This is the eleventh in a planned series of exclusive columns former Cisco Executive Chairman and CEO John Chambers is producing for The Innovator. Chambers, who is widely considered one of the best performing U.S. CEOs during his 25+ year tenure at Cisco, helped grow the company from $70 million when he joined in 1991, to $1.2 billion when he became CEO in 1995, to $47 billion when he stepped down as CEO in 2015. As Executive Chairman, a position Chambers held until December 2017, he led the Board of Directors and provided counsel to the CEO and leadership team on strategy, digital transformation and strategic partnerships, Chambers oversaw 180 mergers and acquisitions during his tenure at Cisco and managed the company through multiple economic downturns He currently runs JC2 Ventures as CEO and serves as an advisor to heads of state, including France’s Emmanuel Macron and India’s Narendra Modi. In this column Chambers talks about the future of supply chains.
Companies worldwide are being confronted with shortages and challenges in their global supply chains. This is not surprising given that there hasn’t been a next-generation technology model for supply chains in decades. Rather, what we have today is a static model that is not capable of using the Internet of Things and digitization. Right now, the model can only tell you: “Here is where your product is; it’s on a ship.” We can’t pinpoint specifics in real-time beyond that.
This lack of visibility into logistics, combined with ever-increasing customer demand can wreak havoc for business operations. I saw this firsthand when I was running Cisco. We fell further and further behind in keeping up with the demand of our customers in 1998, 1999, and 2000. It ended up taking me almost 18 months of ordering everything we could, and then by the time we finally caught up, we walked right into the dot-com bubble explosion of 2001, which resulted in me writing off $2 billion of inventory.
Every Company and Industry Will Be Digital
Thankfully, new technologies are coming to the rescue for today’s businesses. Take for instance one of my current portfolio companies, Cloudleaf, an IoT asset tracking company that is helping move two-thirds of the COVID-19 vaccines across the U.S. Cloudleaf is capable of tracking products interactively – businesses not only get a real-time picture, but a real-time picture of products in motion, so that when a problem arises, it can be dealt with immediately.
As digitalization continues to accelerate at an unprecedented pace, you can expect to see more next-generation approaches to age-old problems. Another great example of this are Internet of Things sensors. IoT sensors will be everywhere; they will be attached to everything from semiconductors and vaccines to hamburgers and vegetables, from individual products to containers. Container companies will be able to tell customers, “If you use my containers, you will be able to track where your order is, know what condition it is in, and know precisely when it will arrive,” which is going to dramatically accelerate the efficiency, productivity, and trust in supply chains.
At the same time, AI will help companies do a better job anticipating demand. This is particularly important in the semiconductor sector. Building new plants costs tens of billions of dollars, so it is necessary to project demand not just in the six months ahead, but multiple years out. The issues around semiconductors are complex because demand capacity is combined with other issues, such as the economic strength of nations, national security, and privacy. Countries are rethinking how they can make their supply chains secure and whether they can allow the pipeline to come from China or from very close allies. There will need to be a balance between getting what you need, when you need it, and guaranteed security.
A New Model
Moving forward, there will also be a new architectural model, similar to what we saw with the Internet. When Cisco started there were probably 100 competitors who had good technology. What differentiated the Four Horsemen — the name investors used for Cisco, Dell, Intel and Microsoft in the mid-1990s because of our market dominance — was that we took the technology and we focused on outcomes as well as integrating various architectures, while everyone else just built products.
So, my advice to supply chain technology companies is to figure out your architectural approach. The same holds true for the clients – the big traditional companies – who are trying to digitalize their supply chains. They, too, really need to look at it from an architectural point of view. It’s not just about plugging one thing into one place, but really thinking about ways we can disrupt the entire supply chain. If all you’re doing is automating what you’ve already got, you’re going to be disappointed in the productivity increase, and any progress made will remain within the silo of your organization.
Why It Makes Sense to Collaborate With Startups
I used to think the word resiliency and agility were marketing slogans. Boy was I wrong. In order to survive in the Digital Age, companies must truly embody these two qualities and be enabled by digital technologies such as the latest semiconductors, AI, and next-generation supply chain software. You’ve also got to think about the architecture of your company as a digital organization and understand the implications that come with that. Finally, you’ve got to understand your core capabilities. If it is core to you, you better have a sustainable differentiation compared to the other options. This is where startups play such a key role.
Startups are good at planning five and 10 years into the future – this is what I coach my own companies to do – whereas companies and even nations very rarely are able to do so. When you see these transitions occur, that’s when economic power and new companies are created: Existing firms partner with the smaller companies or acquire them and the next-generation versions of a Microsoft or a Cisco are launched.
Supply chain and semiconductors will be very similar, in my opinion. Over the last 20 years, the economic power of semiconductors was not fully understood, nor did it have any impact. Now, we are realizing that those who have world class software, combined with world class semiconductor capabilities, will be the winners in the future. Even if we’re very generous to established players and say only 50% of the solutions will come from new startups — if you are a country or a company and you don’t have access to the new startups creating the next semiconductor architecture companies, you’ve got a problem, because your rivals will.
Don’t let yourself be outperformed. Take an architectural approach or find a startup that is taking one and be the architect of your future supply chain.