Connectivity is currently one of the strongest trends in supply chain applications. But why are there so many networks out there? The challenge seems to be the seemingly contradictory desire to have all the benefits of a networked and connected business without having to pay the price for a propriety network big enough to break the cost/benefit barrier. An impossible equation to solve? Andreas Grundsell, VP Pagero TMS, doesn’t think so and explains why in this article.

Networking done right

One of the strongest trends in SC (Supply Chain) applications right now is connectivity. Despite this, everyone seems to be building their own propriety network – which begs the question why, when there are so many existing networks out there?

Recently, an employee came to me and said, “I want to join a business networking group again – it’s been a while and I feel it’s equally important for me and the company. Would you be willing to support this?”. “Of course,” I responded, left it at that and got on with what I was doing.

That same evening, I pondered the request. Networking is of course key to success and growth, for the individual and the company alike. Networking enables us to match supply and demand at low transaction costs by the efficient sharing of information. We help both ourselves and our companies to grow and prosper. Still, there was something nagging at the back of my mind – but what?

“Networking is of course key to success and growth, for the individual and the company alike.”

Right concept but wrong execution?

Maybe it was the execution of many current networks, rather than the concept of networks themselves, that was bugging me? For one thing, today’s networks – especially business networks – are almost always propriety. A propriety network only reaches shared value once it’s big enough and, in reality, very few pull this off.

When scrolling through a vlog of Fredrik Svedberg, CEO of LogTrade and a Pagero partner, I was directed towards the work of Scott Galloway. Galloway argues that there are precisely four networks that have actually grown big enough to tip the balance so that the value of participation outweighs the cost. He vividly argues – and probably not without merit, I must admit – that this low figure of four is an issue in itself and that we are paying a heavy toll for it.

The difficulties in reaching critical mass in any network should not be underestimated. It requires plenty of capital, stamina and a USP. Most propriety network operators seem convinced that their unique execution will be the key to their success in overcoming the final hurdle to join the lucky few who harvest the benefits of an oligopoly or – even better – the holy grail of a monopoly.

Besides the fact that I’m a strong advocate of competition, I believe the odds are too highly stacked against such a strategy for most networks – and there are a bunch of belly-ups lying in the ditch alongside the road to prove that point.

Networks creating a paradigm shift?

Many argue that the poor execution of one-to-one networks is leading us to a paradigm shift away from legacy models. Perhaps. However, you could also argue that they are more likely to be complementary – indications suggest that Uber’s perceived annihilation of the traditional taxi market is actually an expansion of the market itself. Viewed through the B2B lens, a company with a physical SC acting as a global logistics buyer is not likely to give up control of its logistics network simply because of a new networked app in a shared economy.

Accordingly, rather than a paradigm shift, perhaps the market is finally moving towards a better way of networking. But what would that look like?

“Perhaps the market is finally moving towards a better way of networking. But what would that look like?”

A better way to network

One proposal for better SC networking is to build alliances. For complementary propriety networks – say local or regional transportation service network platforms – partnering with local and/or regional retailers could create synergies and mutual benefits, without middlemen like Amazon.

However, how likely are these networks to connect voluntarily when in direct competition? Especially as these types of networks typically don’t have roaming agreements, or even the technical capabilities for such agreements.

In this context, the alliance model might be one possible solution, provided that each cluster of networks can work independently and relatively unthreatened in their respective market. Alas, that may prove difficult in a globalised economy.

So, the challenge seems to be concentrated to the seemingly contradictory desire to have all the benefits of a networked and connected business without having to pay the price for a propriety network big enough to break the cost/benefit barrier while maintaining the flexibility to benefit from a controlled propriety infrastructure and an open network, when the latter two are not in conflict.

An impossible equation to solve? Perhaps, but I don’t think so. Start looking around you – there are existing networks that can be complemented with services that can cater for most SC networking needs while still offering the option to retain your on-premise application or propriety network. All through a single connection to a global network – giving you access to both and a manageable, realistic transition from your legacy systems and services to a truly global network of networks that is open to all.

…now what?

So, where did I end up with my employee’s request? Well, I suggested he should go to the business networking meetings, but not settle at that. I suggested he set up a LinkedIn group of all the participants in that group and then add me to the group – allowing us to tap into the benefits of local business networking while simultaneously tapping into the value of an existing, open network. And, while he’s at it, see if we could connect the LinkedIn group with Xing – because why limit the reach of our networks when we don’t limit the reach of our business?

Next time your logistics VP requests to tap into an SC business network, consider asking yourself how you can leverage the value of every network, not just the one.