call it turns or days of—and how to move it faster through the supply chain.  This inventory velocity creates investment opportunities with its working capital benefit.  Also, inventory safety stock is to buffer uncertainty.  Compressing time reduces uncertainty and the capital tied up in safety stock.


Important too are using strong metrics. Perfect Order performance may be the best company and customer service metric. Period. Next is inventory velocity. This can be turns or days of inventory, especially if it is end-to-end inventory.


Warehouses are aligned for order delivery service.  This means having more warehouses for proximity purposes.


Defined by supply chain—end-to-end metrics such as inventory velocity—turns and perfect order. The structure reflects upstream and downstream. Velocity. Performance. It includes technology personnel to drive greater velocity with visibility. Integrated. Process and technology.


Reverse outsourcing—bringing logistics activities inhouse—improves speed by removing an outside intermediary.  It also brings greater control.


Conclusion.  


What is happening with retail, now omnichannel, is impacting retail suppliers who must improve their supply chain performance to meet the requirements of their customers.  Another step in how the disruptive, innovative supply chain is spreading.


While some assign disruptive innovation as to a company, this could be called dual disruptive innovation—Amazon and the New Supply Chain Management. But what differentiated Amazon's e-commerce offering was the New Supply Chain Management that propelled their success with incredible order delivery service.  It is a business model whose success is built on the New Supply Chain Management.


Within retail, the gap is widening significantly between those who are transforming to the New Supply Chain and those they are entrenched with their approaches.  The old, even call them outdated, supply chains are institutionalized by companies that continue to fixate on logistics costs and do not want to invest in responding to disruptive innovation.  A result of this is that firms that were once leaders are isolating themselves and being passed by those who are transforming.


All this adds to the growth and competitive advantage that Amazon has with the supply chain weapon. A question is, as e-commerce grows global across markets and industries, who will use the New Supply Chain to take the respective leads in their niches.  


The leader-laggard gap issue is compounded by the escalating speed of order delivery. Customer power and expectations are moving in response to the speed and firms that provide it and the enhanced convenience it represents.  Laggards risk being at a tipping point of not being able to transition in time.

Compressing the order delivery time is putting additional pressure on stores.  And, the convenience of the fast delivery as compared to going out to a store coupled the new supply chains of leaders versus laggards is extending the retail apocalypse.

The disruption of the New Supply Chain Management is sweeping across markets, industries, and the world.  It is spreading past B2C/DTC into B2B.  Customers, whether people or firms, want their products faster.  Manufacturers, retailers, and others who think they are immune to what is happening may be placing their business futures at risk. 

Next-gen supply chain management is here with the New Supply Chain Management.  Think bigger than technology as the next generation.  Think beyond standard industry segments, beyond retail, beyond manufacturing.

Technologies, such as the Internet of Things will require the new supply chain for operations performance with greater velocity.  Forget velocity. Think velocity squared.

It is called disruptive innovation for a reason.  And resistance is futile.

¹ Bower, J. L., and C. M. Christensen. "Disruptive Technologies: Catching the Wave." Harvard Business Review 73, no. 1 (January–February 1995): 43–53.

It is also published as a thought piece at: http://globalsupplychainme.com/digital-issues/march-2020/