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May 23, 2011

More Thoughts on Social Media's Impact on Supply Chains

Following the publication of two posts about the relationship between social media and the supply chain [Social Media and the Supply Chain and More on Social Media and the Supply Chain], I was contacted by Michael Koploy, an ERP Market Analyst for Software Advice, who directed me to a blog on the same subject that has been subsequently published on one of their sites. The post, written by Luciano Cunha, Global Industry Director for To-Increase, Inc., is entitled: "What Does Social Media Mean to Your Supply Chain?" [27 April 2011] Cunha begins his post by asking, "If social media is powerful enough to tighten the bonds between brands and consumers, is it powerful enough to tighten each link in your supply chain?" As I noted in the last of my posts on this subject, many analysts are skeptical that "social media is powerful enough to tighten bonds between brands and consumers." Skepticism aside, Cunha notes that "most of us are connected customers, having forged deep relationships with the brands of our choice." Social media is supposed to enhance the "connected experience." He continues, "From the perspective of the supply chain professional, the Connected Experience puts us one step closer to answering the most ubiquitous question of all: what do my customers want to buy?" Figuring out how to use social media to answer that question has not proven to be simple. Cunha continues:

"The absolute real-time nature that is inherent in social media can act as a blessing and a curse for professionals overseeing a supply chain. In one sense, access to real-time data can help supply chains run ultra lean – as proper analysis can lead to producing just enough product to meet consumer demand. For example, imagine you could predict the percentage of customers that were interested in purchasing black sneakers versus brown sneakers. This would empower you to stock your shelves with only the most necessary quantity of each style."

Cunha doesn't say which social media gives you that kind of cognitive data, he simply asserts, "With the real-time capabilities built into Enterprise Resource Planning (ERP) software – especially ERP software outfitted with Customer Relationship Management (CRM) features – retailers are able to make these types of strategic predictions." I'm not sure we're there yet. I do agree with Cunha that "it was not uncommon over this past holiday season to see retailers analyzing customer data pulled from social media." But from what I gather, most of that analysis involved listening to what customers using social media networks were saying about products or company reputation. Eric Bradlow, a professor at the University of Pennsylvania's Wharton School, believes that "listening" remains the principal value of social media sites. Point of sale data is still the best source for what people are actually buying. Cunha does admit that there are problems with relying on social media to make forecasts. He writes, "There exists two giant paradoxes built into two assumptions." Those assumptions are:

  • Real-time data is always an accurate indicator
  • A large percentage of your customers are actively interacting with your brand in social media

Does any company really believe those assumptions are true? I'd be surprised. Cunha calls the first of the paradoxes associated with these assumptions "The Real-Time Paradox." He writes:

"Think for a moment about the notion of 'real-time.' How often are the real-time decisions in sync with final purchasing choices? For instance, imagine a customer expressed interest in the aforementioned pair of black sneakers through online activity (e.g., either by 'liking' or Tweeting about them). If you aggregate this data quickly and combine it with similar insights from other social media channels, it would make sense to predict an increased demand in black sneakers. But imagine that this interest in black sneakers is based on little more than the excitement of the new product. In other words, there is a strong correlation in social interest for a new product, but not a shared correlation in buying behavior."

I agree that there is probably a correlation disconnect between what is sifted from social media sites and purchasing behavior. Cunha notes that is it one thing to act quickly to produce a pair of black sneakers and quite a different matter to produce a black automobile based solely on social media chatter. As he writes, "The risks of more expensive stops along the supply chain quickly grow." Cunha calls the other paradox related to assumptions listed above "The China Paradox." He writes:

"Earlier this year, analytics firm ForeSee Results found that social media is driving just 5% of visitors to retail websites. But across the world in China – recently named by CNBC as the world's hottest emerging retail market – an Internet population of 404 million trusts brand information from social media three times more than from an acquaintance's recommendation (per 2010 Global Web Index data, cited by Ogilvy's Andrea Fenn). In Fenn's article, 'Social Media & China: Why & How,' Fenn cites China as a fertile social ground that is already being capitalized on by brands. To succeed in this social landscape, brands must adapt to certain peculiarities of the Chinese Internet culture. Not only does this include heavy use of 'Made In China' social destinations, but also western social networks such as Twitter and Facebook. This helps to sum up what I refer to as the China Paradox. While named for this market, it is defined more by questions that can affect us as we seek to operate a lean supply chain:

  • "Is our customer data segmented appropriately across all markets to ensure one large faction is not skewing our data?
  • 'Have the peculiarities of any given culture been taken into account prior to any decisions being made?
  • 'Is Software Our Solution?
  • "Is ERP software a solution to these paradoxes?"

