The innovator’s supply chain solution: just keep going

Harvard Professor Clayton Christensen’s deservedly renowned ideas on disruptive innovation show how business can be trapped in a cycle of “sustaining innovation”, leaving it vulnerable to competitors at the bottom end of any market.

From a supply chain perspective, one symptom of this dilemma is creeping complexity that extends lead times, adds cost and damages customer delivery. Our Leaders Forum held this week in Gleneagles, Scotland was all about innovation and complexity and how to win in the face of this challenge.

The growth imperative

Supply chain people constantly worry about complexity. Driven by the relentless growth imperative, we strive to “create order out of chaos”, in the words of our keynote speaker, Paul Polman, CEO of Unilever. Innovation, it turns out, is the key.

Polman’s inspirational opening speech focused on the shift of economic activity to the east, the digitisation of society, which is putting consumers in charge, and the end of abundance from a natural resource standpoint. Each of these trends presents irresistible growth opportunity, but is also exploding supply chain complexity.

Polman challenged the audience to rise above short termism by finding the link between sustainable business growth and social justice. His message is powerful in its simplicity: the fact that we see 30-40% daily global food waste while one billion people go to bed hungry each night is a supply chain problem. Solving it is the growth imperative.

It’s a paradox

Forces of change, including emerging markets, digital demand and increasing constraints from regulation, consumer activism and resource limits have forced supply chain leaders to rise above traditional (and relatively simple) optimisation problems of high service levels at low cost. Rob Scholte from German wholesaler Metro described how innovative fulfilment for its Horeca (hotel, restaurant, café) segment used e-commerce to win higher prices and better customer satisfaction despite pressure from buyers demanding complex omnichannel capabilities.

Tim Harden from AT&T talked about surging mobility trends in consumer markets and the need for new architectures supporting phones and tablets. Complexity challenges run deep into technology platforms, giving consumers freedom to personalise the user experience while generating massive data volumes in the network. Innovation and complexity advance together, which means AT&T’s suppliers need three-year planning horizons to synchronise technology roadmaps. Low cost is not the only thing that matters.

Constraints, including regulation, deepen the paradox as we heard from Willie Deese of Merck. Regulators around the world scrutinise process developments that can dramatically reduce costs, but in doing so they slow the delivery of cheaper drugs to market. Merck innovates with modularised manufacturing techniques that speed regulatory review and approval. Here again, complexity and innovation are two sides of the same coin.

Environmental and social responsibility adds another set of constraints which our panel, comprising Maria Lindenberg of Chevron, Pier Luigi Sigismondi of Unilever and Noelle Walsh of Dow Chemical addressed. Innovations including non-aqueous fracking in natural gas extraction and waste stream processing in Holland offer new business models that shareholders appreciate while also attacking mega-problems like carbon emissions and water availability.

Innovation breeds complexity, but can also tame it.

Programmes, platforms and process

Our graphics for this event featured the Model T, the shipping container and lean production – each a process innovation with revolutionary impacts on business. Supply chain today, however, runs deeper. Presentations from Dr Hau Lee of Stanford and from John Church and Peter Erickson of General Mills offered two essential takeaways that help us think about how to win going forward.

Dr Lee explored programme management, which increasingly commands our attention as supply chain takes accountability for major product or technology launches, production network expansions or even new channel developments. His well-known Triple A supply chain model can be systematically applied to programme management to avoid mishaps like those experienced with the Boeing 787 Dreamliner.

Church and Erickson described a combined technical organisation that tightly integrates supply chain with R&D to enable product platforming. This lets General Mills’ many business units innovate rapidly without losing control of underlying product complexity. Consumers and shareholders see a more responsive business because platforms supporting innovation do far more than just replenish the shelf.