Amazon bomb, product lifecycle and manufacturing networks

Amazon Bomb… This is how you can call Amazon’s plan to acquire Whole Foods for $13.7B. Wait a minute… how is THAT related to PLM you can ask? Fair question, readers. I was asking the same question yesterday and I think I have some answers to share with you.

Amazon is the exception to so many rules in business. Started from bookstore Amazon has grown into brutal force in retail, logistic, consumer tech, cloud and media. Amazon dominance often (and rightfully) linked to its pricing. Since early days, the lower cost structure of having no stores allowed to Amazon to offer low price to customers. Take a look on the following napkin sketch made by Jeff Bezos:

The value is derived from cycles. The one I can see a very important is low cost structure and low price. Amazon was famous by crawling competitors’ prices online and undercut them by offering lower prices. And the foundation for that is low cost strategy.

Speak to any manufacturing company in the world and unless you talk to defense and federal agencies delivering top secret projects everyone will be concerned about the price. Even Air Force One price is questioned these days. What would you say about manufacturing shops in Western Mass or contract manufacturing factories in Mexico and Shenzhen?

And manufacturing is keep changing. Time ago, the competitors for manufacturing was mostly local. With the development of internet, communication, transportation and recent promise of additive technologies, the grad schema of cost structure for manufacturing company is changing completely.

And it comes to IoT. It was a dream research concept developed by MIT researchers 20 years ago, becomes a reality today. They spoke of a future where devices and sensors would collect and share data. It took almost 10 years for PLM companies to see how product lifecycle is connected to IoT. There is a good reason why IoT is buzzword today.  Data capabilities, the decreasing cost of hardware, and the widespread adoption of the internet have made IoT possible for consumers, businesses, and large organizations across the world.

AI and Machine learning is on top of Amazon’s mind these days. Here is a passage from Bezos’ recent message to shareholder recapping 2016:

Over the past decades computers have broadly automated tasks that programmers could describe with clear rules and algorithms. Modern machine learning techniques now allow us to do the same for tasks where describing the precise rules is much harder.Machine learning drives our algorithms for demand forecasting, product search ranking, product and deals. Recommendations, merchandising placements, fraud detection, translations, and much more. Though less visible, much of the impact of machine learning will be of this type – quietly but meaningfully improving core operations.

What is my conclusion? Manufacturing companies will find themselves in the networking business similar to Amazon much earlier than they can think about. And a fundamental for a successful business is product data that can help to build cost strategy, relationships, manufacturing and supply chain plans. Existing enterprise software- PLM, ERP is current holder of product data together with tons of Excels and propriety databases. It is hard for manufacturing company to figure out what should be their strategy when the foundation of the business was last upgraded 5-10 years ago and to find analysis of product structure for costs and risks can be 2 years long IT project. To change fundamental product lifecycle management infrastructure is an opportunity for PLM companies to provide an new value and for manufacturing companies not to be Amazon-ed by low cost and more efficient competitors. Just my thoughts…

Best, Oleg

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Disclaimer: I’m co-founder and CEO of openBoM developing cloud based bill of materials and inventory management tool for manufacturing companies, hardware startups and supply chain. My opinion can be unintentionally biased.