Next Gen Supply Chain: The NextGen Interview

Many companies today want to think of themselves as an innovator, but what does innovation look like in the supply chain? We put that question to Jim Rice, deputy director of MIT’s Center for Transportation and Logistics.

NextGen Supply Chain: We're all familiar with product innovations like the smartphone or electric cars. But what does innovation look like in the supply chain?

Rice: We often think about cool and sexy technologies changing our supply chains, but it really looks like the work we have been doing in supply chains forever, basically doing things that reduce costs, cut cycle times and/or improve quality. A lot of time people expect supply chain innovation to disrupt an industry but 98% of the time, the process changes are not nearly as disruptive as the smartphone was for the mobile phone world. Instead, most of the innovations in the supply chain give you incremental improvement and are what Clay Christensen calls sustaining innovations.

In the supply chain, there just aren't that many examples where a supply chain innovation dramatically changed the dominant process for producing a product – FedEx, Dell, and Zara are among the few examples.

FedEx disrupted the rapid delivery of parcels by introducing overnight delivery (both a product and process innovation) when fast delivery was limited to expensive dedicated couriers.

Dell changed computer manufacturing from make-to-stock and sell-through-retail to make-to-order and ship direct. In the fashion apparel world, most supply chains were outsourced using many suppliers with high labor and low tech, often far from the marketplace with very long cycle times.

Zara flipped that model on its head by creating a nearly vertically-integrated supply chain using capital-intensive factories that require less labor, are closer to their core market and offer more flexibility, short cycle times and very low cost.

Each of these companies changed the supply chain for making their product, brought it to scale and enjoyed a step change in performance that motivated many competitors to try and copy.

NextGen Supply Chain: You mentioned The Innovator's Dilemma. Christensen was talking about product innovation. Does supply chain innovation differ?

Rice: Some of the product innovation concepts apply to the supply chain world. Rather than introducing a new product, supply chain innovation introduces a new process for procuring, making and/or distributing a product.

NextGen Supply Chain: So, if most of what happens in the supply chain is sustaining, is it really innovation?

Rice: Yes. I would say so. But that all depends on how you define innovation. In my research at the MIT Center for Transportation and Logistics, the data shows there really is not a consensus definition of innovation. Some people insist it has to be something that didn't exist before. Some say if it's not disruptive then it is not innovation. Others say the change has to occur quickly. There's just no consistency. So I've come up with my own definition.

I define supply chain innovation as the combining and application of a mix of inventions, existing processes and technologies in a new way that achieves a desirable change in cost, quality, cash and/or service. This is a broad definition intended to encourage innovation by not limiting the time required, the impact or the scope of the change.

Some of your readers might remember the show McGyver. When he didn't have the right tool for a crisis situation, he combined everyday items into an ingenious solution. Supply chain innovation is a lot like that. You can use methods that already exist and combine them in a clever way to improve your supply chain.

NextGen Supply Chain: What matters most about supply chain innovation – the concept, execution, people or something else?

Rice: What's most important is that innovation is an ongoing effort. It shouldn't be episodic. Companies like Cardinal Health and Siemens that have structured improvement initiatives have made real progress. They remain focused on continuous improvement and often support them with dedicated personnel.

Companies may need people with different skills – for sustaining innovation, you need people who can refine a process, finding improvements on an ongoing basis. It's a different kind of person though who can completely re-vision the supply chain process, seeing the possible big changes. They tend not to get caught up in what won't work, but instead can see what could work. Both are needed, but the latter are needed for disruptive innovation.

Ultimately, innovation doesn't just happen. Like any process, it has to be nurtured and managed.

NextGen Supply Chain: Is there enough of the right kind of innovation in the supply chain today?

Rice: I think there is, many are trