Your Supply Chain is Obsolete

Today's supply chains aren't ready for the emerging demand economy


Requirements of the Demand Economy

While the full evolution to a demand economy will take the next five to 10 years, trends like made-to-order jeans, both online and at storefront, show we are in transition right now. Over the next decade, customers will increasingly be able to buy whatever they want, whenever they want it. The pressure for product innovation will grow constantly and will proceed in shorter cycles and at a faster pace than even technological innovation. Consumers will be very adept at trading off price points. There will be remarkably fewer companies: With prices at parity, those not differentiated will be crunched by costs and will become commodity-type companies; they will then experience consolidation or be pushed out by Far-East competitors.

Product complexity will be forced upon producers increasingly and rapidly, and variability in customer demand will get dramatically higher. For example, Target is considering offering folding chairs to its customers ordered via an in-store kiosk. The chairs are now produced in China, available in either brown or green paint in one fabric.
But Target's customers are demanding more. With an in-store kiosk, a wider choice of colors and fabrics would be offered for store pickup in about a week, sourced from a U.S. manufacturer. The Chinese would not be able to compete with the time-advantaged U.S. manufacturer. Further, the variety is transparent to the retailer and easy to accommodate at the manufacturing plant. Inventory risk would be low and sales higher.

Similarly, the mundane and sleepy industrial maintenance, repair and operating (MRO) supplies market is being transformed by new, specialized service providers who have technicians on demand and high-level emergency responsiveness using speedy Internet communications systems that connect on-the-floor parts-dispensing machines with an integrated network of supply partners.


Under such conditions, the role of supply management must change. A collaborative, adaptable and flexible approach will be required. Time-to-market, response time and lead times will be the critical drivers of performance. Long lead times will inhibit the ability to respond to changing customer demands. In addition, global sourcing for cost reduction will be counter-productive to time-sensitive customer demand. Time will also be the enemy in the face of higher complexity and variability.

Costs Give Way to Value

The coming demand economy will create opportunities to identify new strategies to gain competitive advantage based on value and centered on well-defined customer groups. Customer Centricity replaces the supply driven construct of today's operations strategy.

Today, the supply chain is typically aligned not with customer value spaces, but with production capabilities. Further, companies tend to treat their customers as more homogeneous than they actually are. In the coming economy, companies that do not have the features a user wants — and wants right now or in a short time with customization — will be disadvantaged. A reorientation is needed to halt the focus on costs and to move toward thinking in terms of creating value or profit for customers. Companies must re-examine the value propositions they have with customers and state the propositions in supply chain terms.

Strategic Operations Will be Organized Around Value Spaces. Demographically defined market segmentation used primarily for public relations purposes and advertising will be replaced by value spaces used to define value drivers. Value spaces are defined by in-depth analysis of how the customer uses our products/services to his advantage. Grouping customers by customer defined commonality of elements including time, complexity, variability, adaptability and product features will define the new value spaces and how they will achieve competitive advantage.

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