Note to Start-Ups: You Can’t Separate Supply Chain from Business Model


An interview with supply chain expert and author, Richard Markoff.


Richard Markoff, PhD is a partner at Innovobot. A world-renowned Industry 4.0 and supply chain executive, academic, consultant and coach, he had a long international career with L’Oréal cosmetics, where in his last role as Director of Global Supply Chain Standards, he was the key architect of L’Oréal’s supply chain evolution. In October, he published The Digital Supply Chain Challenge: Breaking Through, a handbook to the essentials of digital supply chain transformation.


Can you talk about how technology and technological innovation are disrupting supply chain management?


To properly answer that question, I think we need to put it into the context of Industry 4.0. For those that don’t know, that’s a term that was coined in 2013 to imply that what we’re living through today is really the fourth industrial revolution. The first industrial revolution being the one brought on by steam power in the late 1700s. A hundred years later we had another industrial revolution with electrification and mass production. Then, in the 1970’s we had the first PLCs—programmable logic controllers—and the first real computerization as it applies to production.


And that brings us to Industry 4.0, which is really a catch-all term that brings together a host of different technologies that are emerging and revolutionizing things like manufacturing, supply chain distribution, planning, warehousing…all with the common theme of digitalization; strong computer processing, cloud computing, etc. We’re talking about the linking up of the physical and cyber worlds, and it’s really about a large number of technologies coming together. It’s difficult to say exactly how many technologies, but some estimates have it as high as 400-plus.


What are some specific technology examples?


A few technologies that I would characterize as falling under the Industry 4.0 umbrella are software as a service (SaaS), platform as a service (PaaS), robotic process automation (RPA), cobots, which are very simple collaborative robots, AGVs which are driverless forklifts or, one day, driverless trucks. I would also include things like end-to-end supply chain control towers that give you visibility all the way through your supply chain, your customer’s supply chain and all the activities in between.


Then there are all the artificial intelligence and machine learning enabled technologies that allow you to harvest a huge amount of data and to put in place capabilities like predictive maintenance, where instead of doing maintenance on a regular basis or just waiting for machines to fail, you can pick jut the right moment to do maintenance that doesn’t disrupt your planning and your operations and keeps your equipment from failing at a minimum cost.


What led you to write your book at this particular time?


I am in contact with and work with a lot of supply chain executives, and quite frankly, many of them seem bemused by all of these changes; they don’t know where to start. They’re just trying to do their jobs everyday, worrying about service, worrying about costs, worrying about managing their teams and keeping their stakeholders happy. It’s very difficult to do all of that and be on the cutting edge of all these technologies and emerging capabilities.


Even seasoned professionals can find it intimidating. You can easily feel afraid of missing out; vendors and consultants come in with all kinds of ideas and then companies either do nothing or make a bunch of ad hoc, punctual choices that are not really part of a broader strategy. So, hopefully, this book can help them take a step back, get some perspective, and to try and focus on a few key questions, risks and success factors that a business needs to consider in order to implement a successful digital transformation program.


What might those be?


A good place to start is to ask: What are the strategic pillars of my business?


Are you trying to become a pioneer and bring new capabilities that your competitors are not? Are you trying to catch up to your competitors? Have you staked your ground in a strategically important area that would need new capabilities? Perhaps, you’ve decided that what would be important for your business would be to very powerful in omnichannel…That would necessitate really good order management systems to understand where your inventory is at all times. You would need versatile platforms that would connect orders across stores, warehouses and even customers’ warehouses.


These types of questions around what your business drivers are is where your conversation should start. As opposed to just looking at ROI and where you can save money in the short term.


Because if you’re purely focused on ROI, it’s a very shaky foundation for transforming your supply chain to an Industry 4.0 supply chain. The reason is that because these are new technologies, there’s a lot of guesswork involved around how much money you can save.


So if you base your strategy around ROI, you risk putting yourself in an embarrassing situation because you may not deliver the target ROI, and you’re certainly putting your credibility on the line because your assumptions can also be easily challenged.


Most importantly though, and I can’t stress this enough, it’s not just about ROI…If we go back to the thought exercise around business drivers, there might be a case to be made that says, “well, we simply need to do this to compete.”


So for example, if you’re company X, and you need to compete with company Y, you may need to have certain capabilities even if it’s not immediately clear how the investment in them will pay itself back. And this is really important because in many companies, the whole discussion ends at ROI; it’s a financialization discussion around how much money will we make or not make, and if it’s not enough, then it’s a step we can’t afford to take.


At Innovobot, we certainly come across a lot of younger companies who may not have anyone dedicated to the supply chain function. How early should companies begin thinking about these issues?


The answer is immediately. In my mind, for start-ups today, it is impossible to separate the supply chain from the business model.


If you’re in a company that is delivering a supply or service, you’re in a supply chain.


And there are strategic supply chain decisions that you need to get right straight from the get-go because they are highly structuring. So after you make them, they are very hard to undo. For example, if you’re going to be working in e-commerce, the decisions around make vs buy, whether you will be using your own distribution systems or not, and decisions around which IT systems to use, including your CRM, which plays a large role in supply chain decision-making, have to be made at the outset, and once these choices are made, they are very difficult things to reverse.


And finally, what supply chain-related advice do you have for some of these start-ups?


When I talk to start-ups through Innovobot who want to make their own products, the first thing I do is challenge them and say, why do you want to do this? Why do you want to be a manufacturer? It’s not 25 years ago…there are lots of good co-manufacturers out there, there are a lot of good third-party logistics providers…why do you want to be in that business when you can have them do that for you for just about the same cost? You can lose a lot of precious time and bandwidth using up energy building up that capability that would be more efficient to outsource.


About the Author:


Yuri Mytko is the Director of Marketing at Innovobot and at Innovotive, the firm’s advisory services arm, where he offers clients solutions to their marketing and communications-related challenges.

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