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The Day a 600-Year Reign Came to an End

  
  
  

How digitalization of content is fast reshaping century-old value chain models

Amazon Kindle - Digital ContentThis may not have made the headlines last week, but I was nonetheless taken aback by the announcement from Amazon.com – the leading online seller of books and one of the most influential in the book industry – that it had sold more e-books in the month of April 2011 than printed books. Let’s not forget that this came less than four years after the launch of its market-leading e-reader – the Kindle - back in November 2007. I was personally ‘aware’ of e-readers and surely noticed a few being used on the plane or in coffee shops, but clearly failed to appreciate the rapidity at which the consumption of e-Books had taken off. I started to wonder whether my one-year old daughter would ever need a book shelf, a schoolbag or even put a foot into a library. I then realized that – while I still read hard copy books – I was actually reading this article online as I do five out of every seven days each week.  Furthermore, most of my personal and professional written communication is never laid down on a piece of paper, just like this very blog. ...

Keeping things into perspective this is not quite the end of the printed book as we know it, and according to the Association of American Publishers (AAP) e-books represented less than 10% of all books sales in 2010 but it certainly is a remarkable milestone for an industry that had been almost exclusively dominated by the paper format since the invention of the printing press in 1440 almost 600 years ago. This is not limited to written content. Back in December 2004 the news that digital download sales of music singles overtook that of CD shipments in the UK sent a shockwave throughout the music industry. This again took place only three years after Apple launched its first iPod MP3 player. Legal download of music is now predicted to overtake physical media formats in the U.S. next year. This also comes to show the pace at which this 100-year old industry is transforming.

The overall ‘author-producer-publisher-printer/replicator-distributor/retailer-consumer’ value chain is now being questioned. Will the ‘author-consumer’ model be the ultimate answer? Probably not in the short term—look at the continued success of Apple iTune Music Store and Amazon.com. One thing though, seems unavoidable: A continued and perhaps dramatic decline of ‘brick-and-mortar’ retailers as well as printer/replicator production volumes. What services are publishers offering in this new context? What role will the hardware manufacturers play in controlling the distribution? Is an open format the way of the future? Is a ‘pay-per-unit’ model becoming obsolete with replication cost virtually non-existent?

The key challenge is, and will probably continue to be, around copyrights. How do you ensure that talent, research and efforts made in producing content delivered digitally can still be rewarded in a free Internet world where sharing content is only a click away from and to any corner of the globe? Intellectual property has a new global battle ground and – let’s face it - governments are unlikely to come up with a global answer any time soon. ...

On June 7th 2011 at 1pm EDT, ModusLink is executing a free webinar addressing some of the avenues to explore and concrete solutions to some of the issues emerging in this digital era: Monetizing Access to Digital Content. Industry experts such as: David Sidebottom, Senior Consultant - Digital Media, Futuresource Consulting, Bill Routt, VP Technical Operations, MobiTV, Jason Thibeault, Senior Director, Product Management, Limelight Networks and Guy Finley, Executive Director, MESA will share their views and experience on key strategies to help you monetize and control access to digital content and services, including: end-to-end subscription management; system administration and back-office provisioning; piracy prevention and digital lifecycle management. We would be pleased to have you join us.

 

The Role of IT in Supply Chain Outsourcing

  
  
  

In this installment of Value Unchained Live, Matt Dattilo, Chief Information Officer for ModusLink Global Solutions, discusses the role of IT in supply chain outsourcing.

For more information about supply chain outsourcing, check out the new Outsourcing Tool Kit.

 

 

Any Color ... As Long As it’s Different!

  
  
  

The rise of mass customization and its impact on supply chains

Ford Model T”You can have any color as long as it’s black.” This quote, attributed to Henry Ford in relation to the Ford Model T, still resonates as the epitome of mass production and the requirement for product standardization to drive economies of scale and affordable prices. This quote is also believed to have recently celebrated its centenary, and needless to say, things have somewhat evolved in the last century! On the production side, methods of production have greatly improved, transformed by countless technology advances. On the consumer side, buying power has increased and consumer needs, expectations and buying behavior have dramatically changed. A standard - or ‘black’- product may still sell for its low price point, but what the consumers really seems to be striving for is a customized - or even better – personalized product.  This is not much different than what you may have commissioned from your local tailor or craftsman a couple of centuries ago! The wheel keeps on turning.

