Over the next decade, in any given company, the supply chain as we know it will be replaced by fulfillment networks that are purpose-built to deliver what micro-segments of a company’s consumer base wants, when they want it, according to Sam Ganga, a principal on KPMG’s Experience Design and Engineering team.
The supply chain most companies use today – one that plans, sources, makes, delivers and handles the returns of products – is dying.
Great products are no longer enough to attract and retain customers. They are demanding a much more sophisticated brand experience – one that extends beyond just a great buying experience, to include fulfillment, returns and, in some industries, an after-market parts and services experience, says Ammon Matsuda, Managing Director of Data & Analytics at KPMG.
There are three ways in which innovation and increased competition are triggering these changes in supply chains, according to Ganga and Matsuda. Bloomberg Intelligence data and insights about supply chains – which was prepared independently of the KPMG experts generating their insights – support their contentions. Here’s why supply chain change is on the horizon, and the practical steps companies can take today to innovate.
Companies that had traditionally sold through third-party retailers are increasingly evaluating direct-to-consumer sales models that bypass intermediaries. Others are considering subscription-based selling in addition to direct-to-consumer models. Yet others are being forced by digital-born competitors to offer customized products. “Whatever the motivation, each one of these new models impacts the way a company’s fulfillment network operates,” says Ganga.
“And they can only be launched on a digital platform,” Matsuda adds. “That means you need to link the supply chain to the platform and the supply chain. In a very real sense, the business model is the supply chain.”
For example, a direct-to-consumer, customized product offering using an e-commerce platform gives supply chains more predictability, because supply chain managers have a smaller margin of error regarding where their products are going. That enables them to locate manufacturing and distribution centers closer to the consumer, which contributes to reducing shipping costs.
On the downside, that business model dramatically increases shipping costs on the whole because they’re shipping small packages to many consumers, rather than big pallets of products to a comparatively small number of retail locations, Ganga says.
Spending on technology upgrades, distribution centers, automation and better last-mile avenues may take time to generate returns.“Retailers’ margins may stay under pressure as they invest in technology and speed up deliveries to satisfy customers and improve inventory turn,” Bloomberg Intelligence predicts. “Spending on technology upgrades, distribution centers, automation and better last-mile avenues may take time to generate returns.” Of the more than $3 billion spent last year by retailers on hardware, software and technology services, more than $2 billion was spent on digital commerce aspects of the supply chain. Spending on mobile commerce solutions and location-based mobile marketing are expected to increase fastest by 2020.