Sometimes, as author James Surowiecki asserts, there are lessons in the wisdom of crowds.
In the case of supply chain, global enterprises can benefit from what consumers are already doing.
I know this for a fact, because I used to work at an enterprise IT company in business operations, specifically managing supply chain. Every year, I oversaw over $350 million in purchasing, but my team and I were doing it offline, using an inefficient hodgepodge of systems.
The Transformation of Consumer Shopping
Global consumers spend more than $10 trillion every year, according to the most recent data on annual household consumption from the World Bank. This is a massive market and has understandably been the primary focus of most internet commerce platforms to date.
From Amazon to Alibaba to eBay, these platforms have been trying to create an online experience to meet the needs of the consumer and provide a great experience. We see this in our personal lives as we transition from offline to online buying patterns. Consumers use these platforms because of efficiencies gained, time saved, and cost savings.
This all started over 20 years ago and has been inexorably becoming intertwined with our daily behavior ever since—and we want more!
What if I told you there was another segment that is two to10 times larger than that of the consumer spend? This segment consumes more, is far more predictable and consistent with their purchases and sales, buys what they need based on advance planning, and has yet to really move online? May I present to you the global enterprise supply chain market.
The Slow Awakening of the Enterprise Supply Chain Market
Global enterprises spend more than $12 trillion annually on the procurement of assets to run their respective businesses, according to a 2016 Deloitte Global CPO Survey. They are also sitting on an amassed $187 trillion in assets, according to figures in the Forbes Global 2000—a lot of which is surplus. Based on my first-hand experience, and that of my colleagues in other verticals, they should be disposing of over $8 trillion in assets per year. This would free up capital (and space) new or replacement assets that would be put to work.
Combined, this group buys and sells products valued at over $20 trillion per year—or twice that of all consumers globally. But for the most part, these behemoths perform this work just like as they have for decades—manually and offline!
Supply chains, no matter the industry vertical, are languishing in this old way of doing things for a number of reasons. But the impact is being felt in a number of ways: the old methods are costly, time consuming, and disconnected from the ecosystem of suppliers and buyers.
So these supply chain professionals, who in their consumer personas are used to near real-time supply chains via Amazon, are demanding more. But, and this is very important, the consumer-based supply chains and how they operate are predicated upon consumer patterns and not professional/work patterns.
The easiest way to illustrate this lies in social media accounts you’re probably already using: Facebook and LinkedIn. One is for personal contacts and the other professional. They are both social networking platforms, but how people use them and interact on them are profoundly different. Today’s commerce solutions are the Facebook of solutions—consumer-oriented. What the professional personas are seeking is the LinkedIn version.
Professional supply chain and procurement users do not “shop”; they buy things that the business needs based on careful planning and budgeting. This is a very targeted buying pattern, and is far less emotional or subject to whim. As professionals do not buy things one at a time, they always buy in bulk.
Effects of a Changing Landscape
Supply chain professionals are seeking holistic solutions that address their massive needs—and we are just beginning to see this adoption take place.
The online transition of this $20 trillion economic juggernaut will begin the process of transforming enterprise supply chains for the next decade and beyond. We will see trillions of dollars in savings that will drive up corporate profits, and drive down overall consumer prices (or keep them flat).
This transformation will usher in what we call “value webs” of interconnected enterprises with their suppliers and buyers, interacting on common platforms (like consumers) instead of in silos. There will be disruption (or great enhancement we like to say) to the areas of commerce, payments, logistics, contract management, and so much more.
With over $20 trillion in activity every year, you can bet that more and more companies will be working to find solutions for this space. We’ll find an entirely new perspective on the supply chain organization, since it is the central nervous system of any enterprise and usually controls more than 50% to 60% of the overall corporate spend. The optimization that will occur here based on this digital transformation can and will save 20% to 30%, at least.
Taken into context, this is removing $4 trillion to $6 trillion per year from the overall spend/cost structure. If that doesn’t give you pause, I’m not sure what will!
Richard Donaldson is the head of strategy and platform and a co-founder at Requis.com, an asset procurement, management, and disposition software platform.