Who’s Got the Head Start in the Innovation Race?

Innovation is a leading subject for conference agendas, advanced degree curriculum and corporate priorities.   Across the various audiences there seems to be consensus that innovation is critical to compete in global as well as domestic markets.  Wall Street considers innovation an indicator of growth and profitability.  There are a number of companies that were ahead of the curve in dedicating their efforts in this direction and did not stop with product innovation.  This article will consider a few leading examples and examine the correlation between innovation and supply chain maturity.   Are they mutually exclusive or interdependent?  Can progress in one fuel progress in the other?

Innovating Icons

Apple - consider the turnaround they have achieved in the last few years with the I-Pod and I-Phones not too mention an accelerating share in the computer segment.  They courageously developed products outside of their initial market, brought the best of their design teams and marketing efforts to bear, contributing to their success.  Simultaneously their supply chains were transformed, developing a unique relationship with Foxconn that isn’t in full view for competitors and anyone to dissect and replicate. 

Puma - an athletic brand that was losing the race, adopted an open-source approach to product design and an innovative way of managing their distribution network, Puma has made profits for consecutive years after being on the verge of bankruptcy in 1994. Puma learned from its mistakes and now targets specific consumer groups with custom shoes and could be termed as the leading brand that mixes the influence of sports, lifestyle and fashion.

Hewlett Packard - Product innovation led to HP the largest global PC maker. HP also excels in supply chain innovation by pioneering methodologies like postponement as a breakthrough in efficiency for building responsive supply chains that support a high variety of product versions (SKUs or stock keeping units) and configurations. HP has also popularized the concept of product design for supply chain; leading product development teams to minimize end-to-end costs for design, production, distribution, and support instead of solely focusing on minimizing material costs.

IKEA - The IKEA Group is one of the world's largest home furnishings companies. It operates 165 stores in Europe, North America and Asia and sources products from approximately 1,600 suppliers in 55 countries. IKEA innovated its supply chain with the flat packs to maximize the efficiency to ship products to stores and as well for the customers. IKEA designers and product developers work side by side with suppliers to build low cost products. Right from the design phase, products are developed to maximize efficiencies in the later stages of the supply chain right till the delivery to the customer.

Walmart - The largest retailing company in the world has been able to reach that position because of its innovative supply chain management practices. Walmart pioneered the principle of cross-docking, where goods are unloaded from an incoming trailer and directly loaded to outgoing trailers with little or no storage in-between. Walmart is also one of the first to begin using RFID tags and also asked its suppliers to use them leading to higher efficiencies and effective inventory management.

Reaching Beyond R&D

R&D or product development departments have primarily been the center of innovation. It is true that every product company needs engineers and scientists to innovate and design new products to wow the customers. That is how companies like Apple and Puma have made their turnarounds consistently bringing new product ideas to the market. But innovation should not have limitations.

A truly innovative company will take that competency beyond R&D and extend it to all departments. Consider the IKEA and HP examples and others that have not only excelled in product innovation but also in their supply chain. Walt-mart’s cross-docking and Dell’s direct to consumer model are also great examples of operational innovation. These companies have made innovation their core competence.

Reaching Beyond the Organization

Innovation and ideas for improvement often begin with the employees that own the process. But customers and suppliers can also provide valuable insight to fuel innovation.  A close watch on customer insights can bring innovation to the even the most established products. Starbucks recently launched a website, where customers can post ideas and also vote on other people’s ideas. Cisco’s I-Prize (Innovation Prize) competition, which rewards innovative products, aims at finding ideas that could lead to funding a new business unit. Microsoft annually awards Imagine Cup to a team of students that best uses technology to solve a real-world problem. These model companies are committed to collaborating with their customers for innovative ideas which is a measure of their supply chain maturity.

Opportunity for Supply Chain innovation

Many supply chain projects reveal that most inefficiencies lie at the point of transfer of information from one department to another or from one organization to another. Companies should encourage cross-functional teams to work together and evaluate a process and generate innovative ideas resolve the issue.  These cross-functional teams should include various positions from customers and suppliers to ensure a 360 degree view of the issue and more comprehensive approach to the solution.  This collaborative  approach leads to a higher probability of adoption and that is what distinguishes invention from innovation.  Speed to success here might rely on finding like-minded companies to tackle the biggest supply chain challenges together.  The examples cited in this article have a head start but the opportunity remains for everyone, so we conclude by looking at the correlation between innovation and supply chain maturity.

Innovation Culture and Supply Chain Maturity

In his article, Robert Angel, describes three levels of performance culture: foundation, advanced and breakthrough. As an organization moves along the continuum, it achieves high performance levels.

At the foundation level, companies on focused on day-to-day transactions. They try to improve performance by developing sales skills and targeting selected customers selectively.

At the advanced level, company is integrating the functional silos so that they can work together for productivity improvements. More operating decisions are pushed to the front line.

At the breakthrough level, companies and employees have enhanced leadership capabilities; front-line supervisory skills are developed to improve employee engagement and retention; cooperative and creative business practices are developed.

Figure 1 - The Innovation Culture Continuum¹

Let us look at the five different stages in Supply Chain Maturity.

Level 1 - Functional Optimization
Level one represents an organization where functions operate independently. They have optimized their operations locally or departmentally but their objectives are misaligned from a supply chain perspective.

Level 2 – Integrated Organization
Level two describes various functions within an organization that are integrated and share information to arrive at decisions. From a supply chain perspective, it represents various nodes (supplier, manufacturer, distributor etc.) as islands of optimization.

Level 3 – Integrated Supply Chain
Level three includes key supply chain partners that share critical information. Operational benefits have been achieved to a certain degree but the supply chain remains susceptible to disruptions.

Level 4 – Collaborative Supply Chain
Level four supply chain partners provide inputs at key strategic levels. The supply chain operates collectively and minimizes the risk of sudden predictable and unforeseen disruptions. 

Level 5 – Next Generation Supply Chain
Next Generation supply chains operate at near perfection. The supply chain processes are seamless from organization to organization. The supply chain is highly adaptable and flexible to sudden changes and reacts as one organization.

Figure 2:  Supply Chain Maturity

There is similarity between a company’s supply chain maturity and where they are in the Innovation Culture Continuum. The foundation companies will find themselves in between Level 1 and 2 stage of supply chain maturity; advanced will be in between Level 3 and 4 and breakthrough companies will be on the Level 5 in various areas of Plan, Source, Make, Deliver, Return and Overall supply chain processes. So as companies are advancing their supply chain maturity by improving their processes, collaborating with their customers and suppliers, finding new and creative ways to execute their strategy, they are also advancing their innovation culture and reaching the breakthrough state.  There is a strong case that innovation and supply chain maturity are interdependent.  The most innovative products may not reach their full potential without a dynamic supply chain that anticipates and responds to the changing requirements

You can plot your company’s supply chain maturity here as a first step and then consider where you are and where you want to be on the innovation continuum.

1. "Putting an Innovation Culture Into Practice", Robert Angel, Ivey Business Journal, Jan-Feb 2006