By Anders Kongsbak, Strategy Consultant, Monstarlab
Innovation in the Supply Chain
The supply chain is a forgotten tool in the age of digital. Undeniably companies face tougher competition than ever. Advancements in technology, access to outsourced production, and services along with increased global competition have turbocharged innovation efforts across industries forcing companies to get new products and services to market faster than ever before to stand a chance of competing before the landscape shifts.
To make this possible, companies are increasingly faced with the challenge of deciding what to prioritise their scarce resources on. In a zero-sum game of building inhouse or outsourcing, the question of how best to develop value remains unanswered. The key to making the right decision might just lie in the view of the company’s supply chain. We argue it could pay dividends to re-discover this functional view of the company.
The Supply Chain’s Message
The supply chain is, on paper, a simple tool developed in the space of operational management to ensure succinct control of increasingly complex distributed manufacturing and logistics networks. All companies have a supply chain and all companies have made supply chain decisions – whether they know it or not.
The supply chain is more relevant than ever due to the highly complex way that products and services are delivered today. In fact, business thinkers have gone as far as stating that “Supply chains compete, not companies” – Martin Christopher, Cranfield Business School [1]. While supply chain management comes from an age of manufacturing and logistics, it is a valuable tool for gaining clarity of the business even today. This tool was not built with digital solutions in mind yet it remains as useful as ever.
The new competitive paradigm is that supply chain competes with supply chain and the success of any one company will depend upon how well it manages its supply chain relationships.
– Martin Christopher, Cranfield Business School [2]
Functionally speaking, the supply chain is a sequence of connected user needs starting at the end-consumer stretching upstream through all activity components and value-adding process components required to deliver the end product or service. Each component in the chain represents a value-added value added to serve the customers needs customer’s’ needs downstream. The supply chain is a valuable representation of the company in part because it is entirely tangible, each step in the supply chain actually exists.
Drawing the supply chain is a process of investigation of the firm’s operation in a utilitarian manner. We ask the question of how products and services are delivered and then pragmatically go through each component in the chain asking what input it requires and what it produces. It is worth noting that the sequential nature of the supply chain means that downstream components rely on upstream components. In the space of digital where services, products, and hardware have to be online to function, an outage anywhere in the supply chain could make vital features for the end-product fail immediately – this is why stability is especially important in IT and digital.
Any supply chain contains three core flows: Capital, goods/services, and information.
Goods move down the supply chain through the value-adding components on their way to end consumers. In return for the goods, capital is exchanged up the chain. To ensure that the right goods are moving down the supply chain in the right quantities at the right time, information is relayed to ensure satisfactory delivery and to gather key insights on user needs and the degree to which products satisfy them.
The collective view of the supply chain as a chain of user needs allows us to visualise the way each sequential link in the chain attempts to deliver the value desired in successive links. Through this view, we can assess the adequacy of delivery for all components of interest. Doing this allows us to increase efficiency, which frees up resources and increases productivity; however, it also allows us to think of what innovations could better deliver value or even anticipate the desired value of tomorrow.
Using the Supply chain Innovation purposes
When it comes to innovation, mapping the supply chain against a scale of product maturity enables insights. While the supply chain is a useful functional view of the company it says little about the characteristics we should expect from each component in the supply chain.
British IT Professional and former CEO of Fontango, Simon Wardley, has developed emerging thinking in this area, by first looking at the commoditization process, which all products are subject to [3]. This continuous process is applicable to all supply chain components. Intuitively, we understand that things are invented or conceived as an idea before it is launched and offered as a product or service. This simple logical time rule displays a key characteristic of any component. In their early maturity stages, components are experiments and homebuilt solutions and only after they prove their value are they offered to the market first as products as and then later as services. Components mature over time as competition in the market incentivises companies to optimise and improve their products and services. This forces the commoditization process in which novel solutions mature and become ubiquitous and standardised.
Any component will mature through four distinct stages of maturity
- Invention
- Homebuilt
- Product
- Service
Key characteristics and features can be defined for each stage. This makes us appreciate how to work with and understand any component based on its level of maturity. These insights allow us to generalise in an area that is otherwise highly dynamic and uncertain. Key features relating to the maturity of components in the supply chain allow us to predict what we can expect of a given component based on its level of maturity. As various products mature, the company should consider if a given product is best delivered in-house or whether the next step is using a product or service.
The process of commoditization over time is a simple logical concept, but it nonetheless gives us the ability to predict movement. Things always move from invention towards product or service. It is the case for any company that their supply chain components will be outdated over time. A way to view this is that any component in your supply chain is static, but the market is a part of keeps maturing. Innovative efforts can only succeed once we accept that what was once right, perhaps no longer is.
The practical process of mapping a supply chain against the scale of product maturity involves an investigation of the company’s operation. By going through each component and determining how that service is delivered, the map can easily be constructed. Once the supply chain is mapped we can start to scrutinise the operation by asking if any of the components in our supply chain are no longer efficient. In these cases, the choice to outsource activities is vital. Some systems that used to be built in house by companies are now standardised outsourced services. For instance, server infrastructure used to be done on-premise but today it is not sufficient nor necessary for almost any company to run their own hosting infrastructure, this is the result of the commoditization process.
Through this process of reviewing the operation, various components that have matured over time should become visible. With this insight, we can ask ourselves how we can capitalise on these resources when innovating for the next line of products or services.
A key learning is that innovation should leverage mature components with defined standards and predictable behaviour. Innovation is, by definition, a process of recombining components in new ways to achieve new emerging value. If the components used are not sufficiently understood or stable, the chance of effective and valuable innovations diminish.
A company should therefore look into its supply chain and evaluate what components it can leverage to innovate with. Valuable innovations for the company leverage unique resources in the firm. The value created for customers likely reveals the components in the supply chain that constitute unique value in the present. The company should therefore investigate how it might use those resources and the value they create as a part of their innovative efforts.
Times change and companies change. Innovation fundamentally is a process of change, which can be difficult. Corporate innovation expert and former Apple Chief Evangelist, Guy Kawasaki, notes that a common enemy of innovation in companies is “that most companies define themselves in terms of what they do, not the benefit they create” [6]. Innovation efforts must therefore look at what “customer needs” their product serves, i.e. the benefit of their products and services. The way to create new products and services that create more or improved benefits is then a matter of correctly developing and applying the resources available to the company to find new ways of creating “benefit” for their customers.
On Innovation in the supply chain
Innovation in the supply chain can be summed up as an activity that starts with a functional view of the company and ends with a prioritised resource allocation. A utilitarian investigation aiming to define exactly what value the company delivers and through that understand the sequential process that realises that value. When taking into account the dynamic commoditization process that happens over time we can appreciate what components we can leverage for innovative purposes and where allocating resources has the greatest chance of creating new value for customers.
What the supply chain map gives us is a tool for anticipating change and to get ahead of the innovation curve. We know the direction of product commoditization and we can visualise the value created by components in the supply chain. Using the supply chain we also know our own operation. Innovation should therefore simply be a result of recombining the valuable components in our supply chain with new exciting components too. Effective and successful innovation is tough but starting with clarity and appreciation for the forces that drive change is a prerequisite.
Key Takeaways:
- The supply chain is a valuable representation of the company’s operation
- The dynamism in the market matures products over time through commoditization
- Innovation is about creating new and more “benefits” for the customer
- The supply chain map can help us anticipate and predict what happens next
- Map your supply chain and scrutinise the value delivery – what is functionally outdated and what can be leveraged for innovation efforts.