Lessons from the Lemonade Stand

A lesson I learned early in life, during the establishment of my very first enterprise, a corner lemonade stand was that there comes a time when even the juiciest lemon is squeezed dry; not a drop left.  For many companies that is exactly where they are with their supply chain – or least where they think they are!  They have analyzed each of the processes squeezing out increased efficiencies, sought the right enabling software tools and integrated them successfully, created an organization built around these fundamental processes and even established scorecards to monitor and measure their performance.  They have attempted to optimize their supply chain to ensure an increased and sustainable level of efficiency from demand creation to fulfilment.  But, have they been innovative?  Have they developed an innovative supply chain that also shares an equal focus on the mitigation of risk?

The Race without a Front Runner

The race towards Supply Chain Innovation is one that goes beyond simply squeezing out ever last drop, far beyond the maximization of optimization.  It is a race like no other.  It does not even look similar to the race on Product Innovation – as this race is well sponsored, heavily funded, has lots of participants, and the gold medal is clear and in the sights of all who are running the race.  The race towards Supply Chain Innovation is quite a different picture - one where sponsors are hiding, funding is negligible, participants are few and we are not at all sure about what is the prize for a First place finish!  So why is this race so difficult to run?

"We are today training our students (and employees) for jobs that don’t yet exist using technologies that have not yet been invented to solve problems we don’t even know are problems yet!"
"Shift Happens" – You Tube

Supply Chain "innovation" is far different than Supply Chain "transformation".  In a transformation initiative you are becoming a better, more competitive player in the game.  By introducing supply chain innovation, you in fact change the game altogether.  A parallel in the product innovation world is the introduction of the IPOD – it is not just another way to listen to music – it has developed a new playing field and even a new market of downloadable music in an .mp3 format.  Apple changed the game and gave themselves a "step-change" leap ahead of the competition.

Is supply chain innovation on the management agenda?  For most companies, the answer is clear – “No” or at least “Not Yet”.   However, this is set to change.  As we reach the point of squeezing every last drop of efficiency from our supply chains, the CEO/COO agenda is heading for a big change  - one that must focus on innovation to deliver improved supply chain flexibility and performance.  This is no easy task in light of the challenges in building effective international operations and supply chain networks populated with new relationships.

Innovation is a Path to Risk?

What we do know is that there exists a link between innovation and performance - performance that goes beyond increased efficiencies . . . performance that will allow companies to make step-change advancements against the competition.

Be careful!  Supply Chain Innovation also requires us to also be sure that as we introduce elements of innovation into our supply chain that we do not make our supply chain more vulnerable.  We need to ensure that our rapid advancement in this race towards supply chain innovation is sustainable – that we mitigate the associated risk.

This is not so easy as many of our current "supply chain innovations" are riddled with potential risk.  As the globalization trend continues, we are very concerned with product quality as well as supply chain delivery and security.   Simply, our continuous drive towards globalization brings with it inherent risk.  The examples of such are plentiful.  On-time delivery of critical products as well as overall product/supply availability and quality are major risks with a global supply chain.  We have reported in the previous editions of KNOWledge  some of these examples.  Whether we consider the continued delays in introducing the Airbus A380, Mattel’s disaster of discovering lead paint in toys produced through a subcontractor in China, or Sony’s battery problem causing massive recalls in the computer sector or PlayStation 3 game console delivery delays due to both development delays and component shortages – we know that are supply chains are more vulnerable to disruptions than ever before.  Which is a costly mistake and have been proven to impact the overall corporate valuation.

Who are the Leaders?

We thought it would be interesting to examine which companies are the leaders in innovation and which companies are the leaders in supply chain management. Is there an intersection?  Are there companies that might possibly appear on both lists?  What might we learn from examining these companies in more detail?

The results from examining the Top 25 Innovative Companies (from Business Week 2007) and the Top Supply Chains (from AMR Research 2007) show that at least 8 companies appear on both lists:  Apple, Cisco, IBM, Nokia, P&G, Samsung, Toyota, and Wal-mart (see below):

Learning from the Leaders

We offer the following three (3) Key Strategies for achieving both Supply Chain Innovation while also mitigating risk within the Supply Chain:

1. Capture the “Voice of the Customer”
For innovation to pay-off and create an element of sustainability, it has to create value for the customer.  Yet by their very nature most current supply chain innovations remain too inwardly focused.   A focus on efficiency (cost & asset performance) may in fact drive our supply chain towards the inability to consistently deliver those supply chain attributes most valued by the customer (reliability, responsiveness, agility).

We can eliminate an element of risk with a constant understanding of what is valued by the customer and innovating our supply chains to deliver that value at the lowest possible cost or maximum level of efficiency.  Most successful innovations a rooted in customer “experience”.  Capturing the Voice-of-the Customer (VOC) not just on product innovation but also on supply chain innovation is crucial.  Want to know what they value? – ask them what they are willing to pay for!

You can’t simply go out and ask your customers what they want and expect innovative answers.  Remember what Henry Ford, the father of the Ford Motor Company said, “If I had asked people what they wanted, I would have build a faster horse!” 

2. Develop Creation Networks – “Mass Ideation”
Be sure to extend your ideas and views by extending your valuable input across the full enterprise to understand how to leverage other innovations with the entire value chain.  Involving customers, suppliers and other stakeholders to co-create, setting up open Supply Chain Innovation Platforms engaging in “mass-ideation” to accelerate the identification of new opportunities and jointly ensure risk mitigation. 

Careful selection and integration of network partners is certainly one key to success.  This requires a new focus on how to best manage an effective enterprise wide supply chain planning structure.  Also required is an IT platform that promotes and enables knowledge sharing across the enterprise.  This is very important especially as it relates to the supply base.  Deep collaboration with a new and distant supply base is extremely challenging and if left unaddressed will take many years to establish.

3. Populate your team with Innovators
One of the lessons learned from top Innovator and top Supply Chain company, Apple is….

“Innovation has nothing to do with how many R&D dollars you have. Its about the people you have, how you are led and how much you get it”

Steve Jobs, Apple

A team of innovators who also are educated with an understanding of risk mitigation are valuable to the organization.  We know that the race towards supply chain innovation can be lost solely due the management barriers that can exist.  The gap between planned and actual benefits are prevented because of our internal barriers to move at speed and with decisiveness.  Proper selection, training and reward systems of staff and partner employees with a focus on supply innovation is paramount if one is to overcome the challenges and position themselves at the top of the list of supply chain innovation.

Summary

Supply chain innovation requires a dedicated focus.  Focusing on innovation without considering associated risk mitigation would be irresponsible. Together as players in the enterprise we must get Supply Chain Innovation and Risk Mitigation on the management agenda from the top. A clear focus on what is valued by the customer, engaging partners in ideation and ensuring that you have populated your team with innovators are some of the key elements that will contribute to success.

As a final note, my lemonade stand taught me one other lesson…enjoy the fruits of your labor!  Drink up!