From Physical Flows to Information Flows: An Evolving Concept of Supply Chain Management

A common refrain among supply chain experts is that in the future competition will be between supply chains, not firms.

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Editor’s Note: Tony Cragg is a Senior Lecturer at ESLI, a specialist graduate school of Industrial Logistics which is part of ESC Rennes School of Business, France. He is currently studying global supply chains in the French agricultural machinery sector as part of his PhD with Westminster University in the UK. His research interests include SME’s, sourcing strategies, globalization and supply chains. Tom McNamara is an Assistant Professor at the ESC Rennes School of Business, France, and a former Visiting Lecturer at the French National Military Academy at Saint-Cyr, Coëtquidan, France.

The concept of Supply Chain Management, as we now know it, came about in the 1980's in response to the disaggregation of supply and distribution channels that previously had been integrated within a single hierarchy into autonomous firms.

This process was linked to the decline in many developed economies of the multi-business / multi-industry conglomerate. Shareholders, in their never ending search for higher returns, demanded that diverse companies such as Gulf + Western and ITT sell off tangential businesses and focus on core values and competencies. General Electric and Siemens are really the last two examples that we have (in the West) of that endangered species known as the conglomerate.

Increased competition from Japan during this period also forced companies to improve quality, while at the same time integrating the concept of lean into their operations. This, in turn, went hand in hand with a growth in outsourcing, whereby firms would focus even more on internal value adding activities, while leaving the rest to others. In order to accomplish this, however, businesses needed to put in place systems that coordinated the physical flows between different partners in the same chain.

Companies such as Wal-Mart, Nike and Dell led the way in using technology to optimize the integration of materials movement between firms. Flows of information served to improve physical flows.

This is still the case today, but the difference is that increasingly, with the emergence of new firms in the service sector and advances in communications technology, information flows have become an end in themselves. With digitalization and dematerialization many of the leading companies today possess no stock (Alibaba), own no taxis (Uber) or property (Airbnb), create no content (Facebook), own no telecommunications infrastructure (Skype) or own no cinemas (Netflix).

The classic case is the music industry, where the days of album pressing plants are long gone and CD sales have dropped in the face of the downloading phenomenon. 3D printing (i.e. additive manufacturing) might one day allow us to “download” anything we want, leading to the disruption of almost all industries.

Of course the trend away from the business of materials management dates back to the 1990's and would be highlighted by Nike's CEO Phil Knight's famous comment: “There is no value in making things anymore”. But at least Nike still has suppliers whose products have to be integrated within a chain through supply chain management best practice. For today's leading companies in the digital sector, however, there are no physical products to be managed, only data to be controlled and a customer on-line experience to be constantly nurtured and nourished.

A common refrain among supply chain experts is that in the future competition will be between supply chains, not firms. And for some, the future would be now by way of virtual businesses in which the supply chain really is the firm. But what exactly does the era of dematerialization mean for Materials Management: when the priority switches away from physical flows between “lumpy-object purveyors” (Peters, 1997) to those who manage data (encryption, data protection etc.)? Changes in the nature of firms mean that the focus of Supply Chain Management is changing too. Should we be referring to Information Flow Management instead?

Of course, in many sectors information and material flows are inextricably linked, but one can wonder what the impact of the current ascendancy of digital companies will be on Supply Chain Management. Please tweet your answers, rather than sending them on a postcard.

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