Thought Innovation – Considerations for Supply Chain and Procurement in the Share Economy
Spend Matters welcomes a guest post from Cuoie Liv, a Senior Consultant in the Strategy and Operations practice at Archstone Consulting.
Disruptive trends continue to shift the business landscape and challenge longstanding operations. Disruptions come in many forms (natural disasters, raw material availability, factory and line down situations), but innovative and disruptive trends are often overlooked, in particular the share economy. The impact of these trends on supply chain and procurement is not the first to come to mind, however it is an integral part of evolving models to thrive in the future for the share economy. The share economy is projected at a pace to reach $3.5 billion this year, heightening the importance to position or mitigate for trends that rely on distributed models. The trend is propagated by companies and services such as Makerbot, Cohealo, AirBnb, and Lyft with no signs of slowing down, illustrating the viability of such models. Anticipating for such disruptions can mitigate exposures to these trends and position supply chain and procurement strategies to thrive in the upcoming norm.
What is the Share Economy and Disruptive Trends
The concept of the share economy is not revolutionary, but evolutionary in its application. Technology and the social space have fueled this notion of peer-to-peer economies, such as pay-per-use offerings of personal assets, services, and literally anything with the rest of the world. Kickstarter made “crowdsourcing” mainstream and exemplifies the share economy, sidestepping the need for banks or venture capital for seed money and relying on anyone willing to part with a few extra dollars.
Other examples include Lyft and AirBnB, where legions of people, likely with day jobs, use their own car or spare living space as an on-demand taxi service or rental. Both services provide mediums to connect folks without having to expend huge capitol for a fleet of cars or investing in real estate – that’s already provided, by you.
Disruptive trends are just that, an upset of the status quo. In this context, the focus is on technology, products, and services that impact current supply chain and procurement activities.
Why is this disruptive and what does it have to do with Supply Chain and Procurement?
The share economy impacts traditional supply chain and procurement practices because of the reliance on the origin of goods and services in the value stream. It disrupts the current state activities because this brings a fragmented and distributed approach to models that traditionally work with scale economies and established manufacturing and supply centers. The speed and logistics which the goods and services are provided take just-in-time and on-demand to another level. The major concern for companies over the next few years is surprisingly not cost reduction, but getting products or services to market faster and improving customer service, up 13 and 15%, respectively over the next 5 years.
Early adopters tend to be young adults, and the use of Lyft-like services is no big surprise. Car sales dropped 30% since 2007 for the age group 18 to 35 and ownership dropped 5% since 2001 for the age group 25 and younger. The these services upend two ends of the value stream and the notion of companies owning and people consuming. They allow anyone to do both, providing and consuming with their own assets, again breaking away from traditional approaches.
On another front, the emergence of 3-D printing with MakerBot and Pirate3-D (one of the first to make 3-D printing easy to use and in desktop form) may shift the landscape as well. Pirate3-D is offering these at a price point for the everyday consumer and simplifying the technology so that non-engineers can use the printers at home. As the technology joins the mainstream, procurement practices may alter the reliance on places such as China for plastics and cheap injection molding for both heavy and consumer industries. The technology will make it easier to produce items locally and instantly as opposed to waiting for weeks for designs to be sent overseas and fabricated. This allows for more accessible, simple, and fast prototyping in product development activities.
Considerations for Positioning Supply Chain and Procurement in the Future
Disruptive trends are difficult to anticipate, but evaluating a few key areas can help adapt and evolve supply chain and procurement models for the share economy.
Know Your Model
Understanding your revenue streams and margins is fundamental to aligning supply and procurement strategies. Coheolo, for example, is tapping into share economy principles by enhancing health provider’s core focus on services, mitigating high capital costs from expensive equipment. Cohealo helps hospitals share under-used equipment, creating better asset management models and increasing ROI.
Another key consideration is how volume comes into play, i.e. number of SKUs and inventory levels. Evaluating volatility and volume can provide insights to how supply chains can be fragmented into distributed models. For example, for high volume and stable items, it may make more since to keep established supply centers while fragmenting the lower volume, higher volatile items.
Evaluate How and Where You are Providing
The share economy relies heavily on distributed models. A fundamental question to answer is how localization is beneficial from providing faster, more flexible lead times to better service to your customers. Understanding unique or high quality manufacturing processes helps determine how the supply chain and procurement practices can be fragmented, if possible as well.
Significant drivers in the share economy are cost, experience, and expedience and evaluating how your products or services are more prone to be in the share economy are important considerations. PayPal and Square started out as peer-to-peer payment method, but now enhance purchase-to-pay, P2P cycles, in large and small business operations. Benefits can range from more analytics to faster cycle times.
In addition, the power of the share economy is the value of the network effect. Take a look at how this effect can benefit you or your consumers!
 Tomio Geron, “AirBnB and the Unstoppable Rise of the Share Economy,” Forbes Magazine, Feb 11, 2013.
 Dobbs, Richard, Geoge, Katy, et al. “Manufacturing the future: The next era of global growth and innovation.” McKinsey Global Institute, November 2012.
 “Who’s Not Buying New Cars?” Edmunds.com. 18 June 2012. Web 5 May 2013.
 Fry, Richard. Young Adults After the Recession: Fewer Homes, Fewer Cars, Less Debt. Pew Research Institute Social & Demographic Trends, February 21, 2013, http://www.pewsocialtrends.org/2013/02/21/young-adults-after-the-recession-fewer-homes-fewer-cars-less-debt/ , accessed May 1, 2013.