New Business Models Require New Supply Chains

Business models are changing, driving the need for more digitalization

By Marko Kovacevic

Customers, whether B2B or B2C, are rapidly evolving as digital capabilities enable smarter and better-informed buying. The New Customer has expectations and demands that companies must meet if they are going to grow sales, reduce costs, and retain happy and loyal customers. The New Customer doesn’t mean getting a different company or person to buy what you sell. It means that the individuals and companies that you sell to have a new set of demands, expectations, and requirements.  With the rise of the New Customer, brands are supplementing and, in many cases, augmenting or even replacing their traditional wholesale channels with direct-to-customer (DTC) models.

Meeting the needs of the New Customer is blurring the lines between B2B and B2C because expectations of all customers are being shaped by digital capabilities. Businesses need to know more about their customer and how purchasing decisions are made. They want the ability to recognize customer changes in buying behavior and adjust quickly, as their customer pivots, to retain their loyalty. The need to better understand customers is making DTC an essential part of every corporate strategy. In turn, new business models are required to understand and support the demands and expectations of the New Customer. Implementing new business models requires redesigning of workflows to provide efficient operations with visibility, tracking and data to make decisions. New systems are required to support these business models and meet expectations of the New Customer. And those systems must link the customer to demand planning to manufacturing to supply chain with end-to-end visibility.

The need for optimized digital workflows that tightly link the customer to the fulfillment process is accelerating digital transformation of the supply chain and driving the need for dynamic supply chains that quickly adapt.

What are the key characteristics of dynamic supply chains:

1. Customer needs are dynamically recognized. Data is readily available with Artificial Intelligence (AI) and Machine Learning (ML) tools sensing when changes are needed and adapting to data driven trends.
2. Demand sensing is tightly linked to manufacturing and supply chain. Adjustments take place quickly and seamlessly.  No longer is the manufacturing process disrupted when customer needs change. The data driven, business model recognizes the change and adjusts to meet the customers changing needs.
3. Regionalization is preeminent. Manufacturing and supply chains need to adjust quickly as demand shifts. Smaller quantities are produced and delivered because lead times are greatly reduced and there is far more insight into demand quantity allowing for dynamic shifts in production. More goods are sold at full price with fewer markdowns. Successful supply chain leaders who rapidly adjusted the near-shore models have successfully kept their customer base engaged and happy. They pivoted fast to overcome the material shortages and demand uncertainties and balanced the last mile adjustments to fulfill the customer promise.
4. Demand and supply remain in balance with the ability to make quick adjustments in production based on direct data inputs and have goods delivered quickly and reliably.
5. Distribution is optimized and closer to the customer to meet demand and deliver to their expectations. Stock is visible across the entire distribution network and balanced to meet forecasts. Stock rebalancing happens quickly and seamlessly.
6. Risk management is integrated into the workflows. When regionalization goods get to the customer faster, geopolitical risk is reduced, and logistics becomes more predictable. Digitalization of the end-to-end supply chain provides transparency and with integrated risk management tools, risks can be predicted in advance and action taken to avoid potential issues.  Compliance can be monitored and reported with higher confidence and less effort and businesses can ensure goods are produced in an ethical and sustainable way using modern labor practices.

Direct connection to your customers is a must for today’s data driven supply chain. More and more companies are moving to DTC to retain and grow a happy and loyal customer base. DTC doesn’t need to be the exclusive route to market, but it provides the data needed to understand your market and adapt to those changes must faster than they can be identified through traditional routes to market.

Industry leaders have successfully kept their customer base engaged and happy while investing in supply chain transformation at breakneck speed. They are adapting their business models to exploit the capabilities provided by digital supply chains and continue to invest in new technologies that power new differentiating capabilities. The rewards are evident. Industry leaders can now pivot to overcome material shortages and demand uncertainties and balance last mile adjustments to fulfill the customer promise. Risk management is integrated into workflows instead of being an after-thought. Examples are abundant. Just look at the growth in Mexico and other Latin American countries as manufacturing spans borders with subassemblies moving back and forth in companies like Boeing, Samsung, LG, and Whirlpool. Manufacturing across the globe is regionalizing to better serve the customer.

Competitiveness and differentiation in today’s environment requires first-hand knowledge of your customer.  Decisions must be near real-time, and data driven and that requires direct knowledge of your customer. Those who aggressively invest in DTC business models and technology to support those models will likely outpace their competitors for some time to come.

Marko Kovacevic is Managing Director of the Digital Supply Chain Institute, a member-led research institute focused on the evolution of enterprise supply chains in the digital economy and the creation and practical application of supply chain management best practices.

An edited version of this article appeared in Supply Chain Brain.