Apr. 04, 2017
TopicsLogistics

U-Turn in the Supply Chain

The Customer Sets the Pace for Fundamental Changes in the Business Sector

  • (c) Andy Dean Photography/Shutterstock(c) Andy Dean Photography/Shutterstock
  • (c) Andy Dean Photography/Shutterstock
  • Dr. Frank Jenner, Ernst & Young

Industry 4.0, Big Data, SMAC (social, mobile, analytics and cloud technologies) — these buzzwords all point to one thing: the digitalization trend. This development means fundamental changes for companies in virtually all industries, since digitalization is disruptive in nature. It will gradually turn the processes of entire business sectors upside down.

These buzzwords stand not only for new technologies, but also for new contents, new mindsets and new opportunities — as well as the need to adapt quickly. Previous developments in IT only affected certain divisions of companies, or at most entire companies. Digitalization, on the other hand, concerns entire value chains.

After all, it is in the course of linking all participants in a value-added process to one another so that major flows of information (including those between machines or logistics facilities) largely take place automatically, initiating the relevant flows of goods. A refrigerator that automatically reorders its contents from a delivery service is just one simple example of this.

One advantage of such automated procedures is that they speed up processes enormously. For instance, if the data on the customer’s requirements is generated automatically and forwarded to the supplier in real time, it drastically reduces the ordering time. However, this development will only become effective once the suppliers have a technical infrastructure that expedites order handling in a similar manner.

New Business Models with Digitalization

The comprehensive networking affects the internal processes of the companies involved as well as the organization of their external relations. These include customer-supplier relations as well as relationships with external cooperation partners who work alongside the actual value chain (ecosystem). Ultimately, digitalization will lead to entirely new business models – many companies will be reinventing themselves and will have to find new roles in their value chain. The challenges this poses are tied in closely with the opportunities it offers.

And this holds just as true for companies in the chemical industry.

They will not be able to elude the trend toward increased flexibility, shorter reaction times and expanded services. The idea that customers and their needs will become the crux of corporate activity might take some time getting used to for many in the industry.

After all, this objective means turning the usual train of thought all the way around. It used to be customary for customers to base their choices on the offered products and on the product-fixated organizational structure of their chemical suppliers. While searching for a solution, customers would then contact the department of the chemical company they considered responsible for the matter, where they were generally well-served, from consultation to collective product development.

If multiple product areas came into question, customers would receive more information from the contact points in charge, which they would consult on their own. The strict departmental thinking has softened up a bit in the chemical industry since then. After all, its clientele is already increasingly demanding complete and comprehensive solutions — and receiving them.

Focus on Specific Customer Requirements

But digitalization makes it possible to take another big step, a U-turn in manufacturer-customer relations. The future process will no longer be from in-house production to the customer, but the other way around: from customers and their specific individual requirements to the chemicals supplier — which is actually normal in the business-to-customer field. This means that today’s business models will transform away from the familiar product-centric approaches toward complete customer-centricities. This is where distinct, customer-specific system solutions take the place of individual products.

And this transformation entails major restructuring in the companies. After all, they will have to radically readjust their usual value chains. The keyword here is integration — in two directions. Horizontal integration should tie in the customers, suppliers and internal company divisions within the supply chain more closely with one another than before.

Vertical integration, on the other hand, has the one goal of making the boundaries between the supplier’s product segments more porous. The other goal is to link the functional divisions, from sales planning to detailed production planning and the process control system, to one another in order to be able to react to customer requirements more flexibly and comprehensively.

Since the division of labor between supplier and customer must also be reshaped in the course of this restructuring, new opportunities may also appear. One such example would be if it becomes possible to tie product delivery (which is already combined in versatile ways) in with additional value-added services.

‘Customers 3.0’

Digitalization makes it possible to put the customer in the focus of all business activities. But the drive to do so comes from customers themselves. Their market is pushing them to individualize their products more and launch new products more and more quickly. This increasingly forces them to focus their management attention entirely on their actual businesses. They’re no longer interested in their suppliers’ organization in product segments; instead, what they want is a single contact point to address questions and problems.

Industry teams that transcend functions and divisions are a good way to meet this requirement. Their members present all responsibilities that are important to the customer, from product development to process and application expertise and all the way to business administration. They provide customer-specific system solutions, products and services in direct contact with the customer.

The chemicals company needs interdivisional planning in order to make sure the technical background works. This is to ensure that the components from multiple divisions are integrated into a complete solution in a timely fashion and bundled together into the package ordered. Such components may include chemical products as well as services such as collective product or application development. External partners of the ecosystem can also be included in such processes.

But customer focus also means getting to know “customers 3.0” better. Digitalization can help with this, too. The use of Big Data and analytical approaches allows suppliers of the future to get an idea of customers’ future requirements and adjust to them based on market developments and the individual behavior of their clientele. The oft-cited algorithms make this possible as well.

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