Industrial Supply Chains, Mobile Broadband and Cloud Computing

Industry after industry, from financial services to media to communications to health care to education, is being chewed up by the rise of the internet and the spread of networked end-user devices such as smartphones, tablets and PC software. In Marc Andreessen’s words (Economist 2011):

Software is eating the world.

In the communications industry, the move to a full IP network is unleashing technical and market pressures redefining the industry’s structure. To a large extent, mobile operators are disintermediated by the device-centric or aggregator-centric ecosystems of iOS, Android, Blackberry and others, relegating them to mere connectivity providers — refer here, here and here.

The consequences of these market shifts triggered by technological innovation go beyond the communications industry itself. Opportunities arise for telecom operators to play an extended role in the economy, a role that goes beyond the traditional interpersonal communication services and access services the telcos have marketed thus far.

Nearly every retail consumption good you buy today is in some way reliant on computing and communication technology. It’s hard to find a product that doesn’t have IT inside. For example, apparel retailer Zara’s “fast fashion” system depends on a constant exchange of information throughout every part of their supply chain — from customers to store managers, from store managers to market specialists and designers, from designers to production staff, from buyers to subcontractors, from warehouse managers to distributors, and so on (see Ferdows et al. 2004). When defining a supply chain as the network of organizations that are involved, through upstream and downstream linkages, in the different processes and activities that produce value in the form of products and services delivered to the ultimate consumer (Christopher 1992), it follows that the backbone of industrial supply chains is communication. Supply chain management has the potential for instantaneous communication, presentation of data, analysis and the ability to react with speed to changing situations. The emphasis in supply chain strategy is on information to be substituted for the physical product wherever possible. For example, communication allows for coordination between supply chain stages to avoid excess inventory.

Industrial supply chain networks establish a framework for inter-organizational relationships and industry structure. That is a fascinating topic – I have discussed strategic views on the supply chain before. These inter-organizational relationships include a wide range of transactions, from simple buyer-seller trade to long-term collaboration that leads to innovation and close integration of operations. The contract is the basic unit of analysis, and the firm is considered as a nexus of internal and external contracts [1].

As technology provides an increasing ability to handle the requirements of these tasks, in terms of the capacity, speed and complexity of processing the volume of individual transactions and their accompanying data, information will play an expanding role in supply chains (Skjøtt-Larsen et al. 2007). Mobile broadband and cloud computing together with a proliferation of devices and sensors will be the catalysts of that evolution. Systems across industries are opening up via open APIs that allow data that was previously held in organizational and technology silos to be combined in different ways. For example, sensor data and other data generated in Zara’s retail outlets may be combined with demographical data provided by a government, data from a market research database, and data from consumers’ mobile devices. New information products can be created when combining and manipulating this data and information. Since data as a raw material is not consumed in the process of producing an information product, the information product supply chain is recursive. Using utility computing capacity provided by public clouds, data and information products can be reused, manipulated and aggregated ad infinitum, creating value in the process.

When the concatenation of global supply chains further accelerates, it will have consequences for industrial organization. Transaction costs will drop, supply chain markets will be more liquid, outsourcing relationships will proliferate, and globalization will continue. Forces that impact the boundaries of firms work towards a shift inwards (lower transaction costs promote outsourcing) and a shift outwards (firms that don’t exercise control over their network disappear). The nature of value creation and capture will shift massively, not just within the communications industry but across different industries. The industrial network as a resource constellation may create a platform for innovation and new development, but will also limit the freedom of individual participating firms to act independently. Digital technologies are tearing down traditional barriers between sectors, and the mobile and cloud computing platforms may be viewed as the nexus of contracts of the global economy (Thóren 2011). The industrial network is a result of strategic choices the firm made, and at the same time the firm is a result of the history of its network relationships with other firms. The strategic importance of choosing the right partnerships follows.

The enterprises that will benefit from these information products will not necessarily see them as their core business, but will look for providers who – in a trusted environment – develop and create these information products for them.

Any information technology application needs a model of computation, a model of storage and a model of communication. As applications continue to become more data intensive and latency is important, data placement and transport become critical. One solution is to pull applications apart across the boundaries of clouds. Amazon CloudFront, for example, delivers static and streaming content using a global network of edge locations. The value created by public clouds is quickly eroded if the underlying connectivity is not in the same way provided on-demand based on the needed characteristics, such as QoS, security, elasticity and availability. To convince enterprise customers to move critical parts of their operations technology into the cloud, these characteristics are of critical importance. For some applications mobility will be important, for others not. The first applications moved into the cloud were those that are the easiest to deploy. The next waves of applications will have requirements that are increasingly demanding and more difficult to satisfy.

One telecom operators’ core competence is to manage the statistical multiplexing necessary to achieve elasticity and provision virtually infinite communication capacity on demand. Building on that, telecom operators can become a core part of this emerging global information commodity chain, just like Oracle, SAP and others who implemented enterprise architectures since the 1990s. That requires that telcos move beyond being platform providers to being business enablers. They can capture value by understanding the flows of information that form the basis of the broad economy (Noldus et al 2011). This global information-driven value chain extends beyond just content delivery. Therefore, the impact of a converged communications platform will be broader than the established actors in the communications industries. The converged cloud-communications platform allows for the linking of supply chains not just within a single company, but across industrial boundaries.

If you fall in the mud puddle, check your pockets for fish. Telcos must engage and actively drive change in order to claim their place in that global information commodity chain.

Christopher M. (1992). Logistics and Supply Chain Management. Pitman Publishing London, UK

Economist (2011) Disrupting the Disrupters. The Economist, Technology Quarterly. September 3, 2011.

Ferdows K., Lewis M.A., Machuca J.A.D. (2004) Rapid-Fire Fulfillment. Harvard Business Review 82(11). November 2004

Noldus R. et al. (2011) IMS Application Developer’s Handbook. Creating and Deploying Innovative IMS Applications. Academic Press

Skjøtt-Larsen T., Schary P. B., Mikkola J. H. and Kotzab H. (2007). Managing the Global Supply Chain. Copenhagen Business School Press

Thorén M. (2011) Making Sense of the New Data Streams, an Interview with Catherine Mulligan. Ericsson Business Review #2 2011

[1] Economic theorists – e.g. Fama (1980) and Cheung (1983) – have argued that it is theoretically problematic to define the exact boundary between firms and markets. Although firms are surely legal entities, which has economic consequences (e.g. limited liability, the right to deduct input purchases from tax statements, infinite lifetime etc.), firms are nevertheless merely special kinds of market contracting. The firm is nothing but a nexus of contracts, backed up by special legal status and characterized by continuity of association among input owners.

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