Perspective

On the Horizon: Digital Supply Chain Transformation and Intellectual Property Battles

August 22, 2017

The digital supply chain is upon us. The confluence of the Internet of Things (IoT), advanced analytics, cloud-based data management, blockchain, and additive manufacturing (aka, 3D printing) has the power to replace products with information to allow for better customer service, including customization, with reduced inventory and infrastructure requirements. As products are replaced with information, what does that mean for intellectual property management?

The manufacturing industry should look at the entertainment industry’s experience with digitization of products during the 1990s and 2000s for some lessons learned.

For decades, the entertainment industry did not view home duplication of products as a significant threat. The technology available—video or cassette tapes—did not allow for a faithful reproduction of the original, and a bootlegger would need to build significant infrastructure to achieve the volumes needed to create real financial harm. But all of that changed once people could use their home computers to convert a compact disc into a series of MP3 files, which could be shared infinitely with no loss in sound quality. Combined with the proliferation in broadband network access, digitization of the product allowed for easy sharing. File sharing companies, Napster being perhaps the most well-known, sprang up seemingly overnight. Similar services allowed people to digitize DVD files to share video products and computer games.

Suddenly, home reproduction of the entertainment product became a real threat to the industry. By the time the industry started a coordinated effort to control file sharing through a combination of technology and legal actions, a generation of customers had built a perception over several years that the product should be free or very low cost and easy to access. The 1996 Digital Millennium Copyright Act was not only a late attempt to get the intellectual property horses back in the barn, it was also fairly ineffective.

Apple’s creation of the iTunes store in 2001 started the industry’s approach of meeting customer behaviors by offering the ability to purchase single songs through a download. But, to a large extent, the damage had been done. Industry lost control over how the product was consumed and perceived, and strong-armed legal actions against individuals alienated young customers.

So what does that mean as we look to additive manufacturing and the digitization of the supply chain? Consumer 3D printers are expensive, complicated to operate, and limited in the types of products that can be produced. While some companies have experimented with letting customers print small repair parts at home, this is not seen as a threat to the overall market. Allowing customers to print a dishwasher door latch will not slow the sales of dishwashers. But, just as with music recording technology, 3D printing technology is rapidly improving. It is not hard to see the ability to produce simple products with a home printer in the near future. That, of course, brings with it the reality that customers can share that printer file to allow anyone with a printer to reproduce the product without paying for the file.

The question is, how will you react to the digitization of your product? Will you ignore file sharing as a minor threat to your market? It is unlikely that your marketing team will tolerate those lost sales. Will you fight customers that share files? The entertainment industry found this to be a good way to lose customers. Will you embrace technological advancement and make it easier for customers to access digital products? This is the best way to discourage customers from going to illicit sources.

Consider going a few steps further and giving your customers a reason to buy the authentic product file from you. Perhaps your customers will value personalization options to make their widget unique—different colors, shape variations, customized sizing, embedding pictures and text into the product. It could be as simple as offering extended warranties for authentic products. Now is the time to start thinking about how you will take advantage of product digitization before you get taken advantage of. Leaders have an opportunity to capture customers’ imaginations and the market. Laggards risk experiencing the woes of the entertainment industry.

The digital supply chain is coming. When customers can buy your product as a digital file that can be copied, shared, and faithfully reproduced, will you be ready to give the market what it wants? Or will you be the one left asking how to get control of your product back? The time to act is now.

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