For some time now, marketers have identified opportunities to realize one-to-one marketing (as preached by Don Peppers and Martha Rogers) on a large scale. And ‘mass customization’ hype was born a few decades ago. Product ranges grew. For example, car manufacturers offered customers the ability to choose the engine size, paint or interior color, up to the accessories they were ready to buy as options. Other industries followed and brand new industries appeared on the back of this principle. I wish I could have predicted the success of cell phone  ring tones – a digital customization of the device making you stand out of the boring ‘tililititili...’ crowd (a crowd I happen to be still part of!).

GuitarsBehavioral studies have highlighted an interesting incongruity in the consumers’ psyche. While they want to ‘belong’ within a consumer community, they are – at the same time – looking to establish themselves as an individual within that community. In parallel, their expectations have changed. You may remember, before mail merging, receiving impersonal ‘Dear Sir or Madam’ mails from any company looking for your business. Teenagers are now subject to a daily avalanche of highly targeted messages edited by powerful engines that not only call them by their first name but also know the music they listen to and what their friends are up to. Free time is spent playing games ‘where they are the controller’ and the hero might look like them or even integrate an actual live caption of their faces. It is no wonder that this new generation finds it all the more natural to have the ability to emboss their name at the back of their football boots or etch the emblem of their favorite team on the back of their brand new phone. But it would be wrong to limit the trend to the ‘facebook’/’Kinect’ (TM) generation. Their parents are no longer shy to buy a digital camera that matches the color of the handbag, personalise their birthday cards online and print the picture of their pets on their credit cards.

All of the above is only made possible and affordable by the following elements (as described in the 2001 MIT review).1 Ten years ago, the paper highlighted the limits in each of the below; limits that I believe have been well pushed since then:

  1. Elicitation (capturing customer information): On this end, online configurators – the Web interfaces enabling and assisting the ‘co-design’ or ‘co-creation’ process – have really pushed the boundaries. These have come a long way since their initial versions, allowing you to select between a limited number of specifications such as the original ‘Dell.com’ website. They are more affordable to manufacturing companies and can handle images, sounds and video inputs. They are also doing much better in making suggestions and assisting consumers who can easily be overwhelmed by too many choices. It may not be long before the same technology that places you in that video game can also be used to take your measurements in real time to offer the garment you like at the correct size and suggest those that also best suit your body shape.
  2. Process flexibility and logistics: The typical ‘Design > Source/Make > Deliver’ supply chain model is turned on its head as the consumer gives direct input in the design stage. This calls for the manufacturing process to be flexible enough to handle these constantly changing requirements. The emergence of global manufacturing (dominated by China) and its requirement for localization has fine-tuned CRM, CAD/CAM and ERP systems that are now able to handle tweaks better than before. With most of the configuration offered online, the distribution channel also needs to adapt to direct –to-consumer logistics leaving retail stores very much out of the picture for now.

In essence, the demand for customized product is expected to grow and accelerate. While it may be a while before it takes over more traditional demand, most brands and manufacturers will need to integrate this as part of their strategy; making build-to-order supply chain models that integrate with a web-ordering engine an absolute necessity. According to Forrester Research, the development of mass customization could even challenge the China manufacturing model and drive back a portion of manufacturing in-region, closer to the demand centres. As personalized product consumption grows other value chain challenges will need to be overcome, starting with the handling of returns and the return policies themselves.

How is product customization impacting your product portfolio? Do you believe it represents a long term opportunity? Are any other challenges holding you back from playing your part in this market?

 

1. P. Zipkin, “The Limits of Mass Customization,” MIT Sloan Management Review 42, no. 3 (2001): 81-87

 

Has Business Process Outsourcing Reached a Maturity Level to Deliver Real Value?

