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How to Turn Digital Supply Chain Innovation Into Value

November 04, 2020

Contributor: Rama Ramaswami

Supply chain leaders capture more value from innovations by adopting three key practices during implementation.

Supply chain leaders usually have no trouble finding new ideas to improve supply chain operations. But they often stumble when turning those ideas into reality, especially in a digital environment.

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“Many supply chain organizations struggle to convert digital innovation vision into business value that can scale,” said Michael Burkett, Distinguished VP Analyst, Gartner, at the virtual Gartner Supply Chain Symposium/Xpo™ 2020, Americas.

Gartner research shows that 76% of digital supply chain executives invest in innovation. Yet 81% have difficulty scaling innovations for production use. Common barriers include risk aversion, poor executive governance and organizational resistance. Adopting three practices can go a long way toward overcoming these obstacles.

Dare to explore supply chain innovations, but aim to exploit them

When you explore, you take risks and learn through iteration and failure; when you exploit, you implement and adopt proven practices, such as new discoveries that have been validated through testing and pilots.

To survive over time, an organization needs to explore and exploit. “Being excellent in only one of these areas is not going to get you innovation value,” said Burkett. “The best companies are successful at both.”

Leading supply chain organizations don’t innovate in a vacuum. They exploit innovations by ensuring that any ideas generated solve specific problems or identify business opportunities. They also set up disciplined processes to adopt and implement the ideas with the most promise.

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Govern by using metrics for both short- and long-term success

The metrics you use to gauge an idea’s potential should span big bets as well as incremental improvements. If an organization were to require all investments to show a certain return, such as 10% within a year, only short-term and lower-risk efforts would be pursued. Measurements should encourage longer-term and riskier projects as well.

Taking a balanced, bimodal approach to innovation enables accurate measurement: Mode 1 represents lower-risk, continuous improvement and Mode 2 higher-risk experimentation. The measurement system and funding for each project will vary depending on the chosen strategy. For Mode 1 projects, for example, the executive team could set a well-defined return on investment and manage those projects with that expectation.

Mode 2 projects may not have a clear return on investment upfront but would be governed and funded as experimental bets with potential for immediate benefit or strategic initiatives that identify longer-term opportunities to create value.

Involve diverse talent on agile teams

Lack of cross-functional involvement is a common reason for digital supply chain innovations not being adopted and scaled across the business. Promising innovations can hit a wall of resistance when developed in functional silos.

It is important to have a diverse cross-functional team, and it is also essential to have the right participants. Make sure you include the people who will design, deploy, adopt and scale the innovation. The team needs the right skill sets, such as in artificial intelligence, machine learning and data science. You also want people who are comfortable dealing with the unknown, taking risks, failing and analyzing a problem to learn from it.

Agile innovation methodology has emerged as a practice that leading companies employ to derive business value from digital innovation. The term is best known in software development to use continuous iteration to test, learn and revise products. Agile principles enable teams working on digital supply chain innovations to experiment, fail fast and learn as they discover new opportunities.

Leaders of digital supply chains should make digital and other supply chain innovations a business priority and measure to ensure they are executing on that goal. Keep in mind that great ideas go to waste if not implemented.

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