Over time the assumption from which this paradox is drawn (i.e., a large percentage of your customers are actively interacting with your brand in social media) may become more true (or more like the Chinese). I suspect that future generations in most developed and emerging market states will be more involved with social media than some older generations are today. Until that day arrives, social media will likely have value as a source of reputation, a good customer service opportunity, and an interactive way to reward loyal customers. It probably won't be the headwater of a demand driven supply chain. Cunha continues:

"When you integrate social media analytics into your supply chain strategy, think of the data as an accumulation of individuals instead of a singular group. Consider the demographics of your social media data, and think about how you will monetize your inferences. In doing so, you will be in a better position to see the benchmarks being established, especially as they relate to correlations between social activity and your bottom-line. For example, by spending time investigating your data, you may find that an increase in social activity pertaining to black sneakers only results in increased buying activity during fall, and primarily on the East Coast. Even more interestingly, some research has found an increase in social activity is followed by sudden spikes in buying activity three months down the line. This may indicate that a small, yet influential, group of followers buy early, and then encourage the purchasing decisions of their social networks. Analyzing data through this type of lens can help encourage a new level of strategy in our supply chain decisions."

Cunha concludes, correctly I think, that "software will never be the stand-alone savior that helps us capture the power of social media, any more than social media itself is the stand-alone savior for operating a lean supply chain." So what is the next step? He recommends, "using cultural, historical, and sales data, along with social media" when making forecasts. This combination, he argues, "holds the potential to connect brands and consumers more tightly than before. And of course, inherent in this tighter connection, will be a leaner and more profitable supply chain."

Ashly Li agrees that "directly copying/using existing social media such as Facebook and Twitter will only result in more problems (some can be very serious) than benefits." ["Do Not Copy. Be Inspired. Social Media and Supply Chain Management." Spend Radar, 7 April 2011] Does that mean she sees no value in social media for the supply chain? I'll let her answer that question:

"Rather than weighing the pros and cons of social media, I have been thinking about how we can absorb the value of social media and also fix the problems with it to make it a solution. How about we get inspired from social media and create our own SCM tool resolution? Please let me call the tool 'corporate social media' for here and for now. So, what is the biggest challenge in today's supply chain management? Higher and higher level of complexity causes lower and lower level of visibility and speed. Agreed? And why is social media so popular and necessary in the explosion of information society today? One major reason is that it allows information to flow and spread at the fastest speed ever. Does it sound like something we have been longing for in supply chain management? Duh!"

You have to admit that Li might be on to something. Are there challenges? Of course there are. Li points out, for example, that some supply chain professionals "argue that most of the time one certain step or process in the supply chain is better not seen by people who do not need or have to know." Seeing that as a challenge rather than a game stopper, Li writes, "So let's ... make rules and procedures of 'who, why and what' should know, just like other documentations in well-managed companies." Sounds a lot like attributes-bases access control (ABAC). In previous posts that have discussed sensitive information sharing using ABAC, I wrote:

"The goal of an Attribute-Based Access Control framework is to provide a community the ability to manage secure information and resource exchange while instilling confidence among information owners that only authorized users can access appropriate data and information. Role-based access control (RBAC) functions accomplish this today for stand-alone systems and enterprises but do not scale for enterprise and multi-party communities that need to share real-time data at a granular level (e.g., individual document) and/or under specific conditions. ABAC frameworks deal with both granularity and scalability challenges and are able to address dynamic situations. Because information owners retain control over access to their information, authority is inherently distributed and managed. ABAC, however, provides a means for information granting authority to determine and specify who gets access and when. As a result, while control policies are centralized, decentralized resource owners retain fine-grained control of their own information."

Li goes on to describe how she would use her "corporate social media tool" for supply chain management. It's a different twist than Cunha takes because it connects to supply chain stakeholders rather than to consumers. Both uses of social media have a place in the future of the supply chain and smart people are currently working out how best to use both social media platforms and data. I'm certain that more will be written about this topic as the challenges become more apparent and solutions to those challenges are proposed. Stay tuned.

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