Speed: Implications of Innovation in the Supply ChainSpeed is the currency of today’s supply chain & innovative technologies are fueling the velocity of disruptive change
We live at an unparalleled time in human history. News traverses the globe in minutes. Computer technology, so small it fits comfortably into the palm of one’s hand, has become nearly completely embedded in consumers’ lives, enabling information sharing, communication and operational processes in real time. Internet access has become widely available at an affordable cost. Soon 5G wireless communication service will be the new standard, enabling 100 times faster data speeds than that of current wireless service.
Consumers use mobile devices to shop and order goods using real time information about inventory availability and receive same day delivery of their orders. The time it takes for less developed countries to catch up to that of pioneering countries’ adoption of technologies has shortened from 100 years to a mere 13 years according to scholars Diego Comin and Marti Mestieiri. Yes, it is not your imagination. Faster, faster, faster-the pace of change, innovation, business and daily life seems to be increasing at an exponential rate compared to that of past decades.
Want to know what keeps CEOs up at night? It’s easy, they are thinking about SPEED….
Velocity, Momentum and Steady Acceleration in Supply Chain Business
Today, CEOs of American companies are obsessed with one issue: speed. The world is in the process of transitioning to a faster-paced, data-driven, digital ecosystem. Companies that embrace the transformation and invest in digital infrastructure, cybersecurity, emerging technologies and skilled human capital will move forward and enjoy a competitive advantage. And the others?
The rapidity of change is already causing ripples of disruption. Looking to the horizon, as more companies become digital, those who remain at stalemate with legacy systems and manual processes will be left behind, unable to service clients that value speed, accuracy and visibility.
What are Cognitive Technologies?
The result or products of artificial intelligence (AI), cognitive technologies perform tasks which previously were only performed by humans. Part of the significance of this advancement in innovation is the capability to augment human intelligence with planning, learning and reasoning based on either available full or partial information. The four primary categories of cognitive technologies are machine learning, computer vision, robotic process automation (RPA) and language technologies which includes speech recognition and natural language processing.
According to the 2017 KPMG CEO Outlook report, CEOs recognize the value of investing in data analytics and cognitive tchnologies. The impetus to connect customer touch points to products and their supply chain to create an integrated network is strong. CEOs identified that data and technology are the bridge to customer connectivity, driving value and replacing the role that research and development had formerly played in their institutions. There is a strong desire to have more direct integration of product design, development and manufacturing, relying on increased visibility, effective data analysis and automation. CEOs acknowledge that using disruptive technologies drives change and increases speed-to-market.
The KPMG CEO survey identified speed-to-market as the foremost concern of the executives and see technological disruption as an opportunity, not a threat. Which view do you embrace?
At the front end of the supply chain, manufacturers are often eager to introduce new products to gain consumer feedback and market share. Speed to market benefits include securing a better position against future competitors, the ability to develop significant brand reputation, social media following and adoption by influencers as well as other advantages.
Need to accelerate speed-to-market? Look at other business models for inspiration. Take a page from the fast fashion industry, experts in speed-to-market apparel and shorten your supply chain. Develop a vertical supply chain and utilize vendors, suppliers and 3PL partners that are located geographically closer to your target audience. In general, fast fashion retailers are soaring in popularity as traditional retailers continue to struggle.
Brands that focus on a value proposition focused on personalization, such as vehicles, shoes or phones especially find speed-to-market to be critical. In years gone by, the wage gap between Asian countries, Mexico and the United States helped to drive manufacturing offshore. According to Sourcing Journal, wages are increasing across the world. In 2018, wages in Mexico will increase by 10%, 6.5% in Vietnam and double in India. The decrease in the wage gap globally is a significant factor in propelling manufacturing companies back to the United States.
Transformative technologies including artificial intelligence, machine learning, IoT, robotics, 3D printing and autonomous vehicles have demonstrated that they have the potential to make American labor more cost efficient, and certainly closer to U.S. consumers. As with all product development, data analytics are critical. Using data analytics to measure the success of product design should be a top priority, even when taking a speed-to-market approach. Relying on data analytics can prove invaluable in enabling manufacturers to navigate today’s challenging retail landscape and online sales.
The Pace of Technology Innovation
Years ago, the pace of tech innovation spurred change at a much slower rate. The rate of the improvement of technology has been accelerating-according to many industry experts and measurements. One measure of the pace of innovation is the number of patents filed for registration. For the past 5 years, patent registrations have grown approximately 11% a year as compared to the long-term average of 6%.
What started out as the innovation of toolmaking has steadily matured, advancing into unforeseen realms. As technology evolves, it builds on the foundation of the technologies previously innovated. Think of it. Would Smartphones have been possible without the development of the personal computer? Definitely not. As technology evolves, typically the cost comes down. Today the number of transistors in a dense, integrated circuit, the miniscule electronic components needed to perform basic computing functions has doubled regularly.
