Let's start with a very basic definition of a supply chain. What exactly is a supply chain? A supply chain is, if you were to think of a chain, it's the different links in that. It starts from the very basic raw material, and it goes all the way to having the product in the hand of the customer and then even talking about the disposal of that product after the customer has used it. We're talking about the complete chain going from purchase of raw material to distribution of the product, to the recycling, or to the disposal of the product toward the end. Let's take a specific example of a supply chain for peanut butter. Peanut butter, if you think about it, where does it start? It starts with growing the peanuts. The farmer needs to purchase seeds, fertilizer. They need to have irrigation, so they need irrigation services in order to get the water for growing the peanuts. Next, the peanuts are bought maybe by a wholesaler. They could be bought directly by the company that's going to make the peanut butter. It could be many different ways in which a peanut butter manufacturer might purchase those peanuts, either directly or through a wholesaler. What is happening if there's a wholesaler is there's one more tier being added to that supply chain, one more link being added to that supply chain if you think about it that way. The peanut butter manufacturer has their own facilities. They may outsource some of it. They may do everything themselves in terms of the crushing of the peanuts, to making the peanut butter all by themselves, and then they send it out for sales. The sales, again, could be direct sales. The company could be selling peanut butter to you as a customer through online selling source, or they could be selling through a retail channel. They could also be selling it through a channel like a wholesaler that is going to purchase from them and then going to sell to retailers. There may be some consolidation there, another link, another tier being added there. Finally, you could have bulk purchases of the peanuts in terms of the catering facilities that companies have or universities have that use the peanut butter in the products that they make for you. If you think about this particular supply chain, we're talking about from a farm to a fork; getting it from the fields to the fork on your table, that would be the complete supply chain for peanut butter. Now that we have a definition of supply chain and we've seen what that means, let's see why this topic has become so important in the past four or five decades. There are two aspects to this, why the complexity has increased. One is the complexity in the demand and why that has increased in the last four or five decades. Customers today, if you think about buying things for yourself, you have a lot of choices of buying any product. You can buy it from all over the world pretty much, you don't have to worry about it coming from the country in which you're living in. Companies are able to sell across borders. Countries have relaxed any restrictions on material being passed from one place to the other, and so the market is very global. There are multiple distribution channels. You can walk into a store and try something or you can buy it online, you can get the benefit of user reports when you're buying something and you can base it on that. You don't really even have to go to a store to experience something, you can rely on other people's experience with that product in order to make that purchase. The life cycle of products has become much shorter. What is happening is, with the increasing pace of change in technology, products are being renovated every day. You're getting new products every day. You're getting newer types of cell phones, newer types of tablet computers, and that is changing much more quickly. In terms of the complexity of demand for a company's product, companies find it very hard to even forecast what's going to cannibalize what products demand, and so on and so forth. If you think about these three areas, these three areas are impacted by the changes that have happened in the next point that we're talking about here, which is information systems, has a much bigger impact. The Internet has a much bigger impact. Nowadays, the use of big data in terms of being able to forecast what is needed by customers has a huge impact on how customers sell products to you. What you can see is these three aspects are making managing demand much more complex for any supply chain, for that purpose. Looking at it from the other side, it's going to be similar from a supply side in some sense because the three things that we talked about, the Internet and data analytics and information systems are having an impact on the supply side as well. In that sense, there are some opportunities that companies have in terms of sourcing from suppliers. There's been an increase in outsourcing simply because companies are able to keep better tabs on their suppliers. They can take what would have been a risky purchasing decision in the past is no longer risky because they can have a tighter control over their suppliers in some sense because they can share real-time information and they can see what's going on and they can be flexible if there's any kind of an issue with the supply chain. There's a rise in global outsourcing for the same reason. If you think about outsourcing has increased, but offshoring has also increased. Again, it's because of things like the Internet and having information systems that can keep track of your suppliers that offshoring has increased. Of course, the time that it takes for a material to get delivered over shipping lines has not decreased that much, but that's something that companies have to still deal with. Complex networks in the sense that companies are buying and selling to the same company. For example, Apple computers or Apple iPhones could be used in cars, in airplanes, they could be having an alliance with a car manufacturer or an airline manufacturer. I'll put it on the opposite side, Apple might get into making cars themselves, so they might have a buy-sell relationship with the same company. In that sense, the complexity of the network has become much higher. The pace of change has changed from a customer's perspective, but from a producer's perspective, they have to keep an eye on technology, what is getting obsolete. Things that are changing really quickly have an impact. Nokia is a company that we no longer talk about because they were the ones that failed to keep up with the smartphone technology. That's where it makes a difference in terms of complexity of the supply chain and how companies have to incorporate that in making the long-term decisions. Finally, companies today are talking about their triple bottom line. Customers are demanding that companies report on their triple bottom line. What does that mean? Companies not only have to worry about financial performance, they also have to think about the impact that their operations are having socially and environmentally. Where are they buying their raw material from? What are the conditions in the countries from where they're buying their raw material from is having a meaningful impact on how they can sell their product. Similarly, in terms of the environment, what are they doing in terms of the waste and disposing of the waste that is coming from their facilities is something that customers are paying much more attention to. In that sense, it's adding a lot more that companies have to think about when they think about, we're going to source this from a particular supplier in a particular country, and what is that going to mean for not only our financial performance but in terms of what are we going to be able to tell our customers as to where their product is coming from.
