Supply chains and value webs

15 Pages·2017·11.85 MB·English

Supply chains and
value webs
Part of the Business Trends series
Business ecosystems come of age
Supply chains and value webs
Supply chains and value webs
By Eamonn Kelly and Kelly Marchese
Overview
OVER the last few decades, Ecosystems are dynamic
and co-evolving communities
supply chain profession-
of diverse actors who create
als have helped transform the
new value through
business environment. They
increasingly productive and
have contributed to accelerated sophisticated models of Supply chains are increasingly
globalization by directly con- both collaboration becoming value webs that
necting actors in emergent and and competition. span and connect whole
ecosystems of suppliers and
developed economies. They
Read more about our view of business collaborators; properly
have enabled many major cor-
ecosystems in the Introduction. activated, they can play a
porations to become nimbler critical role in reshaping
and leaner by focusing on what business strategy and
they themselves do best, while delivering superior results.
carefully constructing external arrange-
ments for the rest. Supply chain professionals
have helped reduce costs, improve efficiency,

and substantially enhance operational per-
formance. And they have altered the basis of
competition—as one scholar has suggested,
increasingly today, “Companies don’t com- needs of customers. Today’s supply chains con-
pete—supply chains do.”1 tain growing varieties of players interacting in
By mastering the management of assets interdependent and often indirect ways.3
that exist outside the traditional boundaries In fact, many “supply chains” appear to be
of the firm, the supply chain profession has evolving into “value webs,” which span and
also helped forge the dynamic, collaborative, connect whole ecosystems of suppliers and
industry-transcending world of ecosystems collaborators. Properly activated, these value
described throughout this report. As the webs can be more effective on multiple dimen-
era of the vertically integrated corporation sions—reducing costs, improving service
has waned, new and more fluid alternatives levels, mitigating risks of disruption, and deliv-
have proliferated. But to date these arrange- ering feedback-fueled learning and innovation.
ments have typically replaced ownership with This is likely to accelerate as new technologies
“control.”2 In ecosystems, influence will need generate more data, provide greater transpar-
to be achieved across increasingly complex ency, and enable enhanced connectivity with
networks—through relationships, collabora- even tiny suppliers and partners. The shift can
tion, and co-creation. Many traditional supply create new challenges for the supply chain
chains are becoming increasingly agile, adap- profession—but also extraordinary opportuni-
tive, and resilient, and are supporting faster ties to play an even more central strategic role
and more flexible responses to the changing in shaping the future of enterprise.
iii
Business ecosystems come of age
What’s behind this trend?
taste.”6 For many operations managers, such
A set of powerful developments have goals call for complex, multifaceted enhance-
worked together to help transform the business ments of activities taking place at multiple
environment, changing how supply chains are locational levels.
configured, further heightening their strategic Today, new waves of technology are
significance for many firms, and creating new accelerating these already established shifts.
leadership imperatives for the years ahead. Continuous innovation and global dissemina-
First, advancing information and com- tion of new technologies and tools are directly
munications technologies drastically reduced enabling new connectivity, collaboration, and
the transaction costs of dealing with outside co-creation across multiple businesses. The
entities, so that in short order, many assets that rise of the Internet of Things—which con-
had made sense to own and activities tradi- nects increasingly smart products—is greatly
tionally performed in-house were now often enhancing the creation of and access to data,
better sourced from external suppliers. The and producing ever-increasing transparency.
general loosening of corporate dependence Substantial technological changes unfolding
on ownership of key assets contributed to the today in manufacturing, including 3D printing
activation of many new external resources and and new robotics, are set to transform many
capabilities—and an explosion of new actors production processes and may significantly
ready and able to contribute. disrupt today’s distribution models.
