What drives sustainable supply chain innovation?

JOS VAN HILLEGERSBERG: In this session, we will look into the drivers of supply chain innovation. We will look what factors drive the need for innovation of the supply chain. And we’ll start with the consumer, us. Our buying behaviour drives the need for innovative supply chains. The picture you see here shows a typical supply chain. On the left side, you see raw materials. And then you see all kinds of factories, warehouses, terminals, transportation means, that process these goods and in the end deliver them to us on the right side, the consumers. Typically through retail stores or through ecommerce portals and websites, an increasingly important sales channel.

It’s us the consumer that in the end drives the supply chain innovation and the changes that are happening today in the supply chain structure. For example, product variety. We love different kind of products. A typical supermarket today carries more than 40,000 products, where few decades ago, it was only a few thousand. All these different type of products find their customer niches. The picture here you see is an effect we know as the long tail. An article by Chris Anderson in 2004 in Wired Magazine really changed the thinking of many supply chain professionals.

So in this example you see here, you can see from the statistics of the sales of books, videos, and music, that the actual market of the niche products that you see on the right side of the line is a lot larger than the top rated, the top sale category. And we always thought that that was really the type of product that we should be focused on. His story of the long tail was a nice eye opener for supply chains because it shows that we really should be focused on all kinds of products, on the large variety. And getting this variety of products in effective and sustainable way to the consumer. Another important driver is mass customisation.

Mass customisation has a huge impact on the supply chain structure. For example, look at my shirt. I hope you like the flowers. I designed this shirt myself on an internet site. And I could select the fabric, the different buttons, the colour or the knittings, and all this kind of special features. I could pick from a lot of options. I could customise it to my size and to my likings. And this is a trend that really has a big impact.

It changes the concept of a supply chain from what we call produced to stock where the manufacturers make a kind of assessment of what is needed in the market and they produce this and then bring it to the retailers to what we call made to order, where the consumer is driving the production and selecting the product and customising it to his needs. Another example you see, as a result of modern developments in 3D printing we can directly have an impact on the product’s design and have it exactly manufactured the way we like it. In the picture, you see a house that is actually 3D printed based on our own specifications.

Again, imagine the big impact this has on the supply chain. Another important driver is that we as consumers are very hard to predict. And predictability of the demand is really what would make supply chain management really easy. But we make the life of supply chain managers and professionals really challenging by behaving in a very unpredictable way. In the graph here, you see the sales of electric cars. Notice that the sales of electric and hybrid cars shows really unpredictable patterns over the last few years.

We can explain this from the typical reviews that have been shown up on social media, but also the behaviour of the government that has been quite unpredictable in giving tax benefits to people who buy these type of cars. And I already challenge you to make a good forecast for the coming months based on these graph that you see here on the sales of hybrid and electric cars in Europe. Another important driver for changes in the supply chain is the rise of the ecommerce channel, the ecommerce as a means to get products to the consumers and also from business to businesses. In the past we thought that the physical channel, the physical retail stores, would be competing with this online channel.

Now more and more we see the trend from multichannel, so the use of multiple delivery channels, to something we called omnichannel, which means that actually the consumer uses all kinds of channels the mobile phone, internet, iPads, physical stores, to look at products, to get products, to know products, to try products, to test them, and to finally buy them and even get service on these products through these different channels. Companies have to embrace this online and ecommerce channels and integrate them with the traditional channels. A final trend that is happening is the increased attention for sustainability.

This means that we as consumers are not only interested in getting products at a fair price and getting them fast and of the right quality, but we also like to know about the sustainability. This is not just the materials and the production process, but it’s also about fair work conditions for the labourers. And we also like to know whether these products are easy to recycle and to reuse. And supply chains have to change to make this possible, to get the information about production, storage, transport, reuse, recycling to the consumer so the consumer can make an informed choice. In addition to this consumer behaviour that drives supplies and innovation, the government should also not be forgotten.

The government, we can say, on behalf of all of us, is enforcing certain regulations and rules to the supply chain. There are many, many, many rules and regulations that have a huge impact on supply chain. And unfortunately for the businesses that are running these supply chains, many of them have had a kind of unpredictable impact. Here you see just a couple of examples. For example, the food traceability is enforced by the government because in the case of contamination, for example, of end consumers– because some wrong food was delivered to the stores, we need to recall the food as fast as we can and also need to find out where this particular contamination happened. This regulation takes care of it.

But it also has caused a lot of changes that had to be made and implemented in the supply chains. Another regulation that had a big impact is the consumer rights regulations. That’s, for example, say that we can return a product within a certain amount of time, and also we should be informed about a product in the proper way. This has increased the number of returns by consumers tremendously. And these returns have, again, created a big supply chain challenge, as all these returns had to be handled by the businesses. In this session, we covered these key supply chain innovation drivers– the consumer, us, the government, and the larger environment. Technology changes the complete landscape and brings new opportunities.

For me, this makes this feel so exciting. Every time there are new opportunities to create more sustainable supply chains and new services. And it’s really– it’s a challenging and exciting field to be active in. You can also see that it requires a broad scope. It’s not just zooming in on the tiny specialisation, but you really have to appreciate many fields and integrate them and look beyond the borders of your company to make this all happen. And we hope in the rest of this course you will also join us on this journey and see many exciting examples of this. And it’s happening today.