While reporting on President Trump’s change in strategy (as evidenced by the April 6, 2017 missile attack on a Syrian airfield), CNN quoted Iron Man Mike Tyson as saying, “Everyone has a strategy until they’re punched in the face.” This simple logic can also apply to your supply chain strategy; if you are not using the latest capabilities prepare to be punched in the face.
In his latest book, Thank You for Being Late, author Thomas L. Friedman discusses the unease people now feel to a change in the rate of change. This is described by others as the acceleration of everything. Friedman attributes this unsettling to 3 accelerations; market acceleration, artificial intelligence and climate change. He also identifies the year 2007 as the turning point between noticeable and unnoticeable differences caused by them. Now, 10 years later in 2017, the three are more than noticeable, they are game changing!
If your supply chain isn’t prepared, the face punch will come from AI and big data analytics while all 3 will deliver abdominal blows. Even if you are the one delivering the first punch, be prepared for Newton’s second law which accounts for an equal and opposite reaction blow.
2007 was the dividing line between pre-future history and future history eras. What’s different? Let me share some examples using electronic component pricing.
My company, Lytica Inc., is seeing the impact of big data and AI on customer savings using price prediction. We point customers towards cost savings from three areas:
- Arbitrage. This pre-future history technique looks at pricing differences across the same client part number and negotiates to the lowest value. This can be achieved with an Excel analysis, just like you could do before 2007.
- Duplication. These are savings achieved from negotiating to the lowest price of form, fit and function (FFF) equivalent components. This has both a pre-future and future history element to it. For the pre-future history component you use Excel to find discrepancies across the same supplier part number which is coded differently as a client part number in your BOM. The future history element utilizes a cross reference lookup of all your components to find matches that should be priced the same as they are FFF equivalents and then applies the lowest price found for each set as a negotiating objective. While not impossible to do with pre-future history technology, it is extremely time consuming and error prone.
- Target. These future history savings require knowledge of the actual prices paid by companies across all components as well as how your component pricing fits within these statistical distributions to find savings opportunities on those that appear to be anomalously priced. Try doing this with pre-future history techniques.
If your competitors are negotiating with the knowledge of 4 sources of savings and you are using 2 or less, get prepared. You may be able to duck once or twice but eventually, sooner than later, you will take it on the noggin and suffer a concussion from which you may not recover.
I have always liked the term layers of abstraction. Future history technology adds a layer of abstraction that makes possible what was impossible (or infinitely complex and difficult) in pre-future history.
Everyone knows that computers work because transistors in integrated circuits flip on and off as 1s and 0s perform calculations. Using PowerPoint, Word or searching the internet is easy yet these are the results of instructing transistors to flip states from 1 to 0, or vice versa. Very few people, maybe no one anymore, know how to do this from the transistor to the application level. Layers have been built up that abstract the complexity of the underlying layer to make it usable; you can use a layer without having to understand what is going on in the complex layer below. You can use Word without having to understand Windows/ DOS, Android or iOS. You can use spell check without knowing anything about Levenshtein distance.
What was nearly impossible is now possible and what now seems impossible may be possible soon. Can your tried and true supply chain strategies take a punch? Are you prepared for aggressive price competition, multiple supplier bankruptcy or failure and step function demand changes? Are you anticipating the acceleration of everything and the changes that new knowledge will enable? If not, get the ice packs ready.