Flexible collaboration in the supply chains is essential for effective Customer Outcome Management. While platforms can support this flexible collaboration, it is important to ensure that no single dominant player takes over the market.
To cater for customer intimacy, the manufacturing industry must replace supply chains with demand chains, which requires flexible collaboration. The fixed relationship with suppliers needs to be abandoned. Being able to respond flexibly to customer demands requires outside-in thinking; otherwise, one risks falling into the efficiency, lean, and six sigma trap. “And that's not how we will win the international battle in the Netherlands,” says Professor Paul Grefen of TU Eindhoven. Sjors Hooijen, CEO of Tech2B, notes that supply chains in the Dutch and European industry are undergoing significant changes. Digitalisation is becoming essential for all involved, including the smaller players. Platforms will play a crucial role in facilitating digital communication.
Paul Grefen originally was trained as a computer scientist. He worked in the Computer Science department at University Twente, where he earned his PhD in the early 1990s, and then spent some time as a researcher at Stanford University. Over the years, he increasingly shifted towards the intersection of IT and Industrial Engineering, which led to his appointment as a professor of Information Systems Architecture at TU/e in 2003. In the past two-and-a-half decades, he has focused on how advanced information technology can support flexible collaboration in business ecosystems. He now also works as a principal architect at Eviden Digital Transformation Consulting and has his own consulting practice G.DBA.
Flexible collaboration in value chains and supply chains is increasingly important, according to Paul Grefen. He sometimes compares the position of the Dutch and Western European industry to that of countries like China and India with the biblical story of David and Goliath. The shepherd boy David, without battle experience, defeated the giant Goliath by playing smart. Western companies cannot compete with powerhouses like China and India in terms of pricing. The ‘economy of scale’ that companies in these countries can achieve is unattainable for most Western European organisations. “And the conditions under which they can operate are not ones we would want here,” Grefen adds, referring to labour conditions and environmental practices. While we may currently still win on product quality, those countries are also getting better machines. “Competing on product quality will not win in the long run,” he concludes.
If we want to counter the pressure from those countries, we need to do things differently. Completely differently, Grefen emphasises: providing the best service to the customer, not at the lowest price but at a reasonable price and always with the best quality. This is where the opportunity lies for the Dutch industry. Paul Grefen talks about Customer Outcome Management, the ultimate form of Customer Intimacy. “Talk to the customer about what they want and deliver a product where you continue to collaborate with the customer during its use.” This goes beyond allowing the customer to configure a product. It even goes further than having the customer pay for a service, the so-called pay-per-use model. Paul Grefen gives the example of an aircraft engine built by a company like Rolls-Royce. The airline using the plane is not interested in owning the engine but in the transportation from A to B. “And only if the engine meets the specs and helps the plane arrive on time,” Grefen adds. This model is called pay-per-outcome. “You pay for the extent to which the engine helps you achieve your goals.” With such models, the European industry can defend itself against the large production clusters in Asia, which mainly rely on the principle of ‘economy of scale’.
Going this new way requires flexible collaboration at all levels; holistic thinking both inside and outside the organisation. Paul Grefen has developed the BOAT model for this. It is a framework for business, organisation, architecture, and technology. These are the four perspectives from which you shape your business: what business do you want, what organisation fits it, how do you arrange the organisation of systems, and what technology do you need? While companies are currently still stuck in value chains and supply chains, these networks need to become much more dynamic according to Paul Grefen. “You need to constantly evaluate and switch the ecosystem you're in depending on the domain you operate in. This happens far too infrequently.” As a machine builder, for example, you need to continually reassess who the best partners are to collaborate with. Only then can you respond to market dynamics due to changing customer needs, standards, and regulations. “The BOAT model helps you determine your business proposition to quickly switch between suppliers and service providers and customer profiles without it hurting.”
The Eindhoven professor believes that the Dutch manufacturing industry, with its many small but often specialised companies, is particularly suited for such a dynamic model. “If small companies collaborate smartly, they form one dynamic large player together. Like David and Goliath, the smart David wins. Because even for small companies, focusing solely on efficiency is dumb and completely pointless.” The dynamic collaborations Paul Grefen envisions can only thrive in digitised chains. “This can only happen in a digital world.” Platforms can play an important role here. Digital networks where you track the competencies of the parties involved so you can more easily choose whom to collaborate with. The platforms also facilitate digital communication in these chains. If you want to move from a supply chain model to a demand chain model, you should no longer simply place orders but have digital communication instead. He prefers vendor-neutral, ecosystem-based networks, such as Tech2B (where he is involved as a mentor), over platforms that try to take over the market. He issues a strong warning here: the manufacturing industry must prevent one platform from dominating the market, as Booking.com has taken over the travel industry. “The big profits then go to the dominant platform, and you end up out of the frying pan and into the fire.” He prefers to stay away from these large, dominant transaction-oriented platforms, although he acknowledges that both the revenue model and the value proposition of an ecosystem-based platform are complex, as it serves different types of parties. “Most customers think very simply: buy cheap and sell as much as possible.” Then things go wrong. It's about the collaborations that a platform facilitates.
Paul Grefen realises that his ideas are in part contrary to what is common in the industry. But if we continue to think from the inside out, we will lose the competition with Asian players. This issue is not only in the Netherlands but across Europe. “We still think too much in terms of first getting the inside of the company in order and then the outside. If we want to build the strength to defeat Goliath, we must collaborate. Then you need to think outside-in. You won't get there on your own.” Time is running out for this. Paul Grefen recalls a discussion in 1995 with the Dutch music industry, just as digital music was beginning to emerge. “They didn't believe the market would change. By now, most record shops have gone bankrupt.” After that, the travel world was also turned upside down in a few years. And don't think that GenAI will provide the solution, he warns. “Everyone talks about GenAI. But if you use GenAI based on global data sets, your competitor can get the same answers to the same questions, and the competitive advantage is gone.” Even more, Grefen warns: when the knowledge that distinguishes Western companies is now being poured into systems like ChatGTP, this also gives manufacturers in other parts of the world access to it.