Creating an Innovative Supply Chain

Stephen DeAngelis

April 24, 2018

An oft-heard business battle cry is: Innovate or die! It’s not clear who coined that phrase, but it draws on the work of Joseph Schumpeter who coined the term “creative destruction” almost a century ago. David Weaver, a supply chain optimization expert, refers to another common phrase: “Don’t rest on your laurels.”[1] These aphorisms apply to supply chain operations as much as they do to any other part of a business. Weaver observes, “We have seen many businesses over the past several years run into problems due to a lack of supply chain innovation, slow reaction to changing market conditions and a resistance to change.” He then quotes supply chain professional Jeanne Reisinger, who once said: “Supply chains are not a cost to be managed. Supply chains are an asset to be leveraged and should be an engine that drives value creation.”

 

What drives supply chain innovation?

 

Edwin Lopez (@EdwinLopezT37), editor of Supply Chain Dive, asked a number of supply chain professionals, “What drives supply chain innovation?” One professional believed innovation was driven by emerging technologies. Another professional pointed to customers as a driver of innovation. Competition was highlighted as the driver of innovation by a third executive. Along similar lines, a fourth business leader asserted innovation was driven by a desire of a company to differentiate itself from the competition. A fifth executive pointed to “need.” Clearly, there is no single driver of supply chain innovation. I tend to agree with Tania Seary (@taniaseary), Founding Chairman of Procurious, who was the executive who stated, “If necessity is the mother of invention, need is the father of innovation.” If I understand Seary correctly, she is saying innovation is the result of confronting a challenge that needs to be addressed. And I’ve never met a supply chain professional who didn’t think there were challenges needing to be addressed.

 

Innovation Tools

 

The reason I like Seary’s approach to innovation is because it’s one for which a business case can be made for implementing new approaches or trying new technologies. Christopher Mejia Argueta, Director of the MIT SCALE Network Latin America, and Director of the GCLOG program, insists building a business case is absolutely essential if large outlays are going to be made implementing new technologies. He explains, “The fast pace of technological change can make it difficult for companies to decide which new ideas they should implement. … The challenge of managing fast-paced technological innovation is a company-wide phenomenon but is especially evident in the supply chain function. Artificial intelligence, big data, blockchain and robotics are some of the technologies that are fueling unprecedented change in company supply chains.”[3] Argueta could have easily substituted “innovation” for “change” in that last sentence.

 

Artificial Intelligence and Supply Chain Innovation. When you look at the drivers of supply chain innovation mentioned above — technology, customers, competition, differentiation, and need — cognitive technologies can help in every area. AI can help improve and optimize processes as well as foster better customer relations. Monte Zweben (@mzweben), CEO of Splice Machine, makes four predictions about how AI will change supply chains.[4] They are:

 

  • Using AI in supply chain management to predict shortages instead of buffering will save $10 billion in inventory costs.
  • Salespeople will demand real-time available-to-promise (ATP) systems even before orders are complete so they can promise delivery dates to customers quickly and reliably, reserving that inventory as orders are finalized.
  • Predictive supply chain management will emerge as a best practice, where machine learning is used to predict supply chain scenarios and planners can proactively respond to those expectations, avoiding shortages and late orders.
  • Streaming data, such as shop-floor data, weather data and fleet data will become commonplace and be used by supply chain systems to predict logistics and production glitches.

 

Zweben’s primary point is that AI can help solve a multitude of supply chain challenges — sometimes before they become problems.

 

Blockchain and Supply Chain Innovation. Becky Partida (@BP_SupplyChain), reports, “In a recent APQC survey of supply chain professionals, about one-third indicated that blockchain has the potential to create a competitive advantage for their organizations over the next 10 years. About 10% of respondents felt that blockchain would be a potential disruptor for their industry within the same time period.”[5] Partida indicates blockchain could become a short-term differentiator for companies that figure out how best to implement it. She explains, “A recent study conducted by the Digital Supply Chain Institute (DSCI) at the Center for Global Enterprise, in partnership with APQC, revealed that over one-third of supply chain professionals surveyed are either extremely or moderately unfamiliar with blockchain.” That unfamiliarity could prove problematic for laggards. If you’re wondering how blockchain lead to innovative solutions, Partida explains:

 

When asked to indicate the most compelling hypotheses about the benefits of blockchain, 34% of respondents selected the potential for cost reduction and the improvement of fragmented supply chains through real-time tracking of end-to-end product movement to better match demand. Close behind was the potential for visibility into multi-tier supply chains and distribution channels to reduce counterfeit goods and improve product integrity, which was selected by 29% of respondents. Improving data and process integrity, trust and control of confidential information was selected by 21% of respondents. When asked to consider the biggest opportunities for blockchain by the year 2020, respondents rated billing and payment processing highest, indicating that many organizations recognize blockchain’s strength at facilitating billing and payment processing.”

 

Blockchain technology is so new we are limited by our imaginations to its full potential. As companies become more familiar with blockchain, they will undoubtedly get more creative in its application.

 

Internet of Things and Supply Chain Innovation. Abe Eshkenazi (@aeshkenazi), CEO at APICS, states, “While no single factor will drive innovation, supply chain leaders cannot ignore the Internet of Things (IoT) and its potential to revolutionize supply chain. By integrating physical and digital operational components, the IoT creates opportunities for more effective and efficient supply chain processes.”[6] AI, blockchain, and IoT will undoubtedly partner in many future supply chain innovations.

 

Concluding Thoughts

 

Supply chain professionals are well aware supply chains are not immune to change. Argueta observes, however, that change is often slower in the supply chain arena than in other business areas. “Paradoxically,” he writes, “while the pace of change is extremely rapid, disruptions caused by innovation usually take place incrementally in supply chains. Research carried out by MIT CTL Deputy Director Jim Rice shows that fast-moving disruptions akin to that caused by the introduction of the smartphone in consumer markets are relatively rare in the supply chain world. Even so, supply chains that fall behind the technology curve risk losing competitive ground to rivals. The challenge is deciding which innovations will yield the biggest returns, and how to implement them.” The best advice I can give you is to find your pain points, decide whether emerging technologies can help ease the pain, then make a business case for implementation. If Argueta and his colleagues are correct about the rarity of fast-moving disruptions in the supply chain, the new battle cry might be: Innovate or die slowly!

 

Footnotes
[1] David Weaver, “3 Dangers of Supply Chain Complacency,” Longitudes, 2 August 2017.
[2] Edwin Lopez, “What drives supply chain innovation?” Supply Chain Dive, Supply Chain Dive, 16 October 2017.
[3] Christopher Mejia Argueta, “Building a Business Case for Supply Chain Innovation,” Supply Chain @ MIT, 15 March 2018.
[4] Barry Hochfelder, “How to predict and solve supply chain problems before they happen,” Supply Chain Dive, 10 January 2018.
[5] Becky Partida, “Next Gen Supply Chain: Blockchain and Supply Chain Innovation,” Supply Chain Management Review, 14 December 2017.
[6] Lopez, op. cit.