The observation that the number of transistors on a computer chip doubles each year as the costs decrease by half is known as Moore’s Law. Although the pace has slowed to every 18 months instead of 12, the idea of exponential growth still holds and is anticipated to continue indefinitely, at least for the next 20 years. By extension, computers, machines that run on computers as well as computing power all continue to become smaller as well as faster with the passage of time and new innovations. This is due to continued improvements in the transistors on integrated circuits.
Along with transistors, the cost of advanced computers has also decreased, approximately 30 percent annually. This has led to the development and improvement of other machines that automate operational processes. Automation has been successful in reducing the cost of consumer products, partially because of the reduction of labor costs.
The synergy of advancements and innovation in hardware, software and connectivity is leading to transformative operational and supply chain network changes. In case you have not noticed, technology has gone from a “nice to have” to “business essential” status. Now embedded in supply chain management, supply chain conferences and conventions , agendas are dominated by the mad rush of technologies currently available and on the horizon.
The data provided by IoT devices has already demonstrated tremendous value. This bodes well for the supply chain, making it increasingly likely that it will see more IoT-enabled equipment and devices with mobile capabilities for warehouse and DC environments.
The convergence of technologies is fueling the beginning of transformative, even cross-functional changes. Using data provided by IoT devices, supply chain management experts can help improve worker productivity and efficiency, the performance of truck drivers, last mile logistics, supply and demand forecasting and on time deliveries. Unlike the earlier industrial era, major technological breakthroughs are now happening nearly continuously.
Industry + Academia = Innovation²
Can pairing industry with advanced learning institutions help expedite innovation? It is already in the works. Research & development now occurs in university research labs with tied to business enterprises. Universities are now on the frontline of innovation and IP development.
Pairing up universities with supply chain industry businesses makes great sense and can help to expedite innovation and disruptive change. Executing real world projects, research, executive roundtables, workshops, white papers, case studies and more, the collaborators seek to improve engagement between academia and industry partners to expedite and innovate technologies, processes and tactics that can solve the most vexing challenges in the supply chain logistics industry today. One example of this is the Supply Chain Resource Cooperative at NC State University with Bayer Crop Science. The project aided in bringing the “agricultural supply chain into the 21st century” using a new collaborative, comprehensive, integrated strategy to supply chain management. This helped improve forecasting, challenging due to the different temperature cycles across North America.
Another example of this trend is the pairing of transportation services provider J.B. Hunt Transport Services and the University of Arkansas. The partnership was paired to help advance supply chain management efficiency through the use of technology. The J. B. Hunt Innovation Center of Excellence was formed with an investment of $2.75 million in the University of Arkansas, a joint effort between the College of Engineering and the Sam M. Walton College of Business. By fostering collaboration across multiple disciplines and colleges, J.B. Hunt is pioneering a new approach that they expect to become a trend as technology’s effect on the supply chain increases. The J. B. Hunt Innovation Center plans to focus on technology projects which contribute to the automation and gathering of intelligence for logistics systems.
Why the Need for Speed in Today’s Supply Chain?
In general, the pace of business has accelerated. Why? In a word, consumers. Consumers today depend on having accurate, real time information regarding inventory availability and delivery options to be at their fingertips 24/7. Consumer demand for immediate, even same day delivery means that the order must be processed, shipped and delivered in mere hours. Overall, companies are trying to be closer to their customers to reduce order processing and delivery times and remain focused on reducing costs.
Supply chain businesses are utilizing Big Data to extract insight needed to accurately forecast supply and demand, consumer orders, last mile delivery patterns and much more. This information helps supply chain operations gear up and throttle down when needed so that consumer expectations can be met.
Consumer comments and complaints on social media can help to make or break a product or brand so retailers, brands, 3PLs and others across the supply chain network are paying attention. From Taco Bell’s clever 2016 Super Bowl campaign to launch the new Quesalupa to the success of online fashion retailer Everlane, companies must be prepared to meet spikes in demand, stock outs and other market conditions so that consumers remain satisfied.
It is not just about Big Data. Innovating new strategies matter as well. Executing new strategies and tactics such as combining different brands of goods at regional distribution centers can help companies achieve higher sales while still decreasing costs. This strategy employed by Proctor & Gamble and Unilever has been successful in enabling retail customers to purchase quantities such as quarter truckloads of four different items so that they can carry less inventory, decrease lead times and increase fill rates. This helps to get goods closer to consumers for faster, easier fulfillment and delivery.
