Disrupting the Dominant Design in Distribution
Chris Caplice, Ph.D., Executive Director, MIT Center for Transportation & Logistics, Silver Family Research Fellow, Sr. Lecturer.
Presented at the Supply Chain Forum, Friday, October 21, 2016 by the Center for Operational Excellence, Fisher College of Business, The Ohio State University
Caplice asserts that just as there is a dominant design for consumer products, so, too, is there a dominant design for distribution with an accompanying scenario for every design each being susceptible to five potentially “driving” forces for disruption that cannot be controlled or influenced, with each having indirect, ambiguous and unknown effects. By asking what trends can disrupt the dominant design for distribution in the US, Caplice suggests there are five potential disruptive driving forces.
Trend #1—Densification of Products.
“This is the process of reducing product size while maintaining or increasing its value. Examples of densification include laundry detergent (shifting from liquid to concentrate), portable computer storage (think magnetic tapes to floppy disks to USBs to microSD cards), pre-recorded music (from vinyl to 8-tracks to cassettes to CDs) and electronic goods (consider all the components within a smart phone to their 1980s equivalents!).
“Transporting product in smaller units enables companies to cut the number of containers, trucks, and rail cars used in distribution networks as well as potentially shift to other faster modes such as air.”
Trend #2—Diversification of Channels.
“Online retailers such as Amazon.com have grown rapidly over recent decades. Now, omni-channel retailing is gaining ground, where traditional retailers bundle online, mobile, and traditional channels to compete for sales. The retail store can become a DC and the DC a final delivery point.
“This shift requires retailers to rethink the way they distribute product and could dramatically change the dominant multi-tiered echelon system of today.”
Trend #3—Decentralization of Production.
“One of the primary reasons manufacturing is conducted across the globe is to achieve economies of scale; a single massive plant can reduce production costs. But, what if new manufacturing technologies and production processes dramatically diminish these economies of scale? Additive manufacturing and programmable robotics are just two examples. As the economies of scale are reduced, production can be decentralized into smaller, perhaps regionally-based manufacturing clusters that are closer to population centers.
“Why ship product half way across the world and funnel them through ports when a more customized product can be built across town?”
Trend #4—Digitization of Products.
“This is the long-predicted shift away from physical to information-based products. While this is old news for knowledge-based products such as books, music, and movies, it is now starting to happen to more traditional products. The intellectual property of the product (the design or recipe) is being bifurcated from the physical product (or the ingredients). This will not only lead to more decentralized production, but it could spawn even more dramatic supply chain changes.
“As these trends play out, there will likely be a period when many different logistics models emerge. The shape of the dominant model is unknown, but it will look very different from the one we follow today.
“Perhaps the real question is not whether this current dominant design will be disrupted, but when.”
Trend #5—Digital Freight Matching.
This is the use of “digital platforms to match a Shipper’s freight with available Carrier capacity. The goal is to better utilize motor carrier capacity by offering a convenient, digital app to connect Shippers and Carriers,” and improving, “inefficiencies in the trucking industry with an Uber-like solution,” a key component of Uber’s model being “the commodity-like nature of the ride-hailing service.”