Supply Chain (SCM/SCE)

Supply Chain Management (SCM) & Supply Chain Execution (SCE) Software, Products & Solutions including Supply Chain Optimisation, hardware transport, supply-chain distribution software, freight software as well as load planning, vehicle routing & scheduling software in manufacturing and supply chain applications.

Hyper-personalisation through demand-driven supply chains

Digital giants have been leading the way with latest technologies, including AI and real-time data to provide massively tailored products and services

14-Aug-2019
Hyper-personalisation through demand-driven supply chains
Delivering personal and unique experiences is recognized as a vital element in strengthening brand loyalty and revenues. Meanwhile, consumer expectations of the experience offered by the brands they value most, continues to grow. Digital giants have been leading the way, spearheading the use of digital technologies such as data analytics to offer increasing levels of real-time service customization and convenience. This “hyper personalization” means harnessing the latest technologies, including AI and real-time data to provide massively tailored products and services to consumers. Think of an online clothing store offering personal stylists and specific outfit recommendations, improving and learning as the client provides feedback and builds an order history.

Hyper-personalization enables brands to identify the subtle details about their customers that traditional personalization and segmentation fails to capture and service. We are now seeing a ripple effect, with leading product organizations and their supply chains also starting to adopt technologies that help them to become more responsive to end-user demand.

This was one of the key themes explored in a recent workshop hosted by Cambridge Consultants that aimed to develop a collective view of how supply chains are likely to change over the next decade, through the adoption of emerging technologies. The workshop participants concluded that advances in postponement technologies, demand-driven supply chains and associated business models will generate opportunities for players at various stages of the supply chain.

Traditional supply chains place product development companies in control of what flows through the supply chain: planning new product offerings, sourcing components, overseeing manufacturing, and finally distributing products for retail. In this model, customers order products by choosing among available offerings as pre-determined at the top of the supply chain. Meanwhile, product development companies and other organizations in the supply chain rely on forecasts in an attempt to manage the risks associated with how many of a particular product will sell, where and when. However, demand forecasting is inherently inaccurate, leading to supply chain inefficiencies due to the mismatch between supply and demand.

To counter this, organizations can choose to defer some operations and decisions to later stages in the supply chain, when and where more accurate information about what customers in specific locations want becomes available. This deliberate choice to postpone specific operations and decisions to later stages in the supply chain, closer to the demand triggers, is often known as postponement strategy. A classic example of this postponement strategy is Dell Computers’ build-to-order approach for Personal Computers in the 1990’s. Dell Computers created a competitive advantage, offering a highly customizable Personal Computer product range, by adopting a postponement strategy based on the assembly of the product in response to customer demand, rather than focusing on inventory management as required by the more conventional mass production approach.

Another form of postponement exploited by the e-commerce retail model is location postponement. Virtual inventories allow online retailers to offer a broad variety of merchandise independent from the physical location of the inventories at the time orders are placed. These organizations thus improve their operational efficiency through improvements in customer service, without increasing inventory carrying costs. This is made possible by postponing the location of inventory to their suppliers in the upstream supply chain until the arrival of customer orders.

Postponement strategies, where supply is triggered with a customer order, are particularly attractive for products that are subject to unpredictable and/or highly variable demand, or those that benefit from a high degree of customization. Think here of in-store retail, particularly sneakers and sportswear, where bespoke design and fit can provide a completely unique product and an experience that’s difficult to replicate online. Recent technology advancements are also introducing new opportunities for innovation. For example, additive manufacturing, which includes 3D printing, is rapidly expanding in both technical capabilities (faster, lower cost, more reliable, more versatile use of materials and better finish) and its growing supplier ecosystem. As a result, it is emerging as an attractive production method for a broader range of physical goods and components, including custom medical implants, footwear insoles, jewellery, toy articles and even aerospace parts.

The impact of additive manufacturing on traditional supply chains has, however, often been highly overstated. Some have extrapolated today’s capabilities to anticipate the demise of mass-production and the rise of manufacturing inshoring. While such wide-scale revolutions are unrealistic in the short term, the implications of mass customization and enabling technologies such as additive manufacturing will be transformational to specific industries whose needs cross over with the offered technical capabilities. For example, in 2017, Materialise, a provider of additive manufacturing solutions, partnered with winter sports gear and tailored footwear specialist Tailored Fits, to launch the world’s first end-to-end digital supply chain for custom-fit ski boots.

As the above example and other innovations such as the Amazon Replenishment Service (the successor to the Amazon Dash button) illustrate, the transition to a digital supply chain enables suppliers to become more responsive to end-user demand. Likewise, with the increased proliferation of connectivity, suppliers no longer have to rely solely on information working all the way back from the various points of sale for them to understand and respond to end-user demand. The long delays and many steps involved between supply and demand triggers in traditional supply chains causes imbalances in supply and demand. Direct access to demand triggers from end-users is often a question of business model and an organization’s role in the value chain. Technology alone is not a sufficient enabler unless the organization in question (a component supplier, for instance) has access to the relevant consumer triggers. To benefit from these opportunities, organizations need to find ways to improve access to demand triggers, either by establishing direct channels with end-users, or forming alliances with other players in the supply chain.

Advances in postponement technologies, demand-driven supply chains and associated business models will continue to generate opportunities for players at various stages of the supply chain. These opportunities include supply chain efficiency gains and value-add by creating new ways to serve customers’ specific needs in direct response to consumer demand triggers. This will not entirely replace established manufacturing and distribution methods. It will however create opportunities for established and emerging organizations to take part in new value chains that will complement, and in some instances replace, established value chains. With the rapid advancement in technologies, there has never been a better opportunity for new players and established organizations to build demand-driven supply chains and gain the value from hyper-personalization.

The report from the workshop – ‘Identifying breakthrough innovations that will transform the supply chain’ – is now available for download on the Cambridge Consultants website.

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