Rising to the challenges of the demand-driven economy
By on Dec 19, 2013
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This autumn conference season I had the pleasure of chairing two supply chain conferences for eyefortransport: the 4th Annual Life Sciences Supply Chain Summit EU and the European Chief Supply Chain Officer Forum.
Most of the delegates came from two very different industries - retail and life sciences. However when I reflect on the two summits, many similar themes emerged.
If there is one overriding trend to take us into 2014, it’s that the balance of buying power continues to shift from companies to consumers. The golden age of ‘if we build it, they will come’ is giving way to a demand-driven economy comprised of increasingly well-informed buyers who are spoilt for choice. At the same time, margin pressures remain high due to globalisation and the squeeze on consumer disposable incomes due to prolonged austerity programmes in Western economies. This means that established retailers and manufacturers in particular are struggling to adapt their supply chains fast enough to meet the conflicting demands of this challenging new economy.
During the Life Sciences summit, we spent considerable time debating how to overcome growing complexity. Many of the delegates agreed that the days of the well-funded ‘blockbuster’ drugs with long-term patents are numbered. The high margins that these have historically provided are now disaggregated across a wider range of smaller drugs, resulting in a more operationally complex business model from which it is harder to profit. Adding to this complexity is the fact that hospitals are providing wider ranges of services and are depending on multiple global providers to serve up different components. Finally, the spectre of EU and global guidelines and regulation, some of which, like GDP (Good Distribution Practice), are at once ambiguous and threatening.
Many delegates felt that the way to overcome this complexity was through better supply chain collaboration and visibility into things like the demand signals from hospitals and their patients. However, due to historical concerns over IP protection, the life sciences industry has a systemically ‘closed’ mentality that does not naturally lend itself to trust and collaboration. We spent considerable time debating this paradox and how to overcome it. This will be work in progress for 2014 and beyond.
The retail industry, whilst being somewhat more open and faster to adapt people, processes and technology to the new demand-driven age, has to contend with unprecedented complexity, competition and consumer ‘fickleness’. Practically every product these days is reviewed by consumers online and price comparisons are easy to find using any major search engine or indeed specific apps. Retailers are also having to make speculative decisions about how they choose to combine online and physical retail and warehousing space, which will have long-term implications on the supply chain. When it comes to logistics, the lines between online and ‘bricks’ are blurring with new hybrid options like ‘click and collect’ coming into play.
We heard some considerable frustration from third-party logistics providers, which are under greater pressure than ever to lower their costs whilst facing high petrol prices and being pressured to innovate faster in areas like carbon reduction, tracking and tracing and freight performance. A much more constructive dialogue between suppliers and logistics providers is needed to design better long-term solutions in this area.
What do I conclude from all this?
Ironically, in spite of all the exciting technological advancements that have led to greater consumer buying power, I believe that companies now need to focus on developing fundamental human skills. In this demand-driven age, supply chains will not be able to deliver what consumers expect without human collaboration, trust and judgement.
Earlier incarnations of supply chain initiatives demanded that humans adapt to serve inflexible technology platforms. I expect that in the next stage, technology will more easily adapt to serve the people up and down the supply chain by supporting and informing processes that they are currently struggling to improve like horizontal collaboration, negotiation and customisation.
Above all, implementing the changes required to serve the demand-driven economy takes leadership and active involvement at the board level. Inspirational companies like John Lewis and Shop Direct, which demonstrated how they are dramatically transforming their supply chains for the better, are fortunate to have top executives who are sponsors and cheerleaders of culture and process change.
On that high note, it only leaves me to wish you and your families a very joyful and relaxing festive season. I look forward to hearing your supply chain success stories in 2014!