Supply Chain Management Switches to “as-a-Service” in the Digital Revolution
By: Peter Getchell, Navint Director, Subscription Revenue
We are in unprecedented times. Dubbed as the Fourth Industrial Revolution, businesses are having to reexamine the way they are doing business and do it quickly. According to the World Economic Forum, the difference between this and the revolutions prior is the velocity, scope, and systems impact. The digital revolution is evolving at an “exponential rather than linear pace” and catching even the most informed CEOs and business executives by surprise.
This puts strain on the processes and systems developed during the Third Industrial Revolution – the use of electronics and information technology to automate production. We optimized around efficiency for the supply chain, driving speed and eliminating waste in delivering an item, and we are masters at it. And our traditional optimization is the very thing holding us back in digital transformation and the age of the Continuous Customer™.
What Got Us Here: Traditional Supply Chain Management
Supply chain management (SCM) principles were developed over 60-years ago. We recognized that our manufacturing processes should be plannable, definable, and manageable in order to make the production of physical goods as efficient as possible. The advent of technology, specifically Enterprise Resource Systems (ERP), fueled SCM adoption by automating many of the mundane tasks and streamlining the overall workflow. Methodologies like Lean, Six Sigma, and TQM emerged to help optimize businesses in a linear fashion.
This optimization is for a transactional customer relationship. A sales order triggers a streamlined assembly from raw materials to finished goods; shipping the goods triggers back-office processes like invoicing, collections, and revenue recognition. During the Third Industrial Revolution, SCM was the backbone of our business operations.
Won’t Take Us There: Age of Continuous Customers™
What happens when the customer is purchasing other components such as subscriptions, digital content, and usage-based services? And not just purchasing one-time, but again and again through up-sells, cross-sells, renewals, eCommerce, self-service, and more? This is our new operating reality: every business component must now be viewed through an “always-on” customer optic.
To address this new reality, we’ve been trying band-aid solutions – customizations here, bolt-on functionality there – piling them on top of each other. It obscures the fact that we have to start selling, operating, and servicing the customer in new and different ways.
Businesses can no longer view customer interactions as “I sell, I ship, I bill and I’m done” but instead must view them as the start of an on-going relationship. It means turning every business function into an agile element of the organization that centers on enabling continual, iterative, and frictionless customer interactions across the customer success lifecycle. The customer is expecting more today than just receiving goods or software from discreet buys – they expect to be continuously served with seamless payments according to their preferences.
It means taking a hard look at our tried and true SCM principles through the lens of the new business reality, the Continuous Customer™.
90-Degree Shift: SCM Becomes an Encapsulated Service
The good news is we don’t have to throw out the principles of SCM optimization, rather, turn them 90-degrees on their side. Instead of SCM being the linear backbone of the operating model, SCM becomes an encapsulated service within the company.
One of the fundamental flaws of the traditional SCM model for the Continuous Customer™ is that it relies on a sales order not a subscription. We can’t succeed by compartmentalizing our relationship with the customer into sales orders. Customers are buying the entire experience of how we sell, how we serve, and how we monetize. The customer is “always on” and interacting with us in ways beyond ordering.
Therefore, the inputs into manufacturing must come from a different source and be treated with a different frequency than traditional SCM. Subscriptions are now the container for customer expectations which includes the amount they will consume, the frequency of when they consume, how long they will consume, what they will pay for, how they will pay, and what they can change.
Likewise, the service of producing and then delivering items will no longer necessarily trigger the service of billing, which subsequently triggers accounting and so on. We want to stop at the actual production of the goods, at the actual shipping of the goods, and then turn it over to a better system of record for what should be billed and then invoiced.
Billing and invoicing are no longer just about when physical goods are shipped, but it represents the entire service to which customers are subscribed. What people subscribe to is often a mix of things that they can get without any distribution of physical goods. Billing within a company should still happen in an optimized fashion, but it needs to be fed new inputs related to usage, permitted consumption thresholds, digital access, and other attributes of a subscription.
Navigate the Revolution: Balance Radical Change with Practical Approaches
To turn SCM principles by 90-degrees means we need to put the customer in the center of our optimization strategies first, then add the internal operational lens. Essentially, manufacturing becomes a service to the business, not the driving force behind the business. Old world SCM needs to adjust to handle the rise of the Continuous Customer™ and the post-ERP era of digital and subscription.
Navint is one of the few firms that has a fully-dedicated Subscription Services practice with deep domain experience and a proprietary methodology to help organizations navigate the journey to success with Continuous Customers™. Through every engagement we complete, the Navint team continues to build and refine strategies and methods that enable our clients to successfully cross-the-chasm from past practices to face the opportunity of the digitization era. To learn more about success with Continuous Customer™ strategies, please visit our Subscription Services section.