Tremors. Seismic shifts. In supply chain management technology there is a fault line separating new, innovative technology providers and traditional supply chain software providers, and the gap between them is growing.
In fact, the market for supply chain management technology is dramatically changing. On one side, I am seeing market consolidation among traditional application providers, which does not bode well for innovation (a topic I discuss later in this article). On the other, I am seeing startups explore how innovations such as artificial intelligence and blockchain can be applied to the supply chain.
Where are the most important changes happening? Here are five fundamental shifts in supply chain technology that companies need to be aware of:
These changes can only happen, however, if we can learn from the past, rethink the future, and "unlearn" old ways of thinking about the supply chain. Many companies, however, are hamstrung by "legacy thinking" that focuses on functional optimization rather than on driving improvements across the entire supply chain network. The challenge lies in "unlearning" outdated approaches.
It won't be easy for companies to change their thinking when it comes to supply chain technology, but here are some early lessons and observations I believe will be helpful.
A separate innovation team will produce the best results. Having the digital innovation team embedded in the information technology (IT) organization is like drilling a hole in bedrock. It just does not work. Most IT departments are loyal to their enterprise resource planning (ERP) providers and legacy consulting relationships. Their fear of change slows down the adoption of innovative technologies and business processes. To create new business models using new technology, you need testing and learning to be done by small, scrappy teams.
It is not sustainable for system integrators/consultants to build software. When it comes to cutting-edge technologies, many consultants are playing catch-up. In some cases, the innovations occurring on the technology front pose challenges to their traditional business models, so consultants may not fully embrace them.
Innovation will never come from consolidating applications. History has shown that software aggregation reduces the software's market value. Across the decades in the supply chain market, the acquisition of software products by technology vendors only provides value for the venture capitalists or the owners of the companies. There are few acquisitions that add value to the end-user or lead to innovation.
Supply chain leaders who believe they have all the answers need to be fired. We don't have the answers, and we don't have best practices for now and the future. What we have are historical practices and stalled progress on metrics. Supply Chain Insights has found that 90 percent of companies are not making progress on key supply chain metrics, such as cost, inventory, growth, and return on invested capital (ROIC).
We are seeing innovation, but it's happening at the edge. The question is how to move it to the core of the business. We need to challenge the fundamentals of the past and redefine the processes of the future. Doing this requires executive leadership. It cannot happen at the functional level.
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