What’s Ahead For 2019: New Business Models And Changing Supply Chain Roles

Richard Howells

Part 2 in the 4-part “Digital Supply Chain Predictions for 2019” series

In my last blog on digital supply chain predictions for 2019, I focused on global issues including Brexit, climate change, and the role of economies that make up the BRICS countries. Here my focus shifts to the business models that shape the digital economy and the prominent role of the supply chain in ensuring success.

Amazon and Alibaba will maintain dominance in online retailing

To be sure, this first prediction is hardly bold – but it’s worth starting with Amazon and Alibaba, as they play such an outsized role in their respective economies.

The fact is, even though more and more companies are introducing online retail platforms, Amazon and Alibaba both have advantages that simply shut out competitors. According to one analysis, Amazon now owns almost 50% of the U.S. e-commerce market. This is up by 5.6% from last year, which means that Amazon is getting stronger despite newcomer challenges.

Amazon is not only the strongest on the list – it’s the strongest by far. The No. 2 spot, held by eBay, claims only 6.6% of the market. Next are Apple at 3.9% and Walmart at 3.7%. With Amazon’s first-mover advantage and its drive for innovation and expansion, it’s difficult to see others catching up.

As for Alibaba, the giant of China continues to go from strength to strength. China’s 2018 Singles Day – a high-sales holiday for young people – is emblematic. Recently, Alibaba broke records when it hit over $30.8 billion in Singles Day sales in one 24-hour period. In just the first 85 seconds of the day, Alibaba sold goods worth more than 1 billion USD. That’s some serious muscle flexing! Expect it to continue.

Supply chains will generate revenue – not just reduce costs

Cost, efficiency, effectiveness, productivity – these remain critically important for any company building and managing their digital supply chain. But as more and more of the market achieves production excellence, COOs can feel the growing need to use supply chain excellence as a differentiator that generates new revenue.

But after putting logistics on steroids with same-hour delivery by drone and using machine learning to optimize the flow of materials through supply networks, what remains? Many innovative companies are moving to x-as-a-service models. The idea is that your mastery of the supply chain – from source to production to the customer and back again (through monitoring) – enables you to do new things.

For instance, instead of making industrial water pumps, selling them, and charging for maintenance contracts, now you install the pump yourself, maintain it yourself, and charge the customer by uptime or the volume of fluid pumped. You can charge in these ways because now you have embedded IoT sensors that track all the operational and pricing data you need, 24×7. You also have the analytics to drive cost out of maintenance – and even do predictive maintenance – by managing it all on your own.

Another new model involves manufacturing to “the segment of one.” To meet the demand for personalized products, some companies are moving to highly flexible modes of production that trigger only after the order is made. Audi, for example, has revamped the assembly line in favor of a modular assembly approach. This approach skirts the issue of assembly line downtime – like when only a few vehicles on the line need to get fitted with optional extras. Among other technologies (like AI and 3D printing), Audi uses robotics and IoT sensors to route parts to modular assembly stations where needed. This approach gives Audi the flexibility to meet variations in demand, even down to the individual if needed.

Chief supply chain officers (CSCOs) will add more competitive advantage

Much of the responsibility for transforming supply chains for competitive advantage will fall to the CSCO and other similar roles. Though historically viewed as a supporting role for the C-suite, expect the CSCO to become more central to how companies navigate their way forward in the digital economy.

The CSCO, after all, is in a unique position to understand the value of the supply chain as a competitive differentiator. Even the biggest of companies understand this reality. Take, for instance, Tim Cook, the CEO of Apple. Cook’s degree from Auburn University wasn’t in electrical engineering or computer science but industrial engineering – which focuses on ways to eliminate waste from production. At IBM he held the role of director of North American fulfillment. At Compaq, he was vice president of corporate materials. And before moving to CEIO at Apple, he was COO.

The point is that supply chain management skills are critical for advantage in a global digital economy. The CSCO role, therefore, will increasingly come out of the shadows to help companies tackle their biggest and most strategic challenges. How do you navigate a global economy characterized by increasing tariff restrictions? How do you set yourself apart with innovative business models that use the supply chain in new ways? How do you deliver the experiences and outcomes that attract customers and grow business? Ask your CSCO. That’s where you’ll find the answers.

Next up for 2019 Predictions: the role of emerging tech. Stay tuned.

Join an interactive session featuring Jeff Hojlo, program director, Product Innovation Strategies at IDC, and Hans Thalbauer, senior vice president, Digital Supply Chain & Industry 4.0 at SAP, to get inspired about how best-in-class companies are reinventing their supply chain. Register here.

About Richard Howells

Richard Howells is a Vice President at SAP responsible for the positioning, messaging, AR , PR and go-to market activities for the SAP Supply Chain solutions.