New research has identified that the use of advanced technologies are helping to compress the value chain, allowing value-added customised solutions to come through and lowering inefficiency.


The conclusions come from a recent study by Frost & Sullivan, Transformative Megatrends Driving Value Chain Compression.

With new entrants offering end-to-end solutions across the upstream and downstream stages, vertical integration is changing value chain dynamics. Additionally, as new technologies—augmented reality/virtual reality (AR/VR), artificial intelligence (AI), and blockchain—enable value-added, customised solutions and reduce value chain inefficiencies, the value chain is moving from the current product-centric model to consumer-centric data, systems, and services in the new compact ecosystem.

Malabika Mandal, TechVision Industry Analyst at Frost & Sullivan, said:

“Disparate generational preferences toward purchases impact the overall customer journey. Millennials prefer automated customer service, and Gen Z places a high value on personalisation, which is pushing retailers to redesign the value chain with a focus on direct customer communication.

“The growing trend of digitalization in the retail space is also encouraging businesses to explore new delivery and fulfilment models that will reduce the gestation gap between product order and delivery,” Mandal added.

“The digitalisation of customer services and the adoption of cloud computing, predictive analytics, and blockchain are opening up several opportunities for companies to shorten the value chain, mainly in the media and entertainment, insurance, automotive, and payment industries.

“Further, value chain compression offers numerous economic benefits, such as decreased capital and infrastructure costs. For example, blockchain reduces several steps around validation, tracking, clearing, and risk mitigation. It allows the companies (financial institutions) to use this technology to reduce infrastructure costs by 30%,” Mandal continued.

The shortening of the value chain with cloud computing, predictive analytics, and blockchain creates immense opportunities for market participants. The following areas have been identified for potential growth:

  • Retail analytics for end-to-end value chain optimisation: Retailers that plan to merge online and offline stores without losing their offline customers need to tailor services based on offline retail analytics.
  • Flexible fulfilment models to address the growing challenges of last-mile deliveries: Stores need to focus on operating as distribution centres and develop customized solutions that will create value for customers.
  • Digital ecosystem to offer interconnected services through a single platform: Companies should develop effective integration strategies and efficient infrastructure to support integrating cloud services, mobile apps and platforms, the Internet of Things and AI-based systems.
  • Innovative direct-to-customer (D2C) services to reduce excessive customer service costs: Companies that want to improve D2C relationships must invest in automated and innovative customer relationship services that will reduce sales cycles and offer constant support to customers between cycles.