Big Data Meets the Supply Chain

Big data is a hot topic in various strategy circles: it was one of the hottest topics of discussion at this month’s NRF conference – including in a recent Retail Wire post: Why Retailers are Still Complaining About Big Data. Is it hype or should I pay attention?

Last year, McKinsey published a report that discusses the exponential growth of the world’s digital data and the value potential of operationalizing it. “Big data” is essentially an umbrella term that characterizes the rapid growth in volume, velocity and variety of the world’s digital data. There is a growing sense that we are now entering a new era in which the basis of competition will be increasingly based on assimilating, understanding and leveraging this data.

For example, digital data is created when consumers express their desires and intents through social networks. It’s created when they use their smart devices in real time to drive purchasing decisions. Furthermore, it’s created by smart chips embedded in products as they flow through supply chains into the hands of consumers.

McKinsey’s report on big data describes this as “data exhaust” that is thrown off by consumers, smart devices, chips embedded in motor vehicles and other durable goods and products as they move through the value creation process throughout the world’s supply chains.

Can this data be mined to improve competitiveness? Is this data the basis on which companies will compete in the future? This is the essence of the big data discussion.

Here’s my view:

Economics 101 tells us there are three traditional means by which wealth is created in any society: farming, mining and manufacturing. This is largely so because each of these activities is transformative: a basic input is transformed into something that is more useful and thus more valuable to humans.

Supply chains are built around these basic wealth creation activities to support the transformation processes and to move outputs to the locations where they can be consumed. In the digital age, the efficiency of the transformation processes and the supporting supply chains is increasingly dependent on information.

My view is that these basic transformational activities are still critical, but they have become a much smaller part of the competitive equation. In other words, the basis of competition has moved first to the physical supply chain and is now moving more and more to the digital supply chain. Big data is disrupting the digital supply chain; companies that get out in front of it will create competitive differentiation.

Supply chain management may very well be entering a new era – one in which competitive leadership is increasingly based on discerning patterns from large amounts of data and then dynamically aligning the supply chain. The process of transforming big data into actionable information is a wealth creation activity.

Today brand owners manage globally-distributed networks of manufacturing and distribution facilities using real-time information. Efficiency and competition are based on ideas, innovation and the ability to assimilate large amounts of information to discern consumer tastes and then react quickly to ensure the right product is at the right location at the right price and right time. This is particularly true for brand owners that manage outsourced virtual supply chains.

For example, big data plays a prominent role in supply chain segmentation, which is one of the four key strategies for 2012 that I outlined in my previous blog. This involves tailoring a specific response for a specific product to a specific customer in a specific channel at a specific profit level. This requires real-time analysis of the cost-to-serve for that product-customer-channel-time intersection. Late last year I created a short video on various considerations associated with segmentation that can be viewed here.

Big data also plays a prominent role in driving the supply chain from real demand, which is another of the four key strategies. JDA’s shelf-connected supply chain solution instantiates this strategy which is based on using advanced analytics to gain intimate knowledge of what is happening on shelves within stores and then to drive the supply chain from this knowledge. An example of how we are doing this for Sony Electronics can be found here.

As a supply chain management professional, I find this exciting and great for our field. How is your organization working to handle big data in 2012 and beyond?

  2 Comments   Comment

  1. Madhav Durbha

    Very nice point of view. We are starting to see several examples of brand owners who are successfully generating, measuring, and drawing insights form the online buzz through social networking and other digital means of directly connecting with consumers. As the retailers are starting to use their private label as a competitive differentiator, brand owners will need to more directly engage with consumers to ensure loyalty and in turn use these consumers as their brand advocates. All this means analyzing a lot of “big” data (both quantitative and qualitative, structured and unstructured) and digitally manage “Consumer Connected” Supply Chains. The technological capabilities to manage the “Big Data” are available today. Companies that can successfully leverage these capabilities will survive and thrive!

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