May 17, 2020

Evolving from products to services: How to improve supply chain management

John Phillips
Zuora
SaaS
Supply Chain
John Phillips
4 min
 John Phillips, General Manager EMEA at Zuora ruminates on the supply chain's transition to a service model and the potential opportunities that creates
John Phillips, General Manager EMEA at Zuora reflects on the supply chain's transition to a service model and the potential opportunities that creates...

 John Phillips, General Manager EMEA at Zuora reflects on the supply chain's transition to a service model and the potential opportunities that creates.

Traditional manufacturing companies face a huge challenge: products don’t matter as much as they did five years ago. The rise of IoT has led to a shift towards usership over ownership as customers begin to ask for outcome based services, rather than product solutions. At a global level, Zuora found 74% of adults believe that in the future, people will subscribe to more services and own less physical goods.

Switching to a service model can help companies better understand their customers, build ongoing relationships and deliver a product that genuinely adds value to their lives. For the supply chain in particular,  switching to a services model would, inevitably, create efficiencies as manufacturers would know, based on consumers who have subscribed to their service, how many products they need to build. It also creates new revenue streams from services that didn't exist until recently, for example, the ability to sell direct to consumers, or monetise software that use to be free.

In a time when margins are razor thin, a subscription based model could be the competitive advantage needed to succeed in today’s fast-paced, digital native environment. 

The end of product ownership

According to a Zuora survey, 56% of 16-34 year olds in the UK agree subscription services are preferable to buying and owning products. This reflects the ideas that today’s consumers are no longer driven by the concept of owning goods. Why buy a car when you can subscribe to one? Why spend hundreds of pounds on a dress you’ll wear once when you can rent one? The focus today is instead on the outcomes a product or service provides, rather than the method, and above everything, consumers expect ongoing value and personalised experiences. 

Gartner predicts “by 2023, 75 percent of organisations selling direct to consumers will offer subscription services”. This shift means standalone products no longer cut it. A regular light bulb can’t be personalised to your favourite colour, it doesn’t learn your daily routine, and it won’t be constantly upgrading its offering. 

Enter: Philips, which makes thousands of products, yet have begun referring to themselves as a technology solutions partner. By switching its focus from transactions to relationships, Philips are increasingly becoming a technology solutions partner, with recurring revenue streams accounting for over 25% of sales

When a company designs its service in conjunction with its subscribers, and informs that service with usage and behavioural data, it can make something that they really love and that evolves with customer needs. 

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The same goes for B2B companies. Schneider Electric, a €25bn company leading the way in energy management was looking to move beyond product offerings and expand its consultative predictive analysis and expertise-driven remote monitoring business. It’s move to a recurring revenue model resulted in responsive pricing and packaging; a unified view of customers; and the ability to easily process different currencies. These process efficiencies mean Schneider can now focus on their core business - helping people access energy.

This approach translates into growth. According to Zuora’s subscription economy index (SEI), subscription businesses grew revenues about five times faster than S&P 500 company revenues and U.S. retail sales in the seven years from January 1, 2012 to December 31, 2018.

Streamlining the supply chain with service models

A subscription based model can offer tangible benefits when it comes to supply chain optimisation. Think about the success of Amazon Prime and the competitive advantage it opened up by having Monthly Recurring Revenue (MRR), enabling Amazon to offer lightening speed delivery. In addition, if you can anticipate the timing and location of your orders each month based on existing service subscriptions, you can streamline the distribution process, and increase efficiency by reducing waste. This then enables companies to focus on product adoption with its customers and making sure they get the ROI they need from its services. A recurring revenue model also allows you to measure MRR which provides valuable insight into sales and cash flow dynamics. 

Subscription service Graze, which offer tailored subscription snack boxes, saved millions of dollars by delivering snacks-as-a-service. No more focus groups, phone surveys, or user interviews to understand the best supply chain strategy because the market research is already baked into the service. Through building an ongoing relationship, Graze was able to understand what its consumers want, when and where. Because of this, the Graze team had their US distribution strategy ready in three or four months, because they could see what their customers were doing. They could drop that factory anywhere in the world and it would immediately start listening, learning, and optimising itself through collecting customer data. 

For manufacturers, switching to a services model is a no brainer. In a world where consumers expect companies to anticipate their every move, shifting to a service model will allow companies to rediscover their customers and build strong, ongoing relationships. This will allow companies to reap the rewards through the opening of new recurring revenue streams, the streamlining of supply chain processes and increased customer loyalty built through deeper relationships.

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Jun 11, 2021

NTT DATA Services, Remodelling Supply Chains for Resilience

NTTDATA
supplychain
Supplychainriskmanagement
Procurement
6 min
Joey Dean, Managing Director of healthcare consulting at NTT DATA Services, shares remodelling strategies for more resilient supply chains

Joey Dean, the man with the coolest name ever and Managing Director in the healthcare consulting practice for NTT DATA and is focused on delivering workplace transformation and enabling the future workforce for healthcare providers. Dean also leads client innovation programs to enhance service delivery and business outcomes for clients.

The pandemic has shifted priorities and created opportunities to do things differently, and companies are now looking to build more resilient supply chains, none needed more urgently than those within the healthcare system. Dean shares with us how he feels they can get there.

A Multi-Vendor Sourcing Approach

“Healthcare systems cannot afford delays in the supply chain when there are lives at stake. Healthcare procurement teams are looking at multi-vendor sourcing strategies, stockpiling more inventory, and ways to use data and AI to have a predictive view into the future and drive greater efficiency.

