Delivering Strategic Value through Supply Chain as a Service

Editor’s Note: Michael Dominy, VP Analyst, Gartner Supply Chain

The events of the past year, and in particular the pandemic, forced supply chains to rapidly change and shined a new spotlight on supply chains. Looking ahead, supply chain leaders have an opportunity to leverage this newfound attention to move beyond cost optimization and play a larger role in contributing directly to top-line revenue.

Supply chain as a service (SCaaS) represents one such opportunity for chief supply chain officers (CSCOs) and their teams to have a strategic impact on the business. SCaaS involves the packaging of existing supply chain capacity and capabilities into an offering that can be marketed and sold to companies. One of the challenges with SCaaS is that it means different things to different people. When conducting research for this year’s Supply Chain Top 25, we came across many models and identified three primary types or variants of SCaaS:

Maximize Assets and Contract Operations: By exploiting the capacity and capability of your operating assets such as warehouses, trucks or manufacturing sites, you can create an opportunity to produce, deliver or service products for another company. In addition to established external providers such as contract manufacturers, branded manufacturers and retailers are exploring opportunities to commercialize operation capabilities and capacity by contracting with other brand owners.

Business Process as a Service (BPaaS): This involves using people and technology to manage one or more supply chain function for another organization. Beyond

third-party service providers such as third-party logistics (3PL), external manufacturing services (EMS), consulting, IT services and business process outsourcing providers, an opportunity exists for branded manufacturers and retailers to explore commercial ventures associated with offering their capabilities in the market. Companies with leading supply chain business processes expertise can sell their capabilities to a business that is not a customer of their physical products. For example, a retailer could use their transportation management team and software to manage the transportation process and function for another company, such as a consumer goods manufacturer.

Enable Digital Business: This involves transforming the supply chain to support a new business model — especially those with an “as-a-service” sales and revenue model. To support these business models, the supply chain organization often needs to transform from physically moving material, parts and products to orchestrating data, people and digital flows across the value chain. Additionally, the forward or delivery-focused supply chain and aftermarket or post sale service and support processes need to be integrated and managed differently.

A timely example that showcases the digital business variant is a solution provider offering “vaccine as a service” to ensure physicians never run out of vaccines. As the doctors dispense the vaccine, an IoT-connected refrigerator records the inventory reduction and communicates the information to the solution provider. Once the inventory drops below a target level, the solution provider orders more inventory for the practice and has it delivered from the vaccine manufacturer to the physician’s office. Through the SCaaS capabilities, the solution provider relieves the physician’s office of inventory tracking and ordering, while also improving sales and fulfillment for the vaccine manufacturer.

ScaaS is Being Applied Across Industries

ScaaS is a model we see taking hold in several industries. Most notably as we conducted our research three industries stood out as having the most activity:

High tech: Players from OEMs to contract manufacturers and distributors provide one or more forms of SCaaS. Of course, contract manufacturers such as Jabil, Celestica and Flex offer manufacturing as a service within the broader SCaaS umbrella. They and other contract manufacturers also provide SCaaS in the form of sourcing and logistics. Distributors, including Avnet and Arrow, have a portfolio of SCaaS that extends into non-physical operational business processes. OEMs are looking at opportunities to leverage their supply chain expertise and as-a-service (i.e., cloud) technologies to offer supply chain business processes as a service to other brand owners. Many of the OEMs also have digital business models that are subscription or “as-a-Service” based instead of hardware centric. Cisco and Hewlett Packard Enterprise are just two of the OEMs that have shifted some of their physical products and corresponding supply chains to “as-a-Service.”

Retail: There are a variety of scenarios that retailers are developing and exploring for SCaaS. Those with private fleets see opportunities from full truckload between locations other than points in their value network to final mile fulfillment. Several are also examining ways to maximize their distribution centers by providing storage and fulfillment for others. Amazon’s Fulfillment by Amazon is an example of SCaaS in retail. Brand owners sell directly to customers, but Amazon’s fulfillment centers pick, pack, ship and provide customer service. Another example of retail SCaaS is Woolworths. It elevated and extended its supply chain capabilities to other brands through a service offering called Primary Connect.

Healthcare and life sciences: Several of the healthcare providers such as Mayo Clinic have SCaaS offerings in the sourcing and purchasing area. Manufacturers are piloting subscription business models that remove inventory tracking and ordering for healthcare providers. A good example is Johnson & Johnson’s work with Rush University Medical Center to improve inventory management of sutures. The SCaaS monitors inventory in dedicated suture storage locations at point of use in the perioperative areas. All sutures are stored in designated areas equipped with weighted-bin technology specifically designed for sutures. The weighted-bin technology automatically monitors inventory levels and provides data analytics to support target setting and enabling replenishment planning and ordering.

Supply chain as a service represents an emerging opportunity for CSCOs and their organizations to stake a strategic role in the organization. By developing existing capacity and capabilities that can be marketed and sold to manufacturers, retailers or other organizations needing to improve their supply chain, CSCOs can grow revenue and optimize costs.

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