The most powerful agent in the supply chain?

Universal supply chain model

There is a lot of talk now about how the customer is the most important person in the supply chain.  This is true, but this was not always the case.  For much of history the manufacturer was the most important agent in the supply chain.  After all if there are no goods to supply, there is no supply chain and the customer must make do without.

Through the first half of the 20th century this was the case as manufacturing capacity was developing and demand outstripped supply.  Once TV advertising kicked in through the second half of the century demand was accelerated and manufacturing flourished.  Late in the century manufacturing became more efficient and more globalised as it was sent to low labour cost countries.

Now we have a glut of capacity and product choice because manufacturing is relatively easy and abundant.  Short of Armageddon this situation is unlikely to change, and will probably gain momentum as new technology changes manufacturing in ways we now only dream of.  Unfortunately for manufacturers their trade has been commoditised and what counts now is the ability to originate and develop a unique product and brand.  It no longer even matters whether you manufacture your own products.  You simply need to ensure that your product is supplied to the customer in the way that they expect.  Your customers no longer care about your supply chain, only that their product is delivered on time and that it works.

Uniqueness and design (plus good marketing) is what will bring in the customers like moths to an lamp on a moonless night.  Your raving fans are nearly compelled to buy and will drag along a crowd with them. So much for customer power.  Apple is of course the supreme example at the moment but there are many other brand originators with massive market power in their particular niche (Chanel, Porsche, Rolex, Sony, Harley Davidson etc.).

The brand originators define, create and dominate markets.  This is what makes them powerful.  They are followed by branded imitators and then by generic products at lower price points.  If the imitator creates their own unique brand and product they may also do very well if the market can be grown.  After all there is plenty of room for more than one car or computer manufacturer.  Android has done very well against Apple.  

Unfortunately the generic product, however good, is only a copy of the original.  The generic says - "buy me, I'm just like the leading products only cheaper".  This strategy works well but is the start of a race to the bottom with ever lower margins.  

Over time almost everything becomes a commodity, even the branded products.  Once your product or service is a commodity it gets very hard to earn a living.  If you work for a company who is a brand originator (the bright yellow box in my diagram) then good for you.  If you are anywhere else in the supply chain then expect your business to be under constant financial pressure and to be managed accordingly.

There is lots more to explore in the modern supply chain.  Tomorrow I will look at how generic and contract manufacturing has made everyone a manufacturer.

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