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First Thoughts
  By Dan Gilmore - Editor-in-Chief  
  April 3, 2008  

Digitization and the Supply Chain


I’ve been thinking a lot about digitization lately, both in terms of how it is and can transform how we think about supply chain management, and also how in other ways it is going to have a severe negative impact on the practice of supply chain in some industries.

After the hype and relatively slow start, the power of digitization to radically transform supply chain processes and even corporate design is increasingly understood. Linear, hierarchical information flow, with significant buffering of data, is going away. The future and, increasingly, the present are all about multi-level, real-time information.

Gilmore Says:
If your product or your customer’s product is one that can be digitized, and you don’t have retirement in sight in the relatively near future, it might be time to consider the process of looking around.

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“Reinventing business operations to exploit information technology and facilitate supply chain collaboration means examining every facet of every job,” Ralph Drayer, former Chief Logistics Officer at Procter &  Gamble, and Michigan State’s Don Bowersox, wrote in 2005. “Expanding Internet capabilities provide an information framework that potentially can replace traditional one-to-one, one-to-many, or many-to-one communication with Web-based, simultaneous, many-to-many connectivity. Within that framework, all participants in a supply chain simultaneously have access to the same strategic and operational information.”

Bowersox continued that theme in his collaboration with Nick LaHowchic in the recent book “Start Pulling Your Chain,” which I just reviewed for SCDigest.

“Digitization brings into question the fundamental commandments of how we compete in business” they wrote. Making a sports analogy, they say “Once in play, the knowledge ball is everywhere.[Supply Chain] team members take turns leading in a networked field, and the playbook is continually referenced for context so we can adjust the plays in real time.”

Most of us, including me, don’t yet fully understand how profound this change will be.

Now for the negative side of digitization – and I suspect not many of you know where I am headed here. For years we had predictions of the “paper-less” society that never really materialized, and fits and starts with digitization of other products that has only partially happened to date. Now, however, I think we are on the cusp of some dramatic changes.

The most immediate change has been and will be in the entertainment area, but (somewhat gloomily) it won’t only end there. Think of the whole media and entertainment supply chain, which in many ways has been odd for quite awhile (see The DVD Supply Chain is Tough).  How long will that supply chain really last? CDs are rapidly already going away in favor of iTunes downloads. Movies on DVD will be next. Not long after that, books (major advances are being made in e-book technology by and Sony). Think of the staggering costs savings. No physical product forecasting to worry about, just financial forecasting. Huge gross margins on every sale. No returns to deal with.

But the main point for me is that this is going way beyond media. If it can be digitized, it will be. Are you in the PC storage or external hard drive business? On-line storage “services” are rapidly becoming the preferred choice for consumers. Yes, those companies are using hardware too, but it’s a few huge storage systems, not millions of small ones.

Camera film is almost gone as a product category now, in favor of digital cameras. Soon the cameras themselves will be gone at the low and maybe even mid-levels, as they are simply embedded in cell phones or some other universal device. If you were running film manufacturing or distribution for Kodak in 1996, did you see this coming? Probably not.

Many may not be aware that the watch industry as we know it is also in deep jeopardy, as the ubiquitous cell phone also makes the watch a purely decorative instrument, not a needed functional one.

If you are Rand McNally, do you see a bright future for the map business, with first the on-line Mapquests and now navigation systems likely soon to be standard in most new cars?

It can go further. Traditional board games, for example, have for a long while been losing out in favor of computer games and game players such as Xbox. But this trend, combined with advances such as large flat screen televisions, probably means that at some point if you do want to play Scrabble or Monopoly you’ll simply reach for the remote, rather than the box in the closet – and you can easily save your game for another day after you tire of the Monopoly battle.

I suspect the market for home paper shredders is pretty good right now, given the identity theft crisis, but what will happen to demand when just about every statement and bill we get is only available on-line? There will simply be much less to shred.

There are surely many more examples.

None of this happens overnight, but as we’ve seen in the camera film, music CDs, and other areas, the decline starts slowly but then can turn precipitous. There are also other spillover effects. As CDs/DVDs take a plunge at some point, for example, so does demand for the specialty ABS plastic resins used to manufacture them (I did some work for Bayer’s ABS plant at one point – very interesting actually).

Luckily, we aren’t going to be digitizing Cheerios or sweat pants any time soon, so most of us can look at the bright side of digitizing the supply chain. But I think digitization will impact more areas than we realize today. If your product or your customer’s product is one that can be digitized, and you don’t have retirement in sight in the relatively near future, it might be time to consider the process of looking around.

What do you see as the opportunity for digitizing the supply chain? Do you think digitization will also eliminate the supply chain for an increasing breadth of products? What are some others that will be threatened by digitization?  Let us know your thoughts at the Feedback button below.

Let us know your thoughts at the Feedback button below.

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April 3, 2008

I enjoyed this First Thoughts article on Digitization and the Supply Chain --- sure raised some great questions and provided food for thought. The paperless society you referred to is often discussed by my husband and I because we have publishing backgrounds. If you will pardon the obvious literary reference, digitization in general is a Catch-22,  in that it provides the utmost in tech advances for all industries, the majority of which are beneficial, while presenting us with the possibility of forever changing how business and lives are run -- good or bad yet to be determined.

Will e-books and online pubs replace old-fashioned printed books? Can you curl up in your easy chair comfortably with a good laptop to read for pleasure? I confess that I seek my news fix from the web, whether from online newspapers or RSS feeds from various resources. So, I have done exactly what I fear!

Your First Thoughts column mirrors both the support I have for and concerns I have about digitization. You raise a good point: The strides made thus far probably were not anticipated to impact as much as they have (to borrow from your music and camera examples); but now that we incorporate such strides in much of our daily business and private lives, we would not think of reverting to how things were done before.

Very interesting times we live in...

Lori-Marie Hamilton
Dayton, OH


April 3, 2008

Great Article, of which I agree with many points. My comments are along the line that my customers are less concerned about the when and if concerns but more along the lines of how do we proceed and where is the thought leadership, the experience, the best practice and the references. Nobody wants to bleed.
Lastly I would comment that all this has a huge impact on copyrights and in the future, patents. We have already seen this in the music and entertainment industries with the fight to control distribution and secure revenue leakage. But with patents now we can determine the usage of the delivery mechanism and see who is infringing on them.

Michael W. Meissner
Programme Director/Solutions Architect


April 3, 2008

You unfortunately might be on to something. I never really thought about how far digitization can go.

With some imagination it is not hard to see how some of the products my company makes could be impacted by digitization. Not directly, as you say, but indirectly.

Not sure I need to start looking around yet, but my antennas are up.

Thank you

Brian Crookston
Indianapolis, IN

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