Your supply chain is dying

Transcription

1 Your supply chain is dying In collaboration with Bloomberg Media Studios The Practical Guide to Disruption kpmg.com

2 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.

3 1 A proliferation of new business models 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. Direct-to-Consumer Supply Chain Retail Supply Chain SHIPPING COSTS SHIPPING COSTS Your supply chain is dying 3

4 Supply chains TRADITIONAL VS CONSUMER CENTRIC DESIGN WAREHOUSE FACTORY STORE CONSUMER TRADITIONAL VS CONSUMER CENTRIC WAREHOUSE DESIGN FACTORY STORE CONSUMER

5 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: Retail technology spending Figures in milions of dollars Applied Digital Assest Mgmt Applied Digital Assest Mgmt on Demand ECommerce Location Based Mobile Marketing Mobile Commerce Retail Revenue Management $486 $496 $511 $0.86 $0.89 $0.93 $1,053 $1,134 $1,219 $315 $344 $374 $1,116 $1,232 $1,354 $114 $115 $117 $3,085 $3,322 $3, $527 $0.98 $1,305 $405 $1,477 $121 $3, $546 $1.04 $1,391 $435 $1,600 $125 $4, Year CAGR $ % $ % $1, % $ % $1, % $ % $4, % Source: IDC Retail Insights, Bloomberg Intelligence. Applied digital asset management is a system that tracks images and descriptions of products from their creators, such as manufacturers and third parties, to improve workflows that lead into retail websites, social media channels, in-store signs and other platforms. Applied digital asset management on demand is the tracking of those deliverables which are created and used in real time. ecommerce platforms are systems to sell goods and services online. Location-based mobile marketing is the delivery of sales offers to customers online, on phones and in stores. Mobile commerce solutions deliver in-store mobile self-guided and assisted selling, inventory management and communication systems. Retail revenue management solutions plan and optimize regular, promotion, and markdown product prices as well as personalize and contextualize individual customer sales offers. Your supply chain is dying 5

6 2 The need for speed to market The supply chain will have a more direct relationship with the customer in the future, says Ganga. Today, the customer talks to the front office. The front office talks to the middle office. The middle office talks to the back office, he says. Tomorrow, in order for you to be able to really delight the customer, the customer goes to the center of the supply chain, he says. Matsuda gives as an example a person who buys a concert ticket. They may want to order food delivered to their seat at that event, or make reservations for a dinner before or after the show, or download the artist s latest album. They want the ticket seller to deliver a multi-dimensional experience. Suddenly, they have a very different supply chain, Matsuda says. That more consumer-centric supply chain is being driven, in part, by the need to get goods into the hands of consumers faster, according to Bloomberg Intelligence. Retailers must add speed from product inception to delivery to keep up with rivals and improve inventory turn and customer satisfaction, even if it pressures margin, Bloomberg Intelligence maintains. Distributing goods directly from factories, warehouses and distribution centers, rather than only from stores, is one means already being explored to speed up the distribution process, Bloomberg Intelligence notes. A company s speed to market for its goods and services is increasingly on the minds of C-Suite executives, according to an analysis of Bloomberg s database of earnings call transcripts for 6,900 companies. Speed to market mentions Earnings calls which included mentions of Speed to Market Source: Bloomberg. Data for first six months of each year

7 3 The rise of the business platform company If you want to sell your personal transportation service, you do so through Uber or Lyft. If you want to rent your apartment to travelers, Airbnb and its ilk are the places you turn. These companies sell other people s things through their own disruptive platforms. They control the customer experience but have the benefit of not having to maintain the underlying assets, such as cars and apartments. How does a traditional asset-heavy company address the digital insurgents competitive advantage? By building digital platforms of their own, sometimes in arenas they don t even operate in today, says Matsuda. As an example, he points to Abbott Diagnostics, a leader in the lab diagnostic equipment market. It wants to pre-wire and connect all the equipment in a given lab, so that it is the one place that lab managers call. But that requires it to partner with a core competitor, sourcing products from Roche. The supply chain will need to chain to adapt to the new business model. Abbott s existing supply chain will be wofefully inadequate to support this new business model, says Matsuda. And the competition is only expected to get fiercer. Business platform companies like ride sharing and short-term rentals are examples of the sharing economy, according to Bloomberg Intelligence. These companies function as intermediaries in the process of increasing the utilization rates of consumer assets like cars and living spaces. Artificial intelligence can help these companies optimize dynamic pricing algorithms, deployment of their workforces and cost structures to accelerate sales and user growth, reports Bloomberg Intelligence. Users for such services are expected to grow 68 percent over the four years ending in Projected sharing economy In Millions Sharing economy users Source: emarketer Transportation sharing economy users Lodging sharing economy users Your supply chain is dying 7

8 Supply chain checklist Ganga and Matsuda recommend that executives take the following steps to prepare to innovate their supply chains: Develop Technical Capabilities Develop the technical infrastructure that will enable your company to make supply chain changes. Examples could include blockchain, mobile solutions and the ability to create predictive models. Expand Supply Chain Visibility You need to be able to see into not just your own supply chain, but the supply chains of your suppliers. Make Educated Guesses If you can t get visibility into your upstream and downstream supply chains, you ll need to aggregate data to infer what s happening in your supply chain. Know Your Customers It sounds like Marketing 101, but it s more important than ever. Know who the customer is, what they want, where they want it and how they want it delivered. Segmenting your customers sometimes into segments composed of a single customer is vital. Redefine ROI Measurement With many of these changes tied to things with have yet to be proven, CFOs are going to have to get creative and flexible when attaching return on investment to these costs, or risk being left behind. For more information on how KPMG is enabling consumer and retail organizations to achieve enterprise wide digital transformation,

9 Contact us Sam Ganga Principal, Experience Design and Engineering Team, KPMG T: E: Ammon Matsuda Managing Director, Data & Analytics, KPMG T: E: The Practical Guide to Disruption series examines the future of five key business processes. Combining the insights of KPMG s industry specialists with Bloomberg data, we provide practical steps executives can take to prepare for the changes to come. Some or all of the services described herein may not be permissible for KPMG audit clients and their affiliates. kpmg.com/socialmedia 2018 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. Printed in the U.S.A. The KPMG name and logo are registered trademarks or trademarks of KPMG International. NDPPS