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 Christensen
1.
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 8th 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.
