The old maxim:   “If it ain’t broke don’t fix it’, should perhaps be replaced by: ‘If it still works, it is probably obsolete.’ Akio Morita, Sony, famously described his job as: ‘Making our products obsolete before the competition does.’   Innovation is a process of change that enables organisations in any industry to attain competitive advantage.   It is also used as a word to describe the outcome of the process.

In a supply chain context, innovations are new processes, products and services that produce a substantive change resulting in improvements in operational efficiency, better value to the customer or a positive impact on the environment, such as reducing pollution and greenhouse gas (GHG) emissions.

Supply chain innovations come in two flavours:   technological and administrative.   Technological innovations, as the name indicates, refer to technologies that have a positive effect in the way processes, such as data planning, manufacturing, procurement, warehousing and transport, are managed.   Examples include:   the use of telematics to monitor and control remote devices – for example, shipment tracking and tracing, vehicle diagnosis and driver hours monitoring; the operation of vehicle routeing and scheduling systems to improve efficiency and effectiveness of the chain; or the application of clean technologies such as electric vehicles and alternative fuels.   In fact, much of the emphasis in the emerging field off green supply chains has focused on the reduction of CO₂ emissions from transport and warehousing.   Technical innovations often require parallel administrative innovations to make them commercially successful, as was observed by researchers from Harvard University in the recent HBR paper, ‘Reinventing your business model’. 

Administrative innovations refer to changes in structures, business processes, customer and supplier relationships and the use of knowledge that lead to different ways of operating the supply chain.   As an example, just-in-time (JIT), first introduced in the 1970s in Japan , has had a major impact on supply chain management, because it has changed the way information and materials are managed along the chain.   Other more recent innovations include services such as co-packing, co-manufacturing, labelling, postponement and mass customisation, often provided by logistics providers as value-added.   Collaboration with customers, suppliers and even competitors has been described as an important innovation in the industry that can help to minimise waste and increase responsiveness.   An example of this is the use of shared services, such as warehousing, transport and consolidation, which is helping logistics companies to use their resources more effectively.   Another form of collaboration has been the formation of alliances of SMEs, such as pallet networks, which collaborate to distribute small consignments and provide other value-added services.   Of course, these services are enabled by technical innovations in the systems to run such networks.

In most industries, companies invest in research and development (R&D) – if at all – as a way of creating the products and services that will bring future profits. However, we observe that innovation in supply chains does not take place in the same way.   Supply chain innovation rarely comes from an R&D lab; in fact, many companies would see R&D activities as alien to their operation.   As a leading logistics service provider quoted in its annual report: ‘As a pure service provider, the company does not engage in research and development activities in the strict sense, and therefore has no significant expenses to report in that regard.’ 

The process of innovation has often been portrayed as a marathon, a long, complex and arduous process.  More recently, it has been argued that a pentathlon is a better analogy, as innovation requires different skills at different stages of the process.   However, in a supply chain context, innovation is more like a team sport, with each player contributing with a different set of skills:   some organisations provide technologies; others provide ideas and expertise; others test, adapt and use the ideas and technologies to produce tangible results.   In the end, no single company can claim to be the innovator; most innovation is the result of a collaborative effort.   However this does not mean that supply chain innovations do not need R&D.   In fact, companies across the supply chain have to feed on technology to produce innovations.

This conclusion resonates with the findings from Harvard, where the business model innovation was identified as the critical success factor.   It was also the output of a Cranfield research project with LCP Consulting that identified innovative relationships and business models as being the biggest single driver of successful business innovation by logistics providers, collaborating with customers.

So what can supply chain managers do to foster innovation in their organisations?   First of all, they need to think creatively about where they can innovate to get advantage.   They need to see themselves as innovators, not siloed operators of the chain, and recognise that innovation requires investment in terms of time and money.   This does not need to involve vast sums; it is more about a state of mind, with appropriate resources to make it happen.   Then, they need to create the right environment to allow collaboration with other organisations, facilitating not only the cross-breeding of ideas, but also their development and implementation.   Finally, they need to promote the right people and skills within their organisation to be able to develop, implement and sustain innovation.   As Peter Drucker wrote: ‘The greatest obstacles to change are the things you did well yesterday.   The same things you spent the last 20 to 30 years perfecting.’

Source: Dr Carlos Mena and Alan Braithwaite.   Taken from Logistics and Transport Focus August 2010.

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