We have entered the age of digital compression, where in many ways, technology is enabling us to do more with less. Things that used to exist separately — such as a pedometer, a watch, a phone, a camera, etc. — can now be compressed into a single device or gadget. This digital compression is taking place across time and space, dissolving traditional time periods and spatial boundaries. The good news is that digital compression is driving unprecedented levels of innovation across many industries. The downside is it’s also disrupting traditional commerce practices and the supply chain networks that support them.
The Effects of Digital Compression
These technology advancements have gone beyond re-shaping our world and how we react to it; in many ways, they are rewriting the rules of commerce. Temporal compression is affecting nearly all aspects of supply chain management. New approaches to product development, such as the concept-to-cash paradigm where products rocket to success seemingly overnight thanks to social media, have emerged. Burgeoning “smart” ecosystems and the intelligence enabled through the Internet of Things (IoT) are simultaneously allowing both consumers and sellers to have access to information and data in real-time.
Additionally, consumer expectations continue to rise, with acceptable order lead times shrinking from weeks to days to even hours. Companies are altering the traditional supply chain network to meet these new expectations, bypassing some supply chain nodes to accelerate the flow of goods, irrespective of an item’s size, weight or volume constraints. Not surprisingly, lead times have essentially become “now,” turning supply chain speed, quick delivery and real-time insights into table stakes. Supply chain transparency, visibility and collaboration — all enabled in real-time — have become critical business requirements for this B2MeNow world we now live in.
At the same time, spatial compression is occurring. Instantaneous cross-global communication through mobile technology and apps have compressed our concept of spaces and distance. E-commerce has decreased the significance of geopolitical borders and time zones, and even language barriers are being broken down with the myriad of online translation services. A few years ago, computer manufacturers started a revolution by allowing consumers to “customize” their systems online and have them delivered. This was the beginning of the movement to focus on a customer of one.
Since then, this customer of one concept has broadened significantly. Today, you can find hybrid farms next to a store, so that goods can be picked, assembled, packed and delivered based on a personalized order. E-commerce further compresses the idea of space, enabling a Texan to order a lobster from Maine and have it delivered the next day. While this may have sounded like fiction a decade ago, spatial compression is here to stay. It creates entirely new supply chain challenges, as companies learn how to meet the personalized interests of on-the-move customers, while profitably sourcing and executing from a myriad of planned and unplanned supply chain nodes. The ability to stay responsive and profitable in the face of shrinking planning horizons means organizations must integrate all aspects of business planning and market dynamics into their supply chain planning and execution processes to drive even greater value to their customers.
Capitalizing on the Compression Craze
So how are leading companies adjusting to this new environment? In the automotive industry, the focus has moved from manufacturing cars to improving the holistic customer experience.
Vehicles are no longer just for transportation; instead the connected car creates an information hub-like environment where the internet, TV, weather, GPS technology and much more co-exist. In fact, in many places cars are no longer the main mode of conveyance. Transportation hubs are growing in popularity, seamlessly connecting transportation, payment, mapping, shared rides and other capabilities together — all accessible via a mobile device.
Smart homes are also great examples of how some companies are capitalizing on digital compression. Mobile devices can be used to check thermostats or review security cameras from anywhere around the world. Smart appliances are being developed that enable users to identify when certain grocery items are running low and automatically schedule a new delivery. The concept of returning from vacation to a pantry re-stocked through shared logistics services seems much less far-fetched than it might have five years ago. Consumers’ desire for devices, apps and products that eliminate mundane tasks and make it easier to connect people and solve problems provides companies with new opportunities to enhance customer satisfaction and further solidify customer loyalty.
Enabling Speed and Real Results
Speed of innovation is a key success factor for companies winning in this age of digital compression. But how do companies balance speed of innovation with the reality of landed cost economics? To manage a business successfully in this environment requires organizations to move beyond the traditional sales and operations planning (S&OP) processes that are weighed down by latent information, lack of collaboration and static supply chain networks. Instead, they need an integrated business planning (IBP) process that will enable visibility into supply chain constraints, stakeholders’ inputs from across the organization and a better understanding of their organization’s supply chain economics.
An IBP process accomplishes this objective by looking across workflows, inputs, cost drivers and internal and external teams to establish a single version of the truth that consolidates strategic, tactical and operational plans. Additionally, digitalization, collaboration and reconciliation processes are occurring faster and often in real-time, thereby enabling IBP to support faster and more informed decision making, which in turn enables companies to more effectively respond to changing market dynamics. This is especially important given that the nature of temporal and spatial compression warrants a real-time approach to IBP.
Leveraging digital systems that deliver predictive, prescriptive and cognitive analytics will also allow organizations to work across borders and conduct international trade activities like never before. For example, through sharing economy platforms, companies can take advantage of shared logistics capacities — further demonstrating spatial compression by bypassing the traditional flow of goods. With increased access to real-time insights and analytics to guide supply chain decisions, companies can better monitor activities across the supply chain network to determine the best supply chain response and automate risk management.
Moving From S&OP to Real-Time IBP
Making the shift from S&OP to real-time IBP requires more than just a process change. It’s an organizational shift from reactive to proactive and empowered decision making. By tying advanced technology, digital insights, improved and repeatable processes together, organizations can leverage real-time IBP to ensure consensus-driven tactical and strategic decision making, with clear accountabilities and implementation paths. It also requires companies to accept the new realities of business in the 21st century:
- In a B2MeNow world, profitability is key. Your financial supply chain must now drive the operational supply chain.
- Point of sale (POS) is no longer just at the register. Consumers want a personalized and consistent experience across all sales channels, so you need to learn how to own all your POS spaces to meet your customer in their world.
- The digital revolution is here to stay. IoT, big data, additive manufacturing and factory 2.0 will all impact your business (whether you are ready for it or not), so start thinking about how to structure your digital supply chain now.
- Disruption is the new normal. Spatial and temporal compression have changed the game, making global demand and supply volatility an ongoing challenge.
- Innovation, manufacturing and execution excellence is key to success in this competitive environment. Learn how to educate and empower your workforce so they can make fast, insightful and objective decisions.
The faster you can adjust to these new realities, the better off your business will be. It is estimated that there is approximately $16.8 trillion in value at stake over the next 10 years for those that can power their digital supply chain with IBP (10-year value estimate generated by JDA Value Engineering team). If you don’t act now, you will soon be left behind.
Srini Muthusrinivasan is Senior Industry Strategies Director and Doug Kimball is Senior Director Product Marketing at JDA Software.