The Fourth Industrial Revolution: Why the Cost Tradeoff Mentality Will Change

We are entering the Fourth Industrial Revolution and many wonder what will supply chain management look like in the next era characterized by high technology, a demand economy, and the increasingly blurred lines between reality and cyber-space?

In order for supply chain managers to succeed in the Fourth Industrial Revolution they will need to shift the focus from cost tradeoffs between centralized assets such as inventory and production capacity and move it to applying individual resources to individual customers, and to do it in collaboration with other locally-available suppliers in order to exactly match customer needs.

The Fourth Industrial Revolution breaks the mold from the previous three. In each of the first three revolutions, the most important competitive strategy was to accumulate capital in several key forms but the Fourth Revolution blurs the lines between the technical world and reality.

Thanks to the development of several key general-purpose technologies, capital accumulation is no longer necessary to achieve economies of scale and to serve geographically dispersed markets. First among these technologies is high volume 3D printing, which means economies of scale are the same for a large order as for an order of one.

Second are automated channels of distribution, such as the automated drones being developed by Amazon and self-driving trucks recently tested in the Netherlands.

Third is the “Internet of Things,” particularly among industry, which will enable our artificial intelligence-driven “Big Data” analytics to have an accurate awareness of the state of the real world, and to decide how to respond.

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