From problem to profit. What’s driving supply chain innovation?

There are still some CEOs who see the supply chain as a pure cost problem. Calls for savings of a million Euros without “screwing things up” are commonplace. But a new era of convergent thinking, and a whole host of technological advances are among the trends that are moving the supply chain from problem child to profit generator.

By Alan Waller

The phrase "supply chain" has only been with us for about 20 years, so it’s not surprising people are waking up slowly to the value add a well-run supply chain can bring to any business. While less enlightened CEOs may ask supply chain managers to report to non value-adding functions such as finance or customer service, the more enlightened ones will rely on the supply chain director to see new market opportunities.

Supply chain directors should therefore be a key element in strategy, looking at issues like how best to work with marketing & sales and other value adding functions to transform a business.

Nothing works without top-level support

There is a large correlation between high level board involvement and the success of an innovative strategic concept. If a new strategy is not well thought through across the business and its partners there is less than 50% chance of it succeeding. 3% will be rousing successes while 7% will be abandoned completely, However, once there is a top level support and wide ownership, the probability for success is raised to 80-90%.

Change for any idea starts on day one of the strategy. If people take ownership from the beginning then there will be no resistance when it’s being implemented. So the key requirement is to get top level ownership and management of the creative process from beginning to end.

Key trend 1. Alignment of board strategy

According to Michael Porter, three key processes make up the hierarchy of a successful company, namely:

  1. Innovation through R&D
  2. Generating demand through sales and marketing
  3. Satisfying that demand through the supply chain

In a successful company everyone should be involved in innovation, and these three interrelated processes should be embraced jointly. Companies should not constrain innovation to R&D or product development. They should be open to ideas from both inside and outside their own enterprise. One easy way to do this is by networking with other businesses and looking at their best practices. These personal networks are often where innovation originates.

Marks & Spencer is quoted as an example of a company that didn’t network sufficiently with other businesses and consequently never learned from other people. Creativity became stifled within their organisation and they paid the price.

Funnel your ideas

The creative process is a wide funnel. In the beginning of the process we should never rule anything out, including things that may at first look ridiculous. The funnel should be as wide as possible, and the people who funnel it should be unbiased.

What is needed is an open, cross functional process led by the CEO to make ideas sound, proactive and workable.

The supply chain function should of course be part of that process. We should then move from divergent thinking to convergent thinking with the right people involved from product concept to implementation, and product phase-out.

A classic example of where this fails is a company where product management and sales knew all about a new product launch and did not inform the supply chain manager. The resulting launch was of course a fiasco.

Key trend 2. Omnichannel retailing

Today’s hyper-connected consumers expect retailers to engage them across all sorts of touch points: from web to social media to i-beacons in-store. Companies that do not capitalise on omnichannel retailing will probably go out of business sooner rather than later.

But omnichannel retailing brings its own set of challenges for logistics. People touch and feel things in-store and buy them online. Then they decide to take them back to a third outlet, all of which must be covered by guarantees. It remains to be seen how logistics managers will handle this in the most cost-efficient ways for their companies, while building deeper relationships, loyalty and trust among customers.

Key trend 3. Big data finally becomes big

Big Data and Cloud-based systems have been the hype of the last few years, with advances in technology giving us petabytes of data on all types of instances. But the tools to do anything really useful with all that data haven’t fully materialised yet. However, it won’t be too long before we finally have the ability to make truly actionable insights from the data we harvest.

Key trend 4. Substituting people with robots

We’ve already seen the effects of automation on the supply chain, especially in regard to warehouse management. But we have a lot to catch up on. The Amazon processing warehouse of 2014 is reminiscent of the Ford production line of 1914. There is still a lot of manpower involved, especially in areas such as picking, but advances in automation, and particularly the use of robots will render enormous gains in the supply chain going forward.

Another interesting technology is 3D printing. If anyone thinks this won’t make a profound effect on them, they’re in for a shock. 3D printing has in many businesses the potential to bring production closer to the end user reducing current supply chain restrictions. The ability to produce small batches on demand will reduce or negate inventories and stock piling. Similarly, shipping spare parts and products from one part of the world to the other could potentially become obsolete, as they could be printed on site.

Finally, there is the issue of drones, which could well become part of the delivery mix, reducing the need for manual transport and making delivery delays because of traffic jams a thing of the past. Both Amazon with their Prime Air trials and DHL with their parcelcopter are currently trialling drones.

The supply chain is entering an exciting period of change and it will be interesting where the journey takes us. But wherever it is, the people who are first to use these technologies in a disruptive way will come out on top. As for those who dont…

2014-12-10

Alan Waller

Alan Waller

Alan Waller OBE is Vice President of Supply Chain Innovation at Solving Efeso , and Visiting Professor of International Supply Chain Management at Cranfield School of Management.

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