  
  
  

Over the years ModusLink has answered to many names, including turnkey services provider, 3PL, 4PL, and business process outsource (BPO) or management provider.     The language that we and others in the industry use has changed, but what has really happened to the services that we provide?   Is the value provided today really different from when I joined the industry in the late 1990s?

While some of the physical activities remain common I believe that the industry has seen some fundamental changes that contribute to a more robust value proposition in today’s market.

Business model maturity

In the early part of this journey, we adopted processes employed by our clients, including some of the leading companies in the technology industry. We executed under their watchful gazes and we brought an execution capability to supply chain strategies that were developed by them.  But as our teams developed critical domain expertise, there was a very definite shift to working with clients not only to deliver but also to collaborate as a trusted partner on the design and to meet their business objectives.

Our clients, in turn, have matured their business approach to recognize the flexibility and control that they can achieve in the value chain by leveraging outsourced capabilities.

Service provider specialization

The outsource value becomes questionable if the outsourced operations must still be supported by a full complement of planning and management resources by the client.  The maturity of the business model can only occur with maturity of the service providers.   

The time came in our development to acknowledge that we were not the world’s greatest contract manufacturer or transportation provider or high-volume call center.   A clear definition of what we do and do not  do helped us identify and build the process expertise surrounding our capabilities in Supply Chain, Aftermarket and e-Business. 

Systems expectations and investments

The annual survey of 3PLs from the Georgia Institute of Technology – now in its 16th year – has consistently highlighted an expectation gap between OEM expectations and 3PL systems capabilities.  If a supply chain outsource provider is to deliver world-class service, then it stands to reason that it needs to invest in the world-class tools to enable those services.    In our case, this has led to an ongoing journey to enhance our ERP, WMS, CRM, e-Commerce, TMS, shop floor, messaging and portal technology infrastructures.

Continuous Improvement

With slowing growth rates in many industries and decreasing returns from low-cost country sourcing, improvements will have to be found in genuine process redesign, linked to robust execution.    These capabilities need to be embedded within the outsource organization to provide a value that can live beyond the initial contract phase.

People and attitude

If there is a key ingredient to the mix, it has to be the quality of the people that essentially become an extension of the clients’ value chains.   While you can look for the requisite experience and credentials, success here is equally dependent on cultural fit with both the client and the outsource organization.  In my case, I am fortunate to work with some incredible colleagues and some of the best clients in the industry; both of whom continue to teach me new things all the time.

So, has business process outsourcing matured to the stage that it delivers real value?   I believe that it has. We see concrete examples of it with many of our clients on a daily basis.  We have seen clients move from outsourcing all ‘non-core’ activities to outsourcing in search of higher performance in a more complex global value chain environment.  As their expectations have risen, so have the capabilities of many of the leading outsource providers.    This is a journey that we expect will continue into the future.

A place at the table

I would stop short of declaring outsourcing a universal recipe for success.   Beyond the strategic rationale, it takes effort, commitment and an underlying business maturity from both the outsourcing party and the BPO provider.   What is clear from its adoption by many of the world’s leading brands is that outsourcing has earned its place at the table for consideration when evaluating changes to your value chain.  

Do you agree?

 

Taking Control of Your Business Strategy Through an Outsourced Supply Chain!

  
  
  

The following guest blog post was written by Bill McLennan, President, Global Operations for ModusLink. 

Value Chain Exchange Webinar

It may sound counter intuitive to give up your in-house operational capability in order to take control of your supply chain, but Nathan White, Chief Operating Officer for Provo Craft shared some wonderful insights on this topic today in our Value Chain Exchange webinar   ”The Value of Outsourcing.”  In order to support a business that was experiencing volume, channel and geographic growth, Provo Craft was faced with the choice of embarking on a lengthy operational improvement cycle with capital commitments or seeking assistance from a business partner in ModusLink to help accelerate that journey.

Nate provided a great account of the decision process, the implementation journey, the internal obstacles and ultimately the benefits.  The net result is an improved supply chain performance where Provo Craft still remains very much in the drivers seat.   The discipline required to manage the business has changed, but the options enabled by outsourcing its supply chain has created a new range of business possibilities for Provo Craft.     