“The priority should be to shore up procurement channels and re-evaluate inventory management norms, i.e. stockpiling for assurance. Health systems should take the opportunity to renegotiate with their current vendors and broaden the supplier channel. Through those efforts, work with suppliers that have greater geographic diversity and transparency around manufacturing data, process, and continuity plans,” says Dean.

But here ensues the never-ending battle of domestic vs global supply chains. As I see it, domestic sourcing limits the high-risk exposure related to offshore sourcing— Canada’s issue with importing the vaccine is a good example of that. So, of course, I had to ask, for lifesaving products, is building domestic capabilities an option that is being considered?

“Domestic supply chains are sparse or have a high dependence on overseas centres for parts and raw materials. There are measures being discussed from a legislative perspective to drive more domestic sourcing, and there will need to be a concerted effort by Western countries through a mix of investments and financial incentives,” Dean explains.

Wielding Big Tech for Better Outcomes

So, that’s a long way off. In the meantime, leveraging technology is another way to mitigate the risks that lie within global supply chains while decreasing costs and improving quality. Dean expands on the potential of blockchain and AI in the industry

“Blockchain is particularly interesting in creating more transparency and visibility across all supply chain activities. Organisations can create a decentralised record of all transactions to track assets from production to delivery or use by end-user. This increased supply chain transparency provides more visibility to both buyers and suppliers to resolve disputes and build more trusting relationships. Another benefit is that the validation of data is more efficient to prioritise time on the delivery of goods and services to reduce cost and improve quality. 

“Artificial Intelligence and Machine Learning (AI/ML) is another area where there’s incredible value in processing massive amounts of data to aggregate and normalise the data to produce proactive recommendations on actions to improve the speed and cost-efficiency of the supply chain.”

Evolving Procurement Models 

From asking more of suppliers to beefing up stocks, Dean believes procurement models should be remodelled to favour resilience, mitigate risk and ensure the needs of the customer are kept in view. 

“The bottom line is that healthcare systems are expecting more from their suppliers. While transactional approaches focused solely on price and transactions have been the norm, collaborative relationships, where the buyer and supplier establish mutual objectives and outcomes, drives a trusting and transparent relationship. Healthcare systems are also looking to multi-vendor strategies to mitigate risk, so it is imperative for suppliers to stand out and embrace evolving procurement models.

“Healthcare systems are looking at partners that can establish domestic centres for supplies to mitigate the risks of having ‘all of their eggs’ in overseas locations. Suppliers should look to perform a strategic evaluation review that includes a distribution network analysis and distribution footprint review to understand cost, service, flexibility, and risks. Included in that strategy should be a “voice of the customer” assessment to understand current pain points and needs of customers.”

“Healthcare supply chain leaders are re-evaluating the Just In Time (JIT) model with supplies delivered on a regular basis. The approach does not require an investment in infrastructure but leaves organisations open to risk of disruption. Having domestic centres and warehousing from suppliers gives healthcare systems the ability to have inventory on hand without having to invest in their own infrastructure. Also, in the spirit of transparency, having predictive views into inventory levels can help enable better decision making from both sides.”

But, again, I had to ask, what about the risks and associated costs that come with higher inventory levels, such as expired product if there isn’t fast enough turnover, tying up cash flow, warehousing and inventory management costs?

“In the current supply chain environment, it is advisable for buyers to carry an in-house inventory on a just-in-time basis, while suppliers take a just-in-case approach, preserving capacity for surges, retaining safety stock, and building rapid replenishment channels for restock. But the risk of expired product is very real. This could be curbed with better data intelligence and improved technology that could forecast surges and predictively automate future supply needs. In this way, ordering would be more data-driven and rationalised to align with anticipated surges. Further adoption of data and intelligence and will be crucial for modernised buying in the new normal.

The Challenges

These are tough tasks, so I asked Dean to speak to some of the challenges. Luckily, he’s a patient guy with a lot to say.

On managing stakeholders and ensuring alignment on priorities and objectives, Dean says, “In order for managing stakeholders to stay aligned on priorities, they’ll need more transparency and collaborative win-win business relationships in which both healthcare systems and medical device manufacturers are equally committed to each other’s success. On the healthcare side, they need to understand where parts and products are manufactured to perform more predictive data and analytics for forecasting and planning efforts. And the manufacturers should offer more data transparency which will result in better planning and forecasting to navigate the ebbs and flows and enable better decision-making by healthcare systems.

Due to the sensitive nature of the information being requested, the effort to increase visibility is typically met with a lot of reluctance and push back. Dean essentially puts the onus back on suppliers to get with the times. “Traditionally, the relationships between buyers and suppliers are transactional, based only on the transaction between the two parties: what is the supplier providing, at what cost, and for what length of time. The relationship begins and ends there. The tide is shifting, and buyers expect more from their suppliers, especially given what the pandemic exposed around the fragility of the supply chain. The suppliers that get ahead of this will not only reap the benefits of improved relationships, but they will be able to take action on insights derived from greater visibility to manage risks more effectively.”

He offers a final tip. “A first step in enabling a supply chain data exchange is to make sure partners and buyers are aware of the conditions throughout the supply chain based on real-time data to enable predictive views into delays and disruptions. With well understand data sets, both parties can respond more effectively and work together when disruptions occur.”

As for where supply chain is heading, Dean says, “Moving forward, we’ll continue to see a shift toward Robotic Process Automation (RPA), Artificial Intelligence (AI), and advanced analytics to optimise the supply chain. The pandemic, as it has done in many other industries, will accelerate the move to digital, with the benefits of improving efficiency, visibility, and error rate. AI can consume enormous amounts of data to drive real-time pattern detection and mitigate risk from global disruptive events.”

 

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