March 03, 2017

Featuring the article "A New Score for Supply Chains" by Chris Caplice

Additive manufacturing, autonomous vehicles, blockchain technology, the Internet of Things and multi-channel retailing are some of the innovations that are driving tremendous change in supply chain management today. Yet the innovative trend that is of most interest to me is already several decades old—the growing importance of service over products.

Although this trend is not new, it is more relevant to the future of supply chain management than ever, and its impact is gaining momentum. I believe that the value of services has finally eclipsed the value of the underlying products, and that this portends tremendous changes to supply chains going forward. 

Back to the future

One way to understand what the future might hold for supply chains is to review how a different industry navigated a sea change in the past. Academics often look for these historical canaries in the coal mine. 

One of my favorite industries to follow is the recorded music industry because it has an exceptionally fast clockspeed. That is a term coined by MIT professor Charlie Fine to identify industries with very fast reaction cycle times to change. Its performance over the last 40 years reveals some striking insights into how the supply chain industry could change in the future. 

In the early 1970s, the pre-recorded music industry was flying high. There was significant consolidation amongst the manufacturers—the major labels—and the vinyl long playing (LP) record had been a relatively stable format for over a decade. That all began to change in the mid-to-late 1970s as the LP gave way to 8-tracks, cassette tapes and finally, nearly 20 years later, to compact discs (CDs). Yet, regardless of the format, total sales of physical product grew dramatically. In 1976, just fewer than 400 million units of pre-recorded music (mainly vinyl records but also cassettes and 8-tracks) were sold in the United States. By 2000, the number of units of pre-recorded music shipped exceeded 1 billion—the vast majority of which was CDs. 

Each new format change not only increased usability, but also represented a dramatic densification. In 1973, the weight of the product required to provide one hour of music was just over 8 ounces, or half a pound. By 2000, this had dropped to just over 2.5 ounces, a four-fold density increase from seven minutes to over 24 minutes of music per ounce. During that period, the number of units shipped doubled, and the amount of hours of music sold increased by fivefold even though the weight shipped only increased by a third. This value densification (minutes of music per pound of product) led to a 65% reduction in the ton-miles required to distribute the product over the 30-year period. Interestingly, other industries did not invest heavily in the densification of their products (reducing package size, removing water and miniaturizing components) to achieve the logistics benefits that the music industry enjoyed until decades later. 

Read More in Supply Chain Management Review