The last chapter of Marc Levinson’s Outside the Box peeks at the future of supply chain, and it’s a bit pessimistic. It gives you the sense that a golden age of supply chain is giving way to a phase where ideas primarily drive the economy, not things.
Levinson’s points made me question whether supply chain was a sensible industry to be in. They make sense, but I suspect they also downplay the fundamental role supply chain will continue to have in our economy, and the difficult and exciting challenges still ahead.
He makes several arguments I’d like to paraphrase and respond to.
1. An aging population
In the US, fertility rates are at an all-time low. We’re having fewer kids and living about as long, so the median age is rising. Older people are less likely to buy stuff like a home, furniture and vehicles because they already have them. So maybe our society will spend less and less on physical goods.
But we shouldn’t give this too much weight. There are still millions of new people coming into the world every year, and the generational difference in spending habits isn’t that drastic. A subtle demographic change isn’t going to change the fact that US citizens spend a lot on stuff, and it’s easier than ever to do so. And other sectors like pharmaceuticals and electronics could make up for lost demand elsewhere.
2. The sharing economy
Technology has allowed fixed assets like cars and homes to be better utilized through sharing economy apps like AirBnB and Uber. Does that mean Americans will purchase fewer homes and cars?
The author doesn’t mention AirBnB, but we can’t discuss asset value in the sharing economy without mentioning it. It’s not clear that AirBnB’s existence would dissuade someone from owning a house. If anything, it helps home owners hedge against the downsides of being tethered to a house by allowing them to make trips more easily and maybe rent out their space while away.
Uber may discourage city dwellers from buying their own car, but cities already had cabs and trains. And extra mobility and the lack of a car note might just mean folks can go places and spend their money on other things.
3. Growing importance of software and services
Then again, there are plenty of things you can spend money on that aren’t physical goods. For decades, household spending has been gradually shifting to include less stuff and more services and experiences. Similarly, corporations spend more of their budgets on non-tangibles like research, development, design and elaborate tax avoidance schemes than ever. In particular, software is eating the world.
Yes, and software is eating supply chain. But that’s an opportunity for new businesses in the space, and for products to be delivered more efficiently and with more possibility than ever before.
I find it easy to get carried away with the idea that technology will not only enhance our lives but also shrink the need for a supply chain entirely. But ultimately, we still live in a world of things. There will always be tremendous challenges around making, moving and storing goods.
In airplane and auto manufacturing, the software built into the product is becoming a larger chunk of its worth. Levinson points out that 30% of a car’s value will come from its code by 2030.
But that doesn’t mean cars and planes will be commoditized. The very expectation of increased reliance on software implies manufacturers will find ways to make ever more reliable and useful products. If the switch to more software wasn’t of some genuine benefit to consumers, it wouldn’t be adopted. But it is, which is a sign these important sectors of our economy are still innovating.
There’s no need for a hard distinction between supply chain and software. The two can coexist. Software won’t eat supply chain out of existence. But it will let us build some very cool stuff.
A few scenarios
Let’s take this point to the extreme. Imagine a world where we’ve mastered nanotechnology and any item or structure can be made instantly — I’m thinking of Neal Stephenson’s The Diamond Age. There would still be practical logistical constraints to turning materials into a product at a customer’s doorstep. We’d call that supply chain.
If tech allows us to go beyond the physical world and into a compelling, ubiquitous VR experience, even that reality would likely have things to make, move and store. If we expand meaningfully into outer space, Earth logistics will seem like a walk in the park compared to the intragalactic version.
Technology just leads to newer, stranger problems.
My intention here isn’t to undercut Levinson’s predictions. I really just wanted to put my own doubts in perspective. Reasoning about the future can be maddening. But I assume people will continue needing and wanting stuff. Can you convince yourself otherwise? I can’t. 🙂