I would like to thank Nate for his contribution to the webinar and I enjoyed the opportunity to share a platform with him and discuss some of our own observations on the trends of an outsourced supply chain.    For those of you that missed the live webinar, you can access the replay here.

Supply Chain Outsourcing ToolkitYou can also download the presentation slides from today’s presentation here.

For more information on the benefits of an outsourced supply chain, visit our
Outsourcing Toolkit.  

 

Supply Chain Collaboration - Is it the Yin or the Yang?

  
  
  

Yin YangMost companies have a planning model that works hand in hand with sourcing, purchasing, operations, sales etc.  More advanced companies even utilize sophisticated software that can statistically predict inventory requirements based on expected demand.  Rarely do companies get the entire equation right.  The reason, I think, is that typically groups work in siloes that place artificial constraints on each other.  Some recent observations I’ve made are:  

  • The sourcing group typically is looking to consolidate suppliers down to a select group that may or may not have facilities or capabilities where you need them.
  • Purchasing wants to buy in the largest buckets they can because that way they get the lowest per-unit cost.
  • The planning group has goals to make sure inventory is nearly always available without purchasing too much to minimize excess and obsolete inventory.
  • The logistics group wants to optimize for the lowest possible cost per unit inbound for inventory delivery preferring to not take into consideration delivery lead-time.
  • Operations would prefer not to have too much inventory taking up space.
  • Accounting / finance does not want to tie up too much cash in inventory.
  • Customers want on-time delivery of their product 100% of the time if they can get it.

The point here, is that each group is looking out for itself; the departments within a company, supply partners and customers.  Each has its own measurable goals.  The secret sauce, I think, is bringing all these goals together in a well-orchestrated model that can be executed using repeatable processes and systems.

For me, building an end-to-end supply chain model that balances the competing interests of each area of the supply chain is how best to move forward, and then modifying the goals of each area in-line with that plan.  Because the business environment is dynamic, incorporating periodic reviews of the model is also required to react to significant changes in the business.  So how do you build the model?  I suggest that companies take this step-by step-approach:

  1. First, you have to understand-- to the best of your ability--what the demand will be for products and services.  For me, this drives all other policies in the model.  To do so, we suggest a sales and operations planning process.  The idea here is to take a forecast, understand history, take in business intelligence from customers such as planned promotions, new product introductions or even if marketing has plans for higher than normal advertisement spend.
  2. Based on these inputs we recommend using an inventory optimization tool that will recommend how much inventory is required and also predict the demand requirement by period (typically by week).
  3. From this, I recommend that a cross-functional group work together to include sliding scale inputs to an analysis team.  For example, the demand is what it is so where is each of the activities taking place, what are the economical order quantities, what is the sliding scale for inbound logistics cost and lead-time, operational space, does VMI make sense, warehouse and space constraints etc.
  4. Once the model is built, software can calculate where the trade-offs are and simulate the results.  From there, policies are generated so that each group understands the decision tree process that needs to be followed, including risk mitigation policies.  These policies should also incorporate sensitivity analysis so that red flags can be raised when, not if, gaps are identified.
  5. From there, the sourcing and purchasing teams should look to continuously review the supply base and look for supply base enhancements.  This can come in the form of operations, future investments, locations closer to the facility and the business model in general.
  6. Last but not least, the model should be reviewed on a periodic basis so that all aspects of the supply chain maintain harmony.

Clearly, there is not a one size fits all model.  Instead, there is a counter-balance of complex trade-offs throughout the supply chain that requires close collaboration to optimize for cost and service.  When this is achieved everyone wins. 

I am interested to hear your thoughts and observations on this subject so please drop me a line.  

 

 

IT Fundamentals for the Value Chain

  
  
  

In this guest video post Matt Dattilo, Chief Information Officer for ModusLink Global Solutions, discusses IT fundamentals for the value chain.

Are there specific supply chain related IT topics you would like to hear more about on Value Unchained? Let us know in the comments section below.

Video running time: 01:29

 

 

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