Supply Chains Morphing Into ‘Value Webs’

Organizations are applying new technologies and strategies to their supply chains to create enhanced “webs” that encompass a global array of suppliers and collaborators.

Supply chain professionals have helped transform the business environment over the past few decades. They have contributed to accelerated globalization by connecting supply chain participants in emerging and developed economies. They have helped many major corporations become more nimble and lean by focusing on what they do best while carefully constructing external arrangements for the rest. In the process, they have helped reduce costs, improve efficiency, and substantially enhance operational performance.

In the world of business ecosystems, communities of diverse participants create new value through increasingly sophisticated models of collaboration and competition. In the same vein, supply chains are becoming more agile, adaptive, and resilient, supporting faster, flexible responses to the changing needs of customers, and encompassing a variety of players who interact in interdependent and often indirect ways.¹ In fact, many supply chains are now far less linear than their name implies, and appear to be evolving into “value webs” that span and connect whole ecosystems of suppliers and collaborators.

Value webs can reduce costs, improve service levels, mitigate risks of disruption, and deliver feedback-fueled learning and innovation. This trend is likely to accelerate as new technologies generate more data, provide greater transparency, and enable enhanced connectivity with even tiny suppliers and partners. The shift can create new challenges for the supply chain profession—but also extraordinary opportunities to play an even more central and strategic role in shaping the enterprise.

The Technologies Behind the Trend

Thanks to advances in information and communications technologies , which have drastically reduced the transaction costs of dealing with outside entities, many assets that made sense to own and activities traditionally performed in-house are often better sourced from external suppliers. Now, a new wave of technologies is further accelerating these shifts. The rise of theInternet of Things—which links devices containing Internet-connected sensors—is greatly enhancing the creation of and access to data, and producing ever-increasing transparency. Substantial technological changes unfolding in manufacturing, including 3D printing and robotics, are set to transform many production processes and disrupt distribution models. Other uses of technical capabilities and new technologies are spreading as well.

The speed and scale of these changes are creating new opportunities for many supply chain professionals—and also putting increased pressure on them to adapt. Their focus is extending beyond continuous improvement of existing operations to include the discovery of fundamentally different ways of creating new value, driving continuous innovation, and sustaining enterprise growth.

To be sure, collaborative arrangements are not outright replacing traditional contractual arrangements. Clear commitments to meet rigorously monitored standards and service-level agreements will remain critical. But leaders are also building deals flexible enough to ensure that defined, fixed standards do not create barriers to innovation and co-evolution.

Making the Most of Value Webs

To achieve competitive advantage in this burgeoning environment, leaders will likely have to develop and prioritize the following areas.

Engagement with more, frequently smaller, players. The emergence of value webs is enabling small, highly focused suppliers to proliferate in global supply chains. Important and complex capabilities increasingly call for deep specialization that often flourishes in smaller, tightly niched firms. Some suppliers are so tiny that their connections with large firms can appear more like talent sourcing than procurement.

For many corporations, these connections can bring advantages, but also invite greater complexity. For the most part, supply chain functions of large businesses weren’t set up to deal with a world of thousands of partners; now, they must adjust. For example, some firms are establishing or relying on new platforms that help scale participation and collaboration, facilitating greater levels of connectivity and co-creation with other businesses.

Reducing risk, raising resilience, deploying data. Since their inception, supply chains have generally been tightly associated with risk management and business continuity planning. Globally extended production and distribution arrangements are often subject to risk factors beyond anyone’s control, from geopolitical events to natural disasters. Dependency on the capabilities and integrity of others outside your organization can create certain vulnerabilities. For example, in 2013, millions of food products advertised as containing beef were withdrawn from shelves in Europe after they were found to contain horsemeat. The scandal highlighted deficiencies in the traceability of the food supply network, and dealt a blow to the finances and reputations of affected brands, retailers, and restaurants.² It is simply expected today that firms have clear visibility into the activities—and the integrity—of their vendors.

Designing resilience into supply chains and value webs will likely rise in importance, and be supported by new capabilities. For example, 3D printing technologies already enable some supply chains to reduce reliance on far-flung production arrangements. Data is also likely to play an increasingly critical role, especially as the Internet of Things enables vast amounts to be collected and analyzed. This can create greater transparency, uncovering opportunities, efficiencies, and problems.

Attracting and developing next-generation talent. Value webs are an increasingly important source of hard-to-access talent, especially as new and more open models proliferate. Developing the talent of partners is also rising in importance for many firms such as Nike, which are placing increased emphasis on providing shared training programs for suppliers’ employees.³

Recruiting and training for supply chain professionals will also need to be creative as the field is clearly evolving and will require new capabilities.

The Future of Value Webs

As the business landscape increasingly emphasizes ecosystems, supply chains will likely evolve substantially, with the prevalence and predictive qualities of data driving experimentation. For example, “nowcasting” is a growing field of forecasting enabled by listening to social media signals; a recent study analyzed Twitter posts to estimate influenza infection in New York City and proved far more accurate than traditional seasonal flu trend estimates.⁴ When real-time data sources from across massive webs are brought together, new insights can emerge that enable, for instance, far more accurate and localized demand forecasting.

New value webs will also form as 3D printing transforms multiple aspects of today’s global supply chain; Amazon, for instance, filed for patents in February to install 3D printers in delivery trucks, potentially taking the concept of “real-time” delivery to a new level.⁵

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As globalization truly takes hold and technologies capabilities expand, supply chains are increasingly spanning and connecting entire ecosystems of suppliers and collaborators. These new partnerships can play a critical role in reshaping procurement strategy and delivering results to businesses committed to capturing additional value from their supplier relationships.

—by Eamonn Kelly, chief marketing officer, Deloitte Consulting LLP; and Kelly Marchese, principal, Deloitte Consulting LLP

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1. IBM, “The smarter supply chain of the future: Global chief supply chain officer study,” 2009, accessed April 3, 2015.
2. David Linich, “The path to supply chain transparency,” Deloitte University Press¸ July 18, 2014, accessed March 9, 2015.
3. Nike, FY 2012/2013 sustainable business performance summary, 2013, accessed February 27, 2015.
4. David A. Brontiatowski, Michael J. Paul, and Mark Dredze, “National and local influenza surveillance through Twitter: An analysis of the 2012-2013 influenza epidemic,” PLoS ONE 8, no. 12, DOI:10.1371/journal.pone.0083672.
5. Greg Bensinger, “When drones aren’t enough, Amazon envisions trucks with 3D printers,” The Wall Street Journal, February 26, 2015, accessed March 9, 2015.