Supply Chain Networks are Rushing to Redesign
Yes, last year’s changes to the tax structure have proven beneficial to manufacturers and some are reshoring to the United States. That is only a small part of the story, however. Three major forces are prodding companies to make changes to their supply chain networks: shifts in the political landscape, technology and the Amazon effect.
Continued ripples from “the Amazon effect” are fueling changes in the supply chain. The term “Amazon effect“ illustrates the impact that online shopping and the digital marketplace have had on other forms of commerce, mainly the brick-and-mortar retail landscape. Amazon is the master of the seamless e-commerce shopping and smooth delivery process, the model for the industry. Consumers have become spoiled, however and now expect the same shopping experience both on and offline, hence the omnichannel revolution.
Key to providing a top-notch customer experience is the consumer expectation for fast, accurate delivery. To accomplish this, the goods need to be warehoused within a reasonable proximity of target populations in order to reduce the cost and time involved in transport. In decades past, warehouses were typically positioned in rural areas where taxes and labor were less expensive. The e-commerce omnichannel online shopping trend has definitely impacted the U.S. warehouse market, tightening warehouse availability significantly. Because of the increase in online shopping, there has been a greater demand for U.S. based warehouses and distribution centers.
Changes in fulfillment and delivery models have caused additional changes to supply chain businesses. Today, consumers want options. From online subscription services to being able to order online and pick up in a retail store, at a parcel locker, distribution center or warehouse or third-party location, consumers are in charge. This requires more flexible warehouse management software that can handle the increased demands, options and transaction volume.
Using RFID on all the goods in brick-and-mortar retail stores, fulfillment warehouses, distribution centers and 3PL warehouses enables retailers to provide real time accurate information on inventory availability to consumers. Consumers hate ordering online only to find out that a retail store is . Stock outs and backorders result in lost sales, high consumer dissatisfaction rates and reduced brand loyalty. RFID technology automates the tracking of goods throughout the retail supply chain without the need for manual barcode scanning or human intervention. RFID technology reduces the need for labor and provides real time item-level visibility of inventory both in store and online.
In addition, RFID can help streamline operational processes such as reverse logistics and returns processing in warehouses, distribution centers and across the supply chain, saving time and labor.
Because the cost of RFID tags has fallen from approximately $1 per tag in 2003 to 10 cents today, retailers have begun to take advantage of it as it solves some critical retail and supply chain industry challenges.
Take Macy’s for example. Macy’s has embraced RFID technology and integrated it into their business processes. By the end of 2018, Macy’s reports that it will be using RFID to track every item across all its stores and fulfillment centers.
Macy’s reports that this has helped to make a major impact on sales and profitability. In a presentation by Macy’s representatives at the Internet of Retail conference in the fall of 2016, they reported more than a 200% increase in sales volume after they expanded use of RFID technology into fashion departments. The use of RFID has aided in reducing out-of-stocks and has improved inventory accuracy. RFID has been reported to increase inventory accuracy from an average of 63% to 95% and reduces out-of-stocks by 50% according to the RFID Lab at Auburn University in Auburn Alabama.
Having access to real time inventory information can aid in tracking goods, critical during product recalls, order and shipment processing. Time is money. Speed is the new currency and RFID technology is a vital tool in reducing pcost and saving time.
As technology advances, innovation and its potential to disrupt is accelerating. This disruption is impacting society, the business community and markets. From social media to digital platforms, software applications and Smartphones, the pace of change has enabled society and business to dramatically alter and synergize paths for better living.
Industry surveys in recent years have indicated that the CEOs of American companies are obsessed with speed. As the world transitions to a digital data-driven ecosystem, more companies are adopting technologies and investing in cybersecurity and skilled human capital to gain a competitive advantage.
Speed-to-market is a primary concern and the supply chain is being re-engineered to accommodate changing consumer expectations for fast delivery. Changes like developing tighter supply chains, vertical supply chains and other tactics are being utilized and have proven successful. Moving goods closer to target populations is being aided by the trend of manufacturers to relocate operations to the United States.
Manufacturers, warehouse and distribution center operators, retailers and third party logistics providers are adopting transformative technologies to improve the speed, accuracy and quality of their operations. These technologies include artificial intelligence, robotics, 3D printing, advanced software and IoT devices including wearable mobile computers.
The pace of innovation is accelerating. One trend is the engagement of university-industry partnerships to expedite IP, technology and process innovations. In the business world, the message is simple. Change,-adapt using innovative technologies or be left behind. Businesses that have been evolving tend to have stronger market position and competitive advantage.
Make no mistake: the new currency of the supply chain is now speed.
Not Using Technology? Your Business May Bleed for Speed
Profitability, that is. Many business challenges can be remediated using the correct technology or combination of technologies. Need some help? Consult with Datex experts to find out how technology can help your business.
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