Innovations require effective planning of supply chains

Roger OakdenGlobal Logistics, Supply Chains & Supply Networks

Innovation in networks

Innovation and Continuous Improvement.

Media articles and programmes that are focused on innovative technologies for business make much of the technical aspects, sometimes address the social (i.e employment) aspects, but rarely discuss the required integrated systems challenges.

We have been there before in the 1980’s, with the advent of innovations associated with computer integrated manufacturing (CIM). It went through the first three stages of the ‘hype cycle’, that is: the technology announcement; the peak of inflated expectations and the trough of disillusionment, as costs increased and implementations failed. The concept then sank out of sight.

Innovation is to “…make changes by introducing something new” It is not just new products and materials, but can also be applied to technologies, techniques and processes. Three types of innovation were identified by Prof. Clayton Christensen in a 2014 HBR article as:

  1. Efficiency innovations: they help companies make and sell mature, established products or services to the same customers at lower prices. They
    1. raise productivity, which is essential for maintaining competitiveness, but has the painful side effect of eliminating jobs
    2. free up capital for more-productive uses
  2. Performance-improving innovations replace old products with new and better performing models, hopefully at similar or lower prices
  3. Market-creating innovations: create a new market or class of consumer. Market-creating innovations have two critical ingredients:
    1. An enabling technology that drives down costs as volume grows
    2. A new business model, allowing the innovator to reach people who have not previously been customers (often because they couldn’t afford the original product or service)

Innovation must not be confused with Continuous Improvement – that is, doing the same things better. This is the more common factor in organisations and is a requirement of a managers job. Continuous Improvement is associated with Productivity – ‘the rate at which goods and services are produced in relation to the input of labour, time and money’. So, Productivity is improving what you are doing and Innovation is achieving an objective in a new way. Unfortunately, Innovation is the term often used in business and the media to cover any improvement.

The role of supply chains (‘to provide Availability of products and services’) means that professionals in the discipline will be more involved with the selection and implementation of Efficiency innovations. Examples of innovative products in supply chains have been the increasing size and speed of transport units (ships, aircraft, trains and trucks) and the use of containers. Examples of earlier innovative techniques are Materials Requirements Planning (MRP) and the Just in Time (JIT) approach to the elimination of waste, which influenced lean and agile thinking. Examples of earlier innovative technologies are barcodes and RFID.

Innovation and its challenges

The innovative technologies that will become more common in factories, warehouses and offices can only be part of an organisation’s integrated system if they are supported by effective (and innovative?) planning techniques and processes. The statement “We behave how we are measured” indicates that supply chain metrics should be the driver for Efficiency Innovation. Unfortunately, many businesses do not have supply chain metrics such as:

  • the probability of delivery in full, on time, with accuracy (DIFOTA),
  • the cost to serve customers,
  • inventory and capacity buffers required to counter Uncertainty (risks); comprising complexity, variability and constraints

Sales & Operations Planning (S&OP) is part of the strategic approach for a business and requires an ‘action’ approach to the outcomes of the planning process. S&OP is therefore about attitudes and the approach of senior executives to integrated planning. Capable senior executives can quickly understood the fundamentals of S&OP, become an essential part of the process and require their executive team to be equally competent. Well-designed IT applications will assist the process, but only when those taking part understand the process.

To mount a convincing case to senior management for innovative supply chains, the planning and measurement regime must be in place. However, some of the challenges are:

  • Business undergraduate and post graduate MBA programs rarely incorporate supply chains as a core part of the curriculum, so most executives lack an understanding of supply networks and their processes. Without an understanding of supply networks as a complex adaptive system, executives cannot adequately manage the non-linearity of core and extended supply chains
  • Which part of the supply chains is most likely drive innovation in logistics technologies – your organisation, customers, suppliers or Logistics Service Providers (LSPs)? Due to greater reliance on LSPs, is the use of technologies a differentiation for contracting with LSPs and if so, who is responsible for innovation within the LSPs?
  • Core and extended supply chain processes are from the supplier’s supplier through your organisation to the customer’s customer (and reverse), which is a broader definition than most organisations recognise. Without Procurement, Operations Planning and Logistics reporting within a Supply Chain group, alignment of cross-function teams (at least between supply chains, marketing & sales and finance & accounting) is near to impossible
  • Forecasting was originally developed to cater for longer term changes to markets. However, due to the marketing requirement to cater for smaller market segments, with a long tail in demands, the volatility of demand and supply is increasing. This affects the ability for forecasts to drive replenishment – different approaches are required

The media has a tendency to only report the positives of innovation (until disasters occur), but little on the integration of new technologies, techniques and processes, because that is boring. For supply chain professionals it is far from boring and the integration will be critical for the technologies to  complete the last stages of the hype cycle. These are: the slope of enlightenment as leading businesses persevere with implementing the technologies and the plateau of productivity, when the technologies (and their support processes) become stable and benefits are accepted within the wider community.

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About the Author

Roger Oakden

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With my background as a practitioner, consultant and educator, I am uniquely qualified to provide practical learning in supply chains and logistics. I have co-authored a book on these subjects, published by McGraw-Hill. As the program Manager at RMIT University in Melbourne, Australia, I developed and presented the largest supply chain post-graduate program in the Asia Pacific region, with centres in Melbourne, Singapore and Hong Kong. Read More...