Those pesky high-tech companies just never stop innovating. They never stop fighting for survival in an increasingly commoditized market either. Recently, the two of us have poked our heads into an emerging trend that embodies both the spunky innovation and the bare-knuckled alley fights for which our industry is renowned.
While we’re not entirely sure that anyone has coined the appropriate jargon to describe this trend, we do have a fair inkling that one will emerge from a blog, marketing department, or some similar outlet near you in the not-so-distant future. For the time being we will call it “platform convergence,” which has somewhat of an authoritative ring to it. It is also presenting some interesting supply chain challenges.
So what do we mean by platform convergence? On the one hand we have software companies teaming up with original design manufacturers (ODMs) to produce affordable appliances specifically designed to run their particular applications. On the other hand we have hardware companies designing solutions that incorporate software and, potentially, additional hardware into a package designed for a particular market or application. Both software and hardware companies are striving for the elusive value-added application that can deliver higher margins and embed itself more deeply into their customers' operations. But (there had to be a “but”) are these high-tech companies ready to deliver?
Because this is a supply chain blog, when we say “deliver,” we mean… deliver . It is all well and good from a strategic perspective to identify revenue and margin opportunities and set the corporate ship sailing in a given direction. It is another thing to set up a new supply chain to deliver those new offerings to the market. Not to state the obvious, but hardware companies have optimized their supply chains and operations for hardware, while software companies have done the same for software. As companies bring converged platforms to market, they are realizing that their current supply chains, from product data and lifecycle management all the way through to service and support, may not be able to support these new business models.
What a boon to investment in supply chain capabilities — or not. As each of us is painfully aware, the economy's wobbling imitation of a failed field sobriety test continues to be an albatross around the neck of many a supply chain executive looking to invest (not to mix a metaphor). New supply chain capability enablement needs to happen better, faster, and cheaper. As usual, the classic make-versus-buy tradeoff applies.
Let's focus on “cheaper” first. These days, anything that contains the root “cheap” or “cost” naturally summons the answer, “outsourcing.” To be sure, the growing array of outsourcing options in today's marketplace provides an interesting starting point for companies looking to quickly deploy new products or solutions to the market. For starters, a growing number of providers offer software-as-a-service or cloud-based software solutions to support core supply chain capabilities from demand planning through transportation execution.
These solutions allow companies to deploy state-of-the-art technology with limited investment in technical infrastructure. More importantly, they have the promise of significantly cutting deployment time for less complex implementations.
The interesting bit comes when we start looking at “faster” and “better.” An increasing number of service providers, from 3PLs (third-party logistics) and ODMs to consultancies and technology providers are selling business process supply chain capabilities. If demand planning isn't a core competency why invest years in development when you can get good skills quickly? More importantly, supply chains require more than just technology. They need skilled and experienced talent.
If you are a software company needing to bid on new transportation lanes for your newly branded hardware appliance, why not take advantage of someone else’s bidding volume and experience with those lanes? Why build a field service organization when someone who does it quite well can put your brand on its operation? There are certainly many more examples, but in the interest of space, it will suffice to say that business process outsourcing or managed services of non-core supply chain capabilities is an intriguing way to support new business models, quickly, affordably and often with better capabilities.
Yet, buyers beware. Successful supply chain business process outsourcing requires a highly defined operating model, strict service-level agreements, superb communication, and understood roles and responsibilities across partners. This is not an exercise in cost savings but rather an investment in capability building. Indeed, when companies examine their own core supply chain capabilities in supporting new businesses they may, indeed will, find that they do not have the proper capabilities in place. The question then becomes a matter of whether the business case exists for process outsourcing to get the capability on time and in full.