Going Deep

Deep tech has been a long time coming, and it will be a golden era for the resurgence of small businesses, especially those in the supply chain, says Michael Gravier

The world has been shifting from competition based on single company dominance at a distance from its markets, the era of mass production and huge corporations, to competition based on networks of suppliers, regulators, and companies all interacting with markets in real time.

The era of mass production achieved an efficient use of resources unparalleled previously, but achieving economies of scale required huge capital investments, which required geographic centralisation. This era created point-to-point competition focused on the coastal and river cities that have dominated the past century: New York, Chicago, Guangzhou, and Hamburg are historically important examples. These cities enjoyed huge returns on investment for infrastructure investments such as electrical grids, canals, and railroads, supporting a boom in capital-intensive investments in factories, schools, and other institutions.

The world has changed. Point-to-point competition no longer suffices to support the modern era of technology that depend on networked and inter-dependent capabilities, such as the way the internet has taken the computing power of silicon chips to entirely new levels of capabilities. A huge infrastructure investment in a bridge or airport no longer guarantees a directly measurable impact on the local economy.

“Deep tech will redefine supply chain management away from a focus on managing an end-to-end process”

It is not that such investments do not matter, but rather that a “point” like a city succeeds to the extent that it interacts in the right way with other cities in a vast network, and traditional measures of economic productivity don’t capture the “network externalities”, those benefits and costs associated with the whole being greater than the sum of the parts. How could New York measure the importance of its stock exchange in the internet era without considering traders and exchanges from all around the world? How could South Korea measure its economic wealth as a result of Samsung’s globally sprawling network of factories if it only looked at one factory?

It has been said for a while now that the world has entered the era of “supply chain vs. supply chain” competition, yet that does not capture the true nature of where deep technology is taking the world. Supply chain management at one time meant that a process is being managed across multiple entities from raw materials to the end consumer. Conventional wisdom still looks at supply chain management as the logical response to the wave of outsourcing and global sourcing that has characterised the past few decades.

There are a few instances where this sort of supply chain management will continue to work well. Deep tech will redefine supply chain management away from a focus on managing an end-to-end process, which really depends on the old assumption of point-to-point competition. This era saw most supply chain leaders make their reputations by managing networks of suppliers for outsourced inputs and capabilities.

The next era will see supply chains define themselves based on capability rather than capacity. Deep tech means economies of scale become achievable with far less capital investment. Indeed, in some industries we’ve already seen small players disrupt major corporations. By “disrupt”, I mean that the nature of competition in the industry has changed. In many cases, smaller players co-exist with major players, and the competition has raised the game for all players. Take a look at what vacation apps have done to motivate major hotel chains to improve their services, and the prevalence of smartphone apps helped to increase vacationing as an industry. Of course examples like Amazon of small startups becoming giants also have occurred.

“Deep tech won’t just change the cost of achieving economies of scale. It will empower smaller companies that are particularly capable to thrive because increased visibility and smaller size will mean increased agility”

Deep tech won’t just change the cost of achieving economies of scale. It will empower smaller companies that are particularly capable to thrive because increased visibility and smaller size will mean increased agility. 

As AI, 3D printing, telecommunications, and other technologies make possible near real-time changes in both physical and intellectual products, agility will become a powerful capability. It will mean getting exactly what’s needed, when and where it’s needed.

Contrast that with the current situation of having to adapt mass-produced products and services to specific uses. The real power will be for markets to have the choice between traditional, large-scale manufacturing solutions and more customised solutions made possible by deep technology. The combining of traditional supply chains with the possibilities of the new technologies to mix and match capabilities from any player located virtually anywhere in the world will mean that supply chains will shift from managing end-to-end processes to actively mixing and matching capabilities with customers in real-time.

If this sounds like an impending era of uncertainty and upheaval, that will certainly be the case. Where competition used to focus on efficiency mostly available only to a few large players located in the right physical places, future competition will take place in a world where efficiency is made possible to a great many players in geographically dispersed regions. New supply chains will connect in real-time with many suppliers and many customers, we see early indications of what this might look like with Amazon.

Balancing risk in such an environment will mean the newfound ability to produce a wide variety of products, economies of scope, will be exercised more strategically. Additionally, demand management will become more important, with marketing working closely with supply chain managers to manage and shape customer expectations, and also likely a lot of regionalising of supply chains as grouping of customers by similar tastes and needs will become strategically important to risk management.

Supply chain management is rooted in systems thinking, specifically the consideration of all costs jointly rather than individually, as exemplified in the “beer game”. In the end, deep tech’s shift to a holistic, systems approach to managing new technologies jointly to create synergies create the perfect environment for supply chain management to evolve from a focus on jointly considering costs to jointly considering capabilities. This will be like playing the “beer game” with the end market and all the players changing their costs and capabilities during every turn of the game. It’ll be an exciting world, and the winners will be those supply chain leaders who understand supplier capabilities and customer needs best. Some will find it counter-intuitive, but deep tech will shift the basis of competition away from sunk costs in technology to human intuition. Deep tech will empower supply chain leaders to pay more attention to the people involved, whether they be creative suppliers or demanding customers, in much the same way that smartphones empowered the interconnectivity of social media by removing the need for people to focus on the technology rather than on themselves. It will be a revolutionary change.