Supply Chain Innovation Technology: No Longer Just a “Build vs. Buy” Decision

A couple of years ago, Meg Whitman, the CEO of Hewlett Packard Enterprise, wrote a post on LinkedIn where she stated that “Every Company is a Technology Company.” She went on to say:

As I’ve mentioned in earlier posts, we’re now living in an era of disruption, what we call the Idea Economy. Companies today can turn ideas into reality in a fraction of the time it took just five or 10 years ago. And it’s no secret that technology is fueling that speed.

Across every industry, IT strategy is now business strategy. Winners and losers are determined by how quickly they can adapt to take advantage of new opportunities or deal with competitive threats.

Whitman’s comments are particularly relevant in the world of supply chain and logistics today, where a wide range of technologies — Artificial Intelligence and Machine Learning, Blockchain, Internet of Things, Mobile Devices and Applications, Drones and Driverless Trucks, Robots and Warehouse Automation — are offering exciting new opportunities to transform (and perhaps even disrupt) the status quo.

Of course, these new technologies also come with a lot of risks and uncertainties, which is why many companies are taking a “wait and see” approach before investing any time, money, and resources in them. That approach, however, is also risky. In the past, companies could afford to be laggards, but the pace of change is so fast today, that waiting too long to innovate could put them so far behind the competition that they would never catch up.

Innovation is not something that you start and stop; it’s something that you have to do continuously. The moment you become satisfied with the status quo and stop looking for ways to improve it (that is, stop looking for new ways to improve cost, quality, or service) is the moment you start becoming irrelevant in the market.

But where do you begin?

Define Your Objectives, Verify Your Current Capabilities

The biggest mistake you can make is becoming too enamored with the next new shiny technology and start investing in it without first identifying or understanding the business problem or opportunity you want to address. So that’s the first step: clearly define what you want to accomplish, verify that your existing technologies aren’t capable of meeting your objectives, and explain how this new technology can potentially get the job done.

The next step is acquiring the technology. Historically, this was a “build vs. buy” decision. Companies that took the “build our own” approach often did so because there weren’t any commercially available solutions that met their specific needs, or they believed that having their own solution would provide them with a competitive advantage, or they believed it would be a faster and less expensive approach. In some cases, those beliefs were true, but in many other cases, they were not. Therefore, fewer companies today choose to build their own solutions.

But the buy decision wasn’t easy either, especially when it came to buying logistics-related solutions. Simply put, logistics has traditionally been viewed as a cost center — and this remains true at many companies today — and so getting funding for technology investments and support from IT has always been a challenge. In the software realm, however, the emergence of software-as-a-service (SaaS) and cloud solutions, coupled with more affordable subscription-based pricing, has certainly lowered that hurdle.

More Options Beyond Build vs. Buy

Today, when it comes to supply chain innovation technology, it’s no longer just a build vs. buy decision. There are actually other options available to companies today, such as:

Buy and Build: One of the reasons companies sometimes opted to build their own software solutions was speed of innovation — that is, they didn’t want to be dependent on a software vendor to add new functionality they needed quickly, but they often had to wait months until the next software version was released (and sometimes the requested functionality wasn’t even added). Thanks to innovations in software architecture and user interfaces, software vendors today are providing users with easy-to-use tools to build their own extensions and functionality. In short, companies are getting the best of both worlds: they can buy a third-party solution to obtain the core functionality they need today, but also build their own capabilities and drive their own innovation as needed.

Partner: Many manufacturers and retailers are starting to look at their third-party logistics (3PL) partners not just as providers of transportation and warehousing services, but also as technology providers and innovation labs. Kenco is a great example. In response to this trend, the company launched Kenco Innovation Labs in 2015, where its dedicated team of innovation specialists “collaborate with customers to identify, research, and prototype leading-edge ideas and processes,” including drones, 3D printing, gamification, augmented reality, AGV pallets, and wearable scanners. Kenco itself has taken the partner approach with technology companies to bring new innovations to market faster (see Collaborative Supply Chain Innovation: Bringing Solutions to Market Faster for a case study example).

I agree with Meg Whitman: every company today is a technology company; IT strategy is now business strategy; and speed of execution will define winners and losers. When it comes to acquiring technology to drive supply chain innovation, there is no single correct path to take, and in some cases, a hybrid of different approaches is the best path forward. Regardless of which path you take, however, the key is understanding upfront the critical factors for success — the pitfalls to avoid, the hurdles to overcome — and making the necessary investments in time and resources to make it work.

Editor’s Note: This post was originally published as a guest commentary for Kenco’s blog.

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