This technological enablement of inter-firm The speed and scale of these changes are
coordination has coincided with a long-term creating new opportunities for many sup-
political movement: trade liberalization by ply chain professionals—and also putting
many nations around the world. Together, increased pressure on them to adapt. Their role
the two forces enabled the offshoring, global is expanding far beyond enhancing perfor-
outsourcing, and foreign market entries that mance by getting essentially the same things
helped create the new global economy. The done, but differently and elsewhere. Their focus
leading firms of mature economies moved is extending beyond continuous improvement
rapidly to globalize their operations, many of existing operations. Instead, these profes-
of them with an eye to a future when all sionals are being positioned as increasingly
the growth of the world’s population—the strategic leaders discovering fundamentally
next billion people—would be in emerg- different ways of creating new value, driving
ing economies.4 Meanwhile, many busi- continuous innovation and learning, and sus-
nesses in less mature economies gained the taining enterprise growth.
opportunity to grow and join the global
economic mainstream. The trend
Leading firms everywhere soon real-
ized there was a “sweet spot” to be found by Having helped transform the operating and
effectively marrying globalization to “localiza- performance models of most major enter-
tion.” Nestlé, for example, declares that “food prises over the last few decades, many supply
is a local matter,” and operates its networks chains are now playing an even more central
according to a basic principle: “Centralize what strategic role. They are helping lead their busi-
you must, but decentralize what you can.”5 The nesses into the dynamic, hyper-connected, and
Coca-Cola Company works to strike a similar collaborative world of ecosystems. In doing
balance. One commentator describes its strat- so, many are now creating and leading more
egy as “mingling global and local… utilizing complex systems perhaps better character-
local suppliers and local bottlers, employing ized as value webs. The word “chain” has a
local people, and addressing local culture and powerful metaphoric logic that captures well
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Supply chains and value webs
Figure 1: Supply chains evolve into value webs
Linear supply chains are evolving into… complex, dynamic, and connected value webs
COMPETITION COMPETITION
Suppliers
C
O
-C
R
E
Manufacturers A
T
IO
N
A
G N
O D
O C
D O
L
S L
A
Distributors B
O
R
A
T
IO
N
Consumers
Value is based on the production of Value is based on knowledge exchange that
goods and services drives proactive production of goods and services
Source: Deloitte analysis. Graphic: Deloitte University Press | DUPress.com
a series of discrete links by which goods are increasingly fluid and interdependent value
bought, have value added to them, and are web, leaders should surround their contracts
sold to the next value-adder—up until an end with trust; build on transactions and one-time
buyer consumes them. This remains of criti- deals to cultivate long-term relationships and
cal importance. However, increasingly, value mutual learning; combine the power of control
is being created not only within firms, but in with the potential of co-creation; make sure
the rich interactions between them. Linear that defined, fixed standards do not create bar-
sequences of procurement are increasingly riers to valuable innovation and co-evolution;
supplemented by more iterative and innova- and not only leverage leading practices, but
tion-oriented collaborations. also aim to create “next practices.”
To be sure, in a world of value webs, the Some leading companies have explic-
essential goals of traditional supply chain man- itly adopted hybrid approaches to embrace
agement do not go away. But they are often such dualities. In one frequently quoted
augmented by new imperatives—like learn- example, Chinese motorcycle manufacturer
ing, agility, and renewal. Collaboration is an Dachangjiang deliberately pursued both value
addition to, not a replacement of, traditionally web and supply chain arrangements by break-
more closed, contractual arrangements. Clear ing its design into multiple modules, awarding
commitments to meet rigorously monitored several suppliers responsibility and substan-
standards and service-level agreements will tial latitude for each, and actively encourag-
remain critical. But to claim the benefits of an ing collaboration between them to promote
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Business ecosystems come of age
Figure 2. Supply chain leaders vs. followers: Use of technical capabilities and new technologies
Question:
For each of the supply chain capabilities below, please indicate whether it is currently in use at your company.
70%
Integrated business planning
46%
70%
Optimization tools
54%
63%
Demand forecasting
52%
Supplier collaboration 63%
and risk analytics 44%
57%
GPS and/or RFID* Supply chain leaders
35%
Supply chain followers
53%
In-memory computing
36% * Manufacturing and retail respondents only
Control tower analytics 53% ** Manufacturing respondents only
and visualization 25%
Based on a survey of 400 executives. “Leaders”
50%
3D printing** 22% were identified as companies rated by their
executives as much above average compared
48%
Real-time shipment tracking* with other firms in their industry on inventory
36%
turnover and percentage of on-time and in-full
45%
Wearable technology** deliveries. The remaining companies were
21%
identified as “followers.”
