The ever-changing dynamics within the electronics supply chain has companies reassessing their role in what has become an expanding ecosystem of product and service providers. Research firm Gartner has been analyzing the shifts within supply chain departments and along the global electronics supply chain itself to understand the dynamics of growth, the emergence of new opportunities and challenges, and the balances that corporations and Chief Supply Chain Officers (CSCO) are juggling to meet growth and value goals in today’s highly competitive global marketplace.
In short, supply chain companies have to continually evaluate their value proposition with an eye toward innovation. Gartner analyst Virginia Howard’s analyses of the growth of ecosystems in high-tech corporations is grounded in her research with high tech clients as well as many years in the high-tech industry where she actively contributed to leading, global companies’ innovation strategies and market leadership.
EPSNews spoke with Howard about her current research covering both brand owner as well as outsourced partner perspectives and on an array of issues and topics facing the global supply chain. More specifically, Howard’s research provides insight to various supply chain roles, including distributors and their growing role in orchestrating the innovation ecosystems that are prevalent in the high tech industry, particularly for the systems and solutions sectors.
To understand the importance of the concept of “orchestrating” we need to step back first to recognize the shift happening within industries away from ownership models based on traditional, linear hierarchies to more collaborative/cooperative models that support partnering for solution and innovation design. Gartner research has focused on the expanding bimodality in industries (as discussed by EPS), the dynamic balance of continuous improvement coupled with innovative disruption, of strategic goals focused on growth and value.
Additionally, the competitive global market today is highly personalized and demands greater agility in solution design. To respond to the rapid demand shifts, the personalized solutions spanning hardware, digital content, services, and the “boundaryless” markets, it is no longer possible to realize real growth as a lone wolf. The global supply chain that connects people, goods, and services, elevating just-in-time (JIT) to the level of instantaneous fulfillment, has also elevated supply chain partnerships beyond contracted services or joint ventures (JV) to the emergence of federated solution partners.
At the industry level of federated/innovation ecosystem growth, the high-tech industry holds an interesting position. Given that the industry is a nexus for the development of the Internet of Things (IoT), and hence could be a catalyst for innovation and change across industries acting as a concert director, orchestrating and connecting once disparate industries and supply chains. This could be attained by exploring new, innovative device + service solutions that are linked by the expanding IoT and the growth of digital information sharing and digital business. Howard cautions, however, that high tech’s tendency toward “[…] IP centricity places them left of center with respect to orchestrating this level of change. In my opinion it’s the guys that are pursuing a non-core competency that have most to gain in orchestrating federations. As an example, Apple was not in the music business but was [investing] in putting music in everyone’s pocket… hence they invested in orchestrated the distribution of digital content.”
Forging partnerships in the high-tech ecosystem
Whether in high tech, telecommunications, entertainment, agribusiness, automotive, healthcare, transportation and livery services, or industrial manufacturing, digital business and IoT are bringing together hardware, digital content, service, and commodity providers to present highly customizable goods and services for consumers. As Howard explains, technology and the traditional high tech industry partners are helping to tip the scales in favor of federated ecosystems:
Electronic Manufacturing Service providers (EMS) are facilitating partnerships and working to support and share in these new relationships. EMS are able to address customer needs for other industries and give access [to the global electronics supply chain] as an experiment [in innovative solution design]. Technology is the connector for innovation ecosystems; technology is the key to opening innovation in all industries because technology is so ubiquitous for all industries.
Looking within the electronics or high-tech industry, it is distributors and contract manufacturers (CMs) who are the orchestrators of the growing federated ecosystems. High-tech itself is a highly outsourced-based industry and within our industry, at the crossroads of the myriad of procurement, logistics, and related supply chain management at the inter-corporate level, are the distributors. As Howard explains:
Distributors are the external partners; they are the orchestrators, the orchestration framework that brand owners are looking to. […] They are effectively acting as the Value Added Resellers [VARs] – they take and work with partners, as the orchestrator of the systems and their motivation is good, they are a service partner, their margins are low, they have the skills to work with thousands of parts and clients. There are real challenges too – distributors are at the forefront of these challenges – if a lot size is one, and the customer keeps changing what that one looks like – the concept of accountability and monetization across different ecosystems of partners is constantly changing.
[…] Distributors are trying to build the knowledge base – they are the orchestrator, managing the transaction and the monetization – when or where product-hardware becomes as a service – if it is a service, then as with monetizing software, how do we generate revenue and leasing equipment and bring it back? It will be the distributor and the external manufacturer who will make the difference for companies, even for the large brand owners.
Even agriculture is becoming a technology business, looking distributors to provide pilot testing and delivery of highly disruptive ideas such as sensors for dairy cows and crops, among many other examples. When we look at the ongoing debate as to the momentum of IoT and whether or not this is another pipedream because within our industry we may not see the leaps and bounds we expect, Howard’s research reminds us that when we pull back and look at the macro view of all industries and the global economy, we do see real disruptive change happening through IoT, through technology, and on the backbone of digital business innovation. Stay tuned for more gleanings from EPSNews recent interview with Gartner’s Virginia Howard.