Supply chains have existed since humankind began trading goods and services. While their basic objective — maximizing profit through matching supply and demand — remains unchanged, what has changed is how organizations meet demand.
Horseback has been replaced by drone deliveries. Smoke signals have been replaced by cloud-based infrastructure for information processing and sharing. What will the future supply chain look like?
To explore this, the Center for Supply Chain Management at the University of Pittsburgh Joseph M. Katz Graduate School of Business and College of Business Administration organized an inaugural symposium, “Supply Chain Management in the Digital Age.”
Speakers from Gartner, IBM, Microsoft, REI, Szilagyi Leadership and UPS shared their insights, and some common themes emerged. These trends will affect practically every company moving forward.
New delivery mechanisms
As customers demand more and technology progresses at breakneck pace, companies are implementing sophisticated demand fulfillment algorithms, often supported by new delivery methods such as 3-D printing and drones.
Commercial drone applications at UPS, for example, include speedy distribution of medical and humanitarian relief supplies. Newly developed routing and delivery software are increasing efficiency. Even miniscule delivery distance and time reductions can decrease large companies’ annual costs by tens of millions of dollars.
Sustainability in design
Sustainability can go hand-in-hand with supply chain service and profitability. At REI, a new Arizona distribution facility uses advanced net-zero energy technologies for which the payback period is just five years. This implies REI will get free power for the rest of the system’s life cycle.
Optimizing omni-channel design
The three challenges of omni-channel fulfillment are order fulfillment, pricing and returns management. In e-commerce, fulfillment accounts for nearly one-fifth of revenue.
IBM’s new approach fulfills demand from a distant retail store to avoid future markdown costs, even though higher transportation costs are incurred. In the online space, where companies like Amazon make millions of price changes every day, improved pricing methods can increase margins by 6-8 percent.
The internet of things
The internet of things connects physical devices, allowing them to wirelessly send or receive data. Smart thermostats, smart televisions and even smart refrigerators are examples.
Several retailers have created IoT order buttons that, with the push of a button, place an order. Amazon Dash has 160 brands signed on, with about half of Amazon orders for these brands being placed through Dash buttons.
People use the cloud every day to share and retrieve videos, images and documents, whether they realize it or not. The cloud facilitates big-data and software services, but there are underlying supply chain challenges in guaranteeing close-to-100-percent availability in a cloud service. Supply chains are just broaching the surface of this.
While there is volatility and marketplace uncertainty with supply chain management in the digital age, there is one certainty: There are too few qualified candidates for open positions.
Given the essential purpose of supply chains is to match supply and demand, much needs to be done if we are to meet the challenges of the digital future.
Prakash Mirchandani is a professor of Business Administration and director of the Center for Supply Chain Management at University of Pittsburgh Joseph M. Katz Graduate School of Business and College of Business Administration.