The Amazonification of Supply Chains
This Article originally appeared in Supply Chain Brian on December 30, 2019.
In the past, suppliers such as those in the pharma industry stockpiled hundreds of days’ worth of inventory buffer to avoid shortfalls in patient demand. This was “affordable” with 80% margins, but it’s not the case in today’s competitive global marketplace. High margins are no longer guaranteed, and supply chains are responding by pivoting to end-to-end, customer-centric, demand-driven network operating models. In today’s world, business value comes from more than just measuring year-over-year reductions in supply-chain costs.
Modern-day logistics service providers are transforming their supply chains with new customer-centric processes, including demand insight analyses, and promotions capabilities. Contrast that with the billions of dollars spent on both on-premise and cloud-based enterprise resource planning (ERP) systems, which remain largely supply-driven, siloed, and disconnected across the ecosystem – particularly within healthcare.
Digital is disrupting the way that logistics providers have traditionally operated. Industry-wide digital network platforms are emerging as the new “ecosystem ERP”, extending data available in traditional ERP solutions beyond company-specific confines, into a more expansive and connected community environment (much like a social media platform). These emerging platforms won’t replace traditional ERP systems; rather, ERP data will feed into them, along with data from internet of things (IoT) devices, sensors and the like. The result will be one unified and centralized place which industry leaders can turn for data insights, both within and beyond their organizations.
Digital network platforms expand more broadly than enterprise-centric ERP systems. They enable business partners across the total partner ecosystem to easily connect, onboard, and collaborate across ERPs and other supply-chain systems of network partners. The codified process integration that digital networks provide enables interoperability, and orchestrates business outcomes across the ecosystem.
The transformation to demand-driven logistics is already happening in other industries. Driven by platform-based business models such as Amazon, Google, and Apple (and even those of some third-party logistics providers), platform strategies are enabling business models to operate as multiple-sided partner networks.
Increasingly, with advanced analytics and digitization, logistics providers can identify patterns and inefficiencies that couldn’t previously be seen, questioned or solved for. Data combined with advanced analytics can provide end-to-end orchestration of the billions of products flowing through the various stages of their lifecycles within the total ecosystem. This includes creation of a digital twin, representing the real-time state of the product and making possible new logistics partner services, such as compliance, serialization, and traceability.
Today’s supply chains are being fundamentally transformed, with disruptive impacts enabled by digitization. They are changing businesses as we speak. Supply-chain capabilities have never been static; neither have they been as dynamic, agile, potentially smart, and complex as they are evolving today to meet varying demand.
In the course of this transformation; new customer-centric questions and metrics emerge. Consider these when evaluating the capabilities of your logistics providers:
- Did the consumer get safe products on time and in full? Was it a perfect order?
- Was the product compliant with FDA standards? Can we guarantee it wasn’t tampered with, and can it be traced from production into the customer’s hands?
This represents a dramatic shift in capabilities for third-party logistics providers. To participate in the network effect, they need to be on digital network platforms, providing all partners with smart orchestration insights into end-to-end supply-chain operations. This isn’t new; Amazon, FedEx, Walmart, and UPS can track packages from pickup through delivery. But the pressure is increasing on 3PLs to become network-capable, and support smart orchestration to improve ecosystem operations capabilities.
Incredible opportunities lie ahead, but it will require logistics providers to fundamentally change their traditional mental models of logistics and digital capabilities, especially when it comes to analytics. Look for partners who are investing in new technology that will enable them to secure smart orchestration insights, so that they can be a strategic value-adding network partner. This level of transparency will inevitably lead to discomfort and trust issues, but the change in mental model needs to happen.
Ask how your logistics providers are integrating with other network partners and one another in new and novel ways, such as with digital network platforms, to ensure you’re able to provide value-added services. Independent and siloed providers won’t be beneficial collaborators wit hmoving forward, as they’re at risk for losing relevance and competitive capabilities. Find partners who understand the value of technology to unlock new business-driven insights and the power of collaboration. The future starts now.