Digital is impacting every aspect of business, supply chain is no exception. On one hand, it is creating new supply chains in the form of market places (Flipkart, Amazon, Snapdeal, Instabaniya etc.). On the other hand, it is making the existing enterprise supply chains more efficient and effective. Businesses cannot remain completely untouched by the digitization of their supply chains. They however have the choice to decide on their way of participation.
I discuss here four digital supply chain options, which the traditional businesses must consider. I also discuss the related opportunities and obstacles.
Participating in a market place is like selling through a reseller online. The usual practice of sharing a margin for the products and services sold applies here too. But the processes of customer order booking, tracking the orders, financial settlement etc. are digitally automated. Though the cost of real estate in the form of physical stores is saved, there are additional costs of inventory, physical space, logistics and underlying technology. Since the market place model gives the customers the power to compare and decide, adequate brand building is required to avoid being treated like a commodity and compete solely on price.
The market place model, however, has a different appeal for the unorganized areas like travel, hotels, cab, bus booking, and home food ordering etc. Here it can integrate the long tail of a large number of unorganized players who generally do not have the wherewithal to advertise. But for a bigger and established player, operating at the periphery may be just one properly weighed option.
2. Being at the center of enterprise specific digital supply chain
The second impact of digital on supply chain is visible in the way companies are digitizing their enterprise supply chains for better efficiency and effectiveness. Integrating the physical and the information flow from customers to suppliers can drive many advantages. It can help reduce the inefficiencies, become more effective on right delivery in time thus enhancing the customer satisfaction and experience. It can also lead to increased sales through company owned online stores.
But it also means increased spend on marketing pull, brand equity for a premium which customers may be willing to pay, technology platform to integrate the supply chain and change management at the process, culture and skills levels. Supply chains are not about market places as many believe it to be, it’s related to the entire value chain spanning from suppliers to customers.
This approach may be prohibitive for smaller players and the long tail.
3. A hybrid approach of participating in multiple marketplaces & creating own digital supply chain
Like many other decisions, it cannot be an either or approach, especially for the larger, established and organized players. They will focus on a multi-pronged approach to go to market and distribution approach and an integrated end to end supply chain. The former is aimed at tapping additional sources of revenue, whereas the later is aimed at creating both efficiency and strategic capabilities to compete.
4. Being an ancillary player to support others with respect to the above three options
The digitization of supply chains opens up opportunities for plethora of players across the domains of logistics, manpower, technology, real estate etc. The practice for the main supply chain player is to focus on the core supply chain platform and outsource the ancillary functions. A basic platform preparation is a must, however, for the ancillary players to participate in the supply chain. There is usually a pressure from the principal operator on the ancillary operators to gear up in terms of technology readiness and management practices.
Each of the four options discussed above requires a debate around the following 5 aspects-
1. Profit margins,
3. Building strategic capabilities,
4. Attacking tactical revenue opportunities and
5. Degree of centrality to the supply chain ecosystem.
Traditional businesses of all sizes must evaluate which side of these aspects they are willing to play and decide on their digital supply chain foray. It’s an era of customer choice and value creation and the traditional businesses will need to decide how to cope with the changing order.
<image courtesy of freedigitalphotos.net>