The highest ROI set of benefits from adopting supply chain platforms and ensuing digitization is creating digital global sourcing networks – in other words, digital identifiers for all factories and suppliers and analog transactions converted to digital ledgers.
As a customer of digital supply chain platforms, you likely are/will enjoy the benefits of connecting and empowering your suppliers and factories with digital identities. Additionally, you probably enjoy the power of marketplaces that connect your product needs to an expanded network of digital factories that have flexible capacity. Examples here include Xometry for mechanical parts, MacroFab for electronics, the Suuchi Global Sourcing Network for fashion.
A digital global sourcing network powers a growing or enterprise-size firm with many benefits:
1. Cost, speed, and quality arbitrage
The higher the number of suppliers and factories connected, the better the arbitrage across the critical parameters of cost, speed, and quality. Sourcing networks, digital platforms, or marketplaces charge a transaction rate alternately called a net take rate or platform fee. But even after paying this facilitation fee, a customer still comes out with higher margins than before. The arbitrage benefits grow exponentially with more suppliers and customers added to these sourcing networks. More customers mean higher demand, and higher demand means onboarding more factories with more product variety across the board, higher quality per product sourced, and better negotiation ability per supplier. This flywheel is explained by the Metcalfe Law, more colloquially referred to as the network effect.
2. Flexibility and ability to execute on a reliable multi-sourcing strategy
Every operations or sourcing team within a company knows the importance of flexibility and developing a multi-sourcing strategy. Easier said than done. It takes the investment of money and time to set up new relationships in new countries, and the completion of the first few transactions with new vendors comes with high risk. Unfortunately, developing a new relationship is not the only heavy lift. Finding new vendors is the first stage to navigate. With the analog world being so fragmented and communication primarily happening on phone and email, the proposition of finding and working with new vendors becomes a risky venture. A digital platform eliminates this risk of finding and forging relationships. By providing digital access to a network of suppliers, compliance and risk factors are monitored online and in real-time. A digital trace can manage and monitor a growing list of suppliers across product categories, geographies, supplier profiles, and sizes – the cost of maintaining this information does not grow as the network expands. Simultaneously, your company can reduce the team’s overhead and size required to source and manage suppliers.
3. Utilize unused factory capacity, thereby further lowering costs and improving margins
From research and GRID data, an average of 60% of factories’ capacity is unused. A digital network can better allocate demand to available capacity and supply. The longer a supplier stays on the platform, the more the supplier’s data and incoming demand. Demand forecasts can help factories and suppliers better plan shifts and staff requirements. All this smart data and algorithmic mapping of demand to supply in real-time allow factories to reduce overhead and increase profitability. These efficiency gains add to the flywheel’s power, and gains are transferred to the customer in lowered costs and improved margins.
4. Supply chain data and analytics
The most significant benefit of a digital global sourcing network is the data collected and the actionable analytics insights generated on top of the data bed: the more the data, the smarter and more efficient the assignments to suppliers. The applications and benefits of the gathered data and analytics are limitless. It gets easier to diversify and execute a multi-sourcing strategy, speed to market gets better, costs lowered, new products are launched to market faster, overhead reduces, etc.
For more on supply chain technology, platforms, and product suites, please read my other blogs on Supply Chain Sunday and the Suuchi site.