IP rights, digital supply chain and a path to agility

This week the United States Supreme Court ruled decisively in favour of chemical giant Monsanto over a farmer who had used genetically engineered seeds to re-grow successive generations of crops rather than buying a new batch each year. The seeds in question were herbicide resistant soybeans that allow farmers to kill the weeds but keep the crop.

The herbicide used in this cycle is called Roundup, a broad spectrum herbicide that I know from my days as a groundskeeper is really good at killing unwanted plants. Monsanto makes both the seeds and the Roundup. The Supreme Court decided that farmers should pay for the benefits they get from the R&D embedded in both.

IP and value creation ecosystems

What Monsanto has here reminds me of what Microsoft created when it got DOS on to the IBM personal computer back in the day. DOS allowed PC users to enjoy applications that made them more productive. The fact that DOS could be copied meant users could readily enjoy the benefits of Microsoft’s R&D without paying for it.

Not so different from seeds with embedded IP that reproduce naturally with the growing seasons. In both cases, technology makes things happen within an ecosystem that is part material and part logical. IP law says business deserves to get paid for both. Copying is stealing.

I think this is not only fair, but foundational to growth in many industries where value built on ideas instantiates in something the consumer ultimately touches. It also opens possibilities for supply chain efficiency based on separating the physical elements in a bill of materials (BOM) from the digital elements and shipping the latter virtually for free as electrons.

The notion is most obvious in consumer electronics devices like smartphones where much of the personalisation and ultimate consumer value comes from apps downloaded after the consumer takes possession.

Complexity, agility and digital supply chains

Data from our Chief Supply Chain Officer study hints that some in hi tech are already thinking this way. Expectations of complexity as measured by the number of SKUs available for sale show that across industries we generally anticipate growing consumer demand for more variety. Hi tech stands out, however, as the only sector more likely to say it expects fewer SKUs than to say it expects no change at all.

Some, it appears, are preparing to make and sell a simpler product line in the future, perhaps because they are equipped to use the digital supply chain to “ship” the final features that complete the consumer-specific BOM. The example we all know best is, of course, the iPhone.

The question this raises for other industries is whether they too can split the digital BOM from the physical BOM and ship separately as a path to improved agility. Agility, in this instance, means giving high levels of customised service without carrying finished goods inventory in every possible flavour or configuration the market may want.

It’s not too hard to imagine this for electronics, but it’s nearly as obvious for capital goods like earthmoving equipment – Caterpillar, for example, excels at adding pure IP value after delivery to equipment in the field – or building mechanical systems. Johnson Controls does similar things with energy management in real estate.

In fact, the concept can even be applied to consumer products with examples like customised M&Ms or the Coca-Cola Freestyle vending machines that put final formulation and production of consumer-specific BOMs way out at the end of the supply chain. Whether these experiments yield much profit today is really less important than what they could do for supply chains looking to win and hold customers with more than just a high-quality item on the shelf.

As consumers, we are beginning to learn that expertise in the R&D departments behind our favourite brands has more to offer than just a one-time sale. Supply chain strategists should think about where such relationships offer not only a chance to win the customer but also to deliver personalisation for next to nothing. The digital supply chain is ready and waiting.

Kevin O’Marah
Chief Content Officer
SCM World

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