I interviewed Richard Sherman who discussed Supply Chain Trends 2017: Ecosystem Changes.
This is a follow-up interview. Last time we were discussing supply chain and technology trends for 2017, and today I have some more detailed questions about supply chain ecosystem changes, as well as analytics. So regarding this topic, can you first provide a background about this? Why is this important, these two changes and these trends?
Sure, Dustin.It's great to speak with you again. I'm happy we have the time to dig a little deeper. I think the biggest change that is going to occur, that people are going to have to adapt to, is the transformation from traditional supply chain thinking, which is pretty linear. We think in terms of supplier to manufacturer to wholesaler to retailer, the traditional beer game type of methodology, and it's kind of ironic that the beer game approach has led to this linear thinking when in fact, kind of the inventor of the beer game, Jay Forester, really built it to help people understand systems thinking. But as we evolve and as we get more and more data collected in real time, so as information and computing become more pervasive, then we begin to behave more and more like a network as opposed to a chain. And a network is a system. And that network is comprised of nodes and connections that are networked as opposed to perform their operations in a linear or a sequential manner.
So within that network, you have markets. And so each market is its own ecosystem. So when you think of the automotive industry, it's not just tier one and tier two and tier three suppliers feeding an assembly plant which then distributes out to a dealer network which then puts us in the driver seat, is the best way to say it. The automotive ecosystem, actually, is comprised not only of all the parts suppliers, not only all of the automotive manufacturers and dealer, but also, you've got an insurance industry that is tied directly to the automotive industry. So I've got a legal, a municipal revenue generating system which is tied to vehicle operations, so the automotive industry puts us in the driver's seat. As drivers, we may exceed the speed limit. When we exceed the speed limit, we could possibly be pulled over. We could possibly get a ticket. And that ticket generates revenue for the municipalities.
So the other side of it is, driving those vehicles, we sometimes get into accidents. So there's a whole service industry. The vehicles themselves from time to time, need to be repaired. So it's not just auto and body shops, but it's parts distributors. And of course, the automotive dealers, a high percentage of their profit is made in selling it their parts. So there are a whole number of manufacturers that will make similar parts or will-fit parts that could be substituted at a lower price than the OEM part price. And so there's a whole ecosystem around automotive parts distribution and sales.
And of course, the other side of that accident is not only a car that needs to be repaired but it may need people that may need to be repaired. So there's personal injuries. And that brings into play a whole legal system .And again, the insurance system plays a part.
So if we think about a change like an autonomous vehicle, a driverless vehicle, then we have to start thinking about not just how that impacts the automotive OEM but how it impacts the automotive market ecosystem as a system, because if I have driverless vehicles, those driverless vehicles are designed not to exceed the speed limit, not to disobey the law, not to get into accidents. So all of a sudden, municipalities may be finding a major source of revenue in moving violations going away. The insurance companies, if there are very few or no more accidents, the nature of the insurance and the revenue generated by that insurance changes dramatically. If there are no more personal injuries, then we may not need personal injury lawyers or certainly not as many personal injury lawyers.
And of course, then we have this little thing called ride-share services, like Uber and Lyft and Fasten, and so they start to say, well, if we have driverless vehicles, we can create a democratized transportation system whereby people really don't have to own cars. They can just book slots on vehicles that are already in play. And so I can call Uber whenever I need to go from point A to point B. If I need to go shopping, I can always pick up a driverless vehicle that gets assigned to me, and I automatically pay them by the use of the vehicle as opposed to by ownership of the vehicle.
And of course, if the ownership of the vehicle changes, then that changes the nature of dealers and retail sales of stores. Because now, instead of selling cars through a dealership and to individuals, I'm going to be selling cars to large fleets. So Uber's going to buy thousands of cars at any one given time. So the dealers start to go away, and then we begin to see greater volume in automotive sales to fewer parties as fleet ownership becomes the mode and not individual ownership of vehicles.
So by way of an example, what I've done is I've taken one simple market — the automotive market — and I've said it's a system of businesses that are networked together where change impacts us all in different ways. And so if I'm a company today, and I'm beginning to see the digitalization and digitization of my market, how is that going to impact all of the nodes in that network? So if I look at the consumer goods industry, I have to be thinking Omnichannel. And in fact, I have to be thinking Omnichannel no matter what market I'm in, because everything is being sold online. So it may not be an Amazon, but it may be buildinggoods.com that's selling all the goods that I need to build a house, and because it's online and the middle man is eliminated, the [inaudible 00:08:09] products company may be able to ship it to me for much less than if I were to go to the local lumberyard to get it.
So systems thinking is going to be the rule in the 21st century, and we have to begin to think of how all of these small changes can build up and result a major change to that ecosystem. And now the change becomes disruptive.
And so I think that in 2017, companies have to begin paying more attention to their role within their market ecosystem and how changes are going to occur within that market ecosystem and when those changes are going to become disruptive. Does that make sense?
About Richard Sherman
Senior Fellow, Supply Chain Centre of Excellence at Tata Consultancy Services