How long before technologies become mainstream?
A Marketing measure of acceptance for a new product or concept to be accepted as ‘mainstream’ is adoption by more than eight percent of the potential market. For example, despite all the hype, on-line shopping by consumers in Australia has yet to reach the magic percentage. Similarly, how long will it take for new technologies in supply chains to move from the pilot stage to general acceptance by supply chain professionals?
Two recent reports provide informative insights into the range of technologies applicable to supply chains. From America there is the 2016 MHI Annual Industry Report, developed in collaboration with Deloitte and titled ‘Accelerating change: How innovation is driving always-on supply chains’. From Europe there is the 2016 Logistics Trend Radar report, developed by DHL.
The MHI report identifies eight technologies they consider are driving ‘always-on’ supply chains; always-on refers to “supply networks characterized by a continuous, high-velocity flow of information and analytics…”. The DHL report identifies 26 technologies, of which 15 are considered as broadly relevant in developed economies within the next five years. While details of the various technologies are of interest, the task for supply chain professionals is to justify adoption of one or more of the technologies and sell the concept against competing demands for investment capital from other executives in the organisation.
One of the competing claims could come from Finance. The current low interest regime in developed countries, implemented by central banks to encourage new investment by companies, has instead increased the momentum for buying competitors and buying back shares to increase the value of a business. Add to this the schemes by multinational companies for reducing tax liabilities, through transfer pricing, brand licence fees and inter-division financing charges. These policies indicate that Finance can establish a compelling case for their strategy.
Conversely, a supply chain proposal based on new technologies will not offer a ‘solution’ to supply challenges, only enablers; and the more technologies that are proposed, the higher risk of failure. Proposals to improve supply chains through the use of technologies are therefore more likely be a longer term ‘test and learn’ approach. If funding is not available from previous cost saving projects, it will require the CEO to be convinced that supply chain professionals know where they are going for investment to be allocated.
Supply Network Strategy
The MHI report notes that the most quoted ‘barrier to adoption’ of always-on technologies is the “lack of a clear business case to justify the investment”. To overcome this hurdle, the base document required to establish a business case is the Supply Network Strategy. This is not a new document requiring high resources; it is an amalgam of three business plans developed by each of the core functions that relate to an organisation’s Supply Network – Logistics, Procurement and Materials conversion.
The outline of a Logistics strategy was discussed in my post of December 17, 2015; the main elements of your Procurement strategy were outlined in my post of April 20, 2016 and the approach to a materials conversion (production, manufacturing, operations) strategy is discussed in many texts and websites concerned with manufacturing.
The task for a supply chain professional is to bring these three plans together into a coherent document that clearly identifies the strategic direction of the organisation from a Supply Network viewpoint. The objective is to translate item/volume data into supply chain profitability, using what-if analysis supported by factors of: customer segmentation, cost to serve, decoupling points, total cost of ownership (including sustainability) and risks.
To do this will require expertise, although supply chain analysts are not readily available that have broad business and industry knowledge, together with strategic analysis capability. The MHI report identifies “hiring and retaining a skilled workforce” as a major challenge to implementation of new technologies.
A second reason for slow adoption of supply chain technologies is their greater dependence on IT networks and the potential vulnerability of networks to security breeches or hacking attacks. The DHL report states “In increasingly IT-rich supply chains, eliminating security risks has become a top priority to avoid harmful attacks that could bring entire operations to a standstill… In parallel, continued global market volatility and regional instability have led to tightened security regulations that require higher levels of supply chain transparency and integrity…”.
Supply Networks that are dependent on information and analytics – the always-on situation, have increased vulnerability or risk of shut down; yet, when justifying capital expenditure for establishing a network, supply chain professionals would have difficulty in quantifying the benefits against the risks.
By all means read and understand about the new technologies for supply chains; but recognise that to be successful will require a clear business case, capable people and confidence in the security of the supply network. This will take time and together with ‘war stories’ of failures by early adopters, means that acceptance of new technologies into the supply chain mainstream could take longer than some commentators imagine.