10 years ago I was watching TV and saw a commercial for a dish soap that had a website link at the bottom of the ad. I thought, “Why the heck would I go to their website to look at soap? Nuts.” It seemed bizarre. Now, weblinks in commercials are a mainstay. In fact, demand management and promotions planning is directly linked with this strategy. This moment has stuck with me because it was a major signal… a giant red flag. Product marketing and distribution were changing to a more integrated approach and, today, another major red flag grabbed my attention. As I read a short story on DigiTimes “Server brands reportedly put pressure on ODMs to not acept orders directly from end clients“, it was one of the most clear examples of the impacts of “solutions” on supply chain that I have seen. Essentially, DigiTimes states that certain social network providers are going directly to ODMs in building out data centers and bypassing major brand OEMs.
I introduced the concept of an Original Solutions Orchestrator (OSO) in a recent blog posting “You HAVEN’T heard of an OSO?! Let’s talk about some solutions.“ In that blog, I discuss how the push to solutions is completely shaking up competition in device manufacturing, with High Tech being one of the most largely impacted industries. A key finding in our OSO research is that those who control the data will control the solutions.
So to see that social networking leaders, as value-based solutions providers, may be cutting out pieces of the traditional electronics value chain is not too surprising. They are demonstrating that customer value is shifting from hardware feature sets to application and content based offerings. The tablet business a prime example of this shift. Less than a month ago we saw one major tablet provider receive some criticism for pricing the hardware below cost. This move was one of the most clear examples of High Tech hardware moving to the “razor blade model.”
A four pack of razor blades may cost you over $20 at a retailer, whereas the razors themselves are often half that price. Some companies even just give the razors away. The hope is that consumers get locked on a particular razor and then continue to buy blades on an ongoing basis. It’s commonly known as the “razor blade model” — give away the razors and make up the margin on continuing revenue streams for blade purchases.
As device hardware continues to commoditize, software, content and applications are driving more value from the customer’s perspective. In certain product categories, the hardware is simply a software delivery mechanism. This value shift is changing where and when revenue and margin will be realized. The aftermarket may very soon become the primary market. As this evolution continues, it is not unlikely that hardware may just be a manufacturer’s means to enable an ongoing software-based revenue stream. These trends all signal an important message for supply chain organizations: Software equals value. Supply chain management for devices is changing, and we all must understand the emerging capabilities in software, content and digital distribution.
So are the OEMs getting that message? Seems like it. These OEMs themselves are developing solutions offerings. When was the last time you saw a PC commercial that didn’t directly mention “solutions”? Most start with that and barely touch on the associated hardware. All of this churn across the High Tech ecosystem points to important points for supply chain to consider:
- How will physical distribution networks change in the next five years? It is likely that the hardware / software value shift will continue (if not accelerate) toward software. Supply chain will decouple hardware and software delivery and organizations will be tasked to manage both the physical and digital supply chains. We will see postponement re-emerge as a primary competitive weapon, but this new era postponement will focus on software as opposed to late-stage assembly.
- What is the role of the digital supply chain? Software, content and application delivery has been managed largely with minimal supply chain interaction. Leading organizations are developing digital supply chain capabilities and applying concepts from physical supply chain management to mature these groups. New capabilities like embedded software (see: Embedded Software Is an Enabler of Demand-Driven Supply Chain Orchestration) are also vastly changing how, where and when software can be distributed. Supply chain has a key role to play in enabling embedded software capabilities.
- Who are the OSOs? In short, it’s not yet clear and the opportunity is wide-open. As we discuss in “Original Solution Orchestrator, Part 1: Integrating Physical, Digital and Solution Networks to Transform From an OEM to an OSO“, the OSO is a manufacturer, service provider or other corporate entity that connects data from the extended customer value cycle with the upstream supply chain to create complete solution offerings. An OSO comprehensively solves unique customer issues with the right mix of hardware, software and services across the extended customer value cycle. We expect to see OEMs, software development orgs and even major consultancies take on this role in the pursuit of some high, recurring revenues in aftermarket services and solutions.
- What is supply chain’s role in OSO? Currently, there’s no clear owner for designing, integrating and managing data as part of solution management. We believe supply chain, as an end-to-end enabler of corporate strategy, has a vital role in connecting physical, digital and solution networks. The leaders will use supply chain to exploit the opportunities in solution management by using concepts such as lean, network design, change management and collaboration across supply chain, IT, sales, product, and finance organizations to enable an OSO business model.
So what do you think? A year from now, will this story be an isolated example of a change to High Tech markets or just the first in a series of ecosystem evolution?
Category: Demand Sensing and Shaping Digital Supply Chain Original Solutions Orchestrator OSO Solutions Provider Tags: Digital Supply Chain, High Tech, Original Solutions Orchestrator, OSO, Supply Chain