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Is the Digital Supply Chain simpler than the Physical Supply Chain?

With the AppStore surpassing 10B downloads last weekend it is fair to say that the digital supply chain is booming.  By digital supply chain I am referring to the booming market for selling e-books, music, movies, software and video games online for use on a PC, tablet or mobile phone.

You may not think of digital products as having a supply chain, but there is in fact a complex sequence of activities that need to occur before media can be posted online for sale.  However, I would argue that the digital supply chain is not nearly as complex as the traditional, physical supply chain we are accustomed to.

Once an online retailer negotiates rights to sell or stream a digital product in their store, the remainder of the process is comparatively simpler than traditional models.  There is no replenishment process.  Products are stocked once and can be resold millions of times.  There is no need for retailers to issue regular purchase orders to obtain new inventory.  All the challenges with demand planning disappear.

There is no excess inventory, no obsolete inventory and no inventory carrying costs.  Many of the losses that have become a cost of doing business in the physical supply chain are non-existent in the digital world.  There are no customer returns, no damaged shipments and no shrink from employee theft.

And although the prices of digital goods may be lower than physical versions, there is a much higher probability of suppliers being paid for 100% of the goods delivered as retailers cannot assess deductions for shipping or fulfillment errors.

This is not to say that the digital supply chain does it have its share of challenges, some of which I will outline in my next post.

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