40%
Artificial intelligence
15%
Advanced robotics 40%
in manufacturing** 24%
30%
Advanced delivery systems*
10%
Source: 2015 Deloitte Supply Chain Leadership Survey. Graphic: Deloitte University Press | DUPress.com
innovation, while also imposing aggressive leaders rate their ability to negotiate and col-
performance targets regarding pricing, quality, laborate with partners highly, compared to less
and timing of production.7 than half of followers.8 These greater abilities
Just as most businesses have already and attitudes reflect in the bottom line: 73
learned how to activate and deploy assets they percent of surveyed leaders reported financial
don’t own, they are now becoming increas- performance significantly above their industry
ingly adept at doing so with assets they don’t average, in contrast to less than 15 percent
control, either. The 2015 Deloitte Supply Chain of followers.9
Leadership Survey confirms the value of
gaining skills that promote influence. It finds Implications
that “leaders” distinguish themselves from
“followers” in several areas. They are much Value webs are characterized by complex,
more aggressive at using technical capabilities connected, and interdependent relationships,
and powerful new technologies, like supplier where knowledge flows, learning, and collabo-
collaboration and risk analytics, which can be ration are almost as important as more familiar
critical in complex, dispersed networks (see product flows, controls, and coordination.
figure 2). Leaders also tend to support diversity To lead and secure advantage in this increas-
and inclusion and manage global and virtual ingly organic and networked environment,
teams significantly better than their peers leaders will likely have to focus on three core
(see figure 3). They are usually more adept at developmental priorities.
working with others: 80 percent of surveyed
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Supply chains and value webs
Engagement with more,
facilitator of relationships between firms that
often smaller, players
otherwise would not or could not cooperate.
The emergence of value webs is enabling In the United States, IBM launched Supplier
the conditions for small, highly focused sup- Connection, a platform-based network
pliers to proliferate in global supply chains. that helps large firms manage their connec-
Important and complex capabilities increas- tions with smaller businesses.11 Across many
ingly involve deep specialization that often industries we see the rise of “value networks”
flourishes in smaller, tightly niched firms. that use cloud computing and social network
Barriers to entry are generally declining. platforms to enable many-to-many supplier
Young, nimble, and entrepreneurial firms fre- connections. For example, Real Time Value
quently have innovation advantages. Many of Network has over 30,000 trading partners,
the best and brightest of the Millennial genera- allowing supply chain managers to more easily
tion are showing themselves to value autonomy find the small players that can bring ideas and
and independence, gravitating toward smaller flexibility to their arrangements.12
businesses and more New software
flexible employment For the most part, supply tools can also provide
arrangements. No broader perspective
surprise, then, that chain functions of large and deeper insight
according to startup into expanding value
tracker Crunchbase, businesses weren’t set up webs. Amgen, for
the average startup in example, which offers
a supply chain today to deal with a world of treatment for seri-
is smaller by almost a ous illnesses such as
third than those that thousands of partners. cancer and kidney
participated in the disease, has seen its
decade 2000–2010.10 Now they must adjust. network expand sub-
Indeed, some sup- stantially. “Originally
pliers are so tiny that most of our suppli-
their connections ers were closer to
with large firms can appear more like talent home,” observes executive director of supply
sourcing than procurement. chain Patricia Turney. “More and more, we’re
For many corporations, these connections finding that we are sourcing materials from
can bring many advantages, but also invite really remote locations.” So Turney has put
greater complexity. For the most part, supply tools in place to map the whole ecosystem, and
chain functions of large businesses weren’t set a process to create a “war room” when disrup-
up to deal with a world of thousands of part- tions threaten supply lines. A few months into
ners. Now they must adjust. So, for example, implementation, she reports, “We already have
we see firms establishing or relying on new some new insights into our tier 2 suppliers
“platforms” to facilitate greater levels of con- and where they’re located that we didn’t have
nectivity, collaboration, and co-creation with before.”13
other businesses. (As a familiar example of
a platform, picture Amazon Services, which Reducing risk, raising
provides its customers with an e-commerce resilience, deploying data
infrastructure for order-taking and fulfillment, Patricia Turney’s comments also serve
allowing them to focus on their offerings.) to highlight the ways in which risk can be
In China, Alibaba allows small businesses reduced in increasingly complex value webs.
to build their own supply chains, acting as a It seems to be working well for Amgen: As
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Business ecosystems come of age
Turney also observed, “We have a phrase . . . Designing resilience into supply chains and
‘every patient, every time.’ We’ve never shorted value webs will likely rise in importance, and
the market, never had a patient go without be supported by new capabilities. For example,
life-saving medicine. . . . [We have] 24/7 3D printing technologies already enable some
oversight.”14 supply chains to reduce dependency on far-
Since their inception, supply chains have flung production arrangements. When British
generally been tightly associated with risk fighter jets flew for the first time with com-
management and business continuity planning. ponents made using 3D printing technology
Globally extended production and distribution in early 2014, Mike Murray, head of airframe
arrangements are often subject to risk factors integration at BAE Systems, described a new-
beyond anyone’s control—from geo-political found freedom afforded by the technology.
events to natural disasters. Dependency on “You are suddenly not fixed in terms of where
the capabilities and integrity of others outside you have to manufacture these things,” said
your organization, even if tightly contractually Murray. “You can manufacture the products
controlled, can create certain vulnerabilities. at whatever base you want, providing you can
And, if it was ever possible to lay the blame get a machine there.”18 Data is also likely to
for product deficiencies on suppliers, that is play an increasingly critical role, especially as
not likely to remain a credible excuse. For the Internet of Things enables vast amounts
example, in 2013, millions of food products to be collected and analyzed to create greater
advertised as containing beef were withdrawn transparency and discover opportunities, effi-
from shelves in Europe after they were found ciencies, and problems. However, in Deloitte’s
to contain horsemeat. The scandal highlighted 2015 supply chain survey, only 46 percent of
deficiencies in the traceability of the food sup- respondents rated their analytics competen-
ply network, and dealt a blow to the finances cies as currently very good, while 67 percent
and reputations of affected brands, retailers, expected them to become more important in
and restaurants.15 It is simply expected today the next five years.
that firms have clear visibility into the activi-
ties—and the integrity—of their vendors. Attracting and developing
Increasingly complex, highly distributed next-generation talent
networks can generate some new risks, but Talent considerations are also on the rise.
there is a paradox here. Many also have high Value webs can be an increasingly important
levels of resilience and can be, in writer Nassim source of hard-to-access talent, especially
Taleb’s phrase, “anti-fragile”—displaying as new and more open models proliferate.
self-organizing, flexible qualities surprisingly Development of the talent of partners is also
capable of reconfiguring to overcome shocks rising in importance for many firms such as
and disruptions.16 These qualities are usually Nike, which are placing increased emphasis on
stronger when underpinned by strong, endur- providing shared training programs for suppli-
ing relationships. Consider the experience of ers’ employees.19
Renesas, a Japanese producer of microcon- The supply chain profession itself is also
trollers, when the 2011 earthquake severely clearly evolving, and will require important
damaged its main production facility. After new skills and capabilities: design of resilient
a swarm of workers from its suppliers and networks; management of reciprocity-based
customers voluntarily showed up in sub-zero relationships; adoption of technologies such
temperatures and got the plant up and running as 3D printing; and analytics. No wonder
again, their value web was in many respects the US Bureau of Labor Statistics has cal-
stronger for the experience.17 culated that the number of logistics-related
viii
Supply chains and value webs
Figure 3. Skills requiring future investment as supply chains evolve
Based on Deloitte’s 2015 Supply Chain Leadership Survey of supply chain executives
74% 71% 68%
believe that strategic thinking and believe that recruiting senior supply believe that collaborating across
problem solving will become more chain leaders is difficult, with 66% functions will become more important,
important,i with only 43% rating their saying that leading and developing with only 47% rating their current
current competency as high.ii others will become more important. competency as high.
65% 65% 64%
believe that managing global and believe that persuading and commu- believe that negotiating and
virtual teams will become more nicating effectively will become more collaborating with value chain
important, with only 43% rating their important, with only 42% rating their partners will become more important,
current competency as high. current competency as high. with only 51% rating their current
competency as high.
i Respondents were asked if these competencies will become more or less important to their company’s supply chain organization over the next five years.
ii Respondents were asked to rate their companies on these competencies; “high” includes ratings of “very good” or “excellent.”
Source: 2015 Deloitte Supply Chain Leadership Survey. Graphic: Deloitte University Press | DUPress.com
jobs will increase by 22 percent between 2012 and problem solving was very good. With 74
and 2022.20 percent surveyed also saying that such strategic
Recruiting for these positions may need thinking and problem solving will increase in
to be creative. In Deloitte’s 2015 supply chain importance, it seems there is no time to lose
survey, 70 percent of top-performing supply (see figure 3).
chain functions expect to use non-traditional
recruitment methods in the coming years. What’s next?
In their training efforts, too, they will benefit
from preparing veteran managers for deeper As the business landscape increasingly
collaboration with other business functions configures around dynamic, highly interactive
and leadership and more central participation ecosystems, supply chains will likely evolve
in the evolution of strategy. substantially. Many larger firms will invest
The most effective supply chain leadership in their own supplier ecosystems, recogniz-
is already at a premium. In the Deloitte 2015 ing that feeding and nurturing them will help
supply chain survey, 71 percent of executives generate demand, innovation, and support in
claimed that it was difficult to recruit senior a variety of ways that cannot always be pre-
supply chain leaders,21 and only 43 percent dicted. New mindsets are likely to take hold
felt that their supply chain strategic thinking as the profession embraces more networked
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Business ecosystems come of age
and “web-like” arrangements. New leader- infection in New York City and proved far
ship capabilities will be increasingly valued, more accurate than traditional seasonal
as relationships based on reciprocity, mutual flu trend estimates.23 When real-time data
trust, and shared interests become increasingly sources from across massive webs are brought
vital and effective. Listen, for example to Kurt together, new insights can emerge that enable,
James, a supply chain leader at McDonald’s for example, far more accurate and localized
supply chain: demand forecasting. New value webs will form
as 3D printing transforms multiple aspects of
When hiring, we look for people with char-
today’s global supply chains, enabling opera-
acter traits uniquely suited to our supply
chain—namely, an innate sense of fairness tions to atomize in ways few can even imagine
and an ability to consistently empathize today. Amazon, for example, filed for patents
with the challenges suppliers face in meet- in February 2015 for installing printers in
ing our often aggressive deadlines, stan-
delivery trucks—taking the concept of “real-
dards, and evolving needs.22
time” to a new level.24
Many supply chain professionals will
become more closely connected to colleagues
New mindsets are likely
who are creating “on-demand” talent mod-
els, or designing new, more open innovation
to take hold as the
systems. Consider major corporations such as
Ford, AutoDesk, Intel, and Fujitsu that have
profession embraces more
forged partnerships with TechShop, a growing
chain of “makerspaces,” enabling them to con-
networked and “web-like”
nect with the fast-growing Maker Movement.25
All this will compel the supply chain profes-
arrangements.
sion that helped shape today’s economy to
adapt in turn to its new demands. As ecosys-
tems become increasingly central to business
strategy, the core value of the profession will
Substantial experimentation will likely lie less and less in getting the same things done
occur, driven particularly by the increas- ever more efficiently, and more and more in
ing prevalence and predictive qualities of the strategic pursuit of creating new value,
data. In the realm of social data, for example, achieving breakthrough performance, sus-
“Nowcasting” is a growing field of social taining growth, and—once again—changing
listening-enabled forecasting. A recent study the world.
analyzed Twitter posts to estimate influenza
x