The idea supply chain

Since 2005, Disney stock has risen over 300% – more than twice as fast as its rivals Time Warner and 21st Century Fox. A recent Wall Street Journal article, explored how Disney has changed its business to focus on a smaller number of hits that are exploited on a whole range of products from toys to theme park rides. Franchises like Frozen, Toy Story and Pirates of the Caribbean have enjoyed long runs of profit making because Disney knows how to get paid for ideas.

Not everything that counts can be counted

It should come as little surprise then that Disney was the inspiration for SCM World research on the role of supply chain in delivering intangible value. John Lund, who heads Disney’s global supply chain, presented on the topic at our Live Americas event in Miami this past February. The key takeaway from his session was that supply chain not only affects company value by controlling costs and delivering to customers, but also by enhancing brands, amplifying experiences and extending valuable ideas.

For companies like Disney, whose core product is entertainment, this concept seems obvious. But it also applies to Coca-Cola, Caterpillar, Tesla and Gap. The methods are as varied as the industries involved, but all share a common opportunity to separate physical value from information value in the way they make and deliver to customers.

Coca-Cola, for instance, has begun to exploit digital technology in packaging with personalised names printed on its cans and with its Freestyle machines, which mix hundreds of different drink recipes on the spot. Caterpillar provides a digital control system called Product Link that allows fleet owners to manage the utilisation and performance of earth-moving equipment that is packed with sensors and GPS devices.

Tesla will give away software updates in its cars that enhance safety, but charge for upgrades that add convenience. And Gap is moving towards a much more customer-driven fashion development cycle that leverages mobile devices to give shoppers direct input.

The common theme across these and other examples like Apple, Microsoft and Nike is that all are finding ways to move up and away from a purely material form of product value and towards information enhanced goods. At the same time, most are finding that they can also offer a much more personalised experience to the customer. The migration has huge implications for supply chain because it means that mass production is no longer appropriate for most finished goods.

The role of the platform

I had a thought-provoking conversation yesterday with the CSCO of a big tech company. The topic was how to get to some kind of common platform for the internet of things, as applied to manufacturing. We both saw huge potential gains across value chains if some sort of data standards could settle and lead to better machine-to-machine communication. The problem was figuring out who gets to define and control those standards as they become a platform for innovation and growth.

The platform principle is well understood in the software business and those who’ve exploited it effectively, including Adobe, SAP and Oracle, have all thrived. Today the principle applies to everything, since innovation on a common material platform facilitates the migration away from mass production of commodities and towards personalised, IP-intensive goods.

In apparel this means choosing thread and fabric technology platforms, but also branding campaigns that engage consumers. In chemicals it means designing molecular fabrication processes, but also value-added sales support to develop new applications. In food it means genetically modified seeds, but also packaging and artwork to tell the story to shoppers.

On the one hand this movement is an epic challenge for supply chain professionals, since it means nearly infinite SKU counts and impossibly short product lifecycles. On the other hand, for those able to think and work at a systems engineering level it means you’ll be able to make and ship 90% of end-customer value digitally.

The Disney example is a paradox because it starts with an idea as platform and makes money by extending it in material. For many in supply chain the answer is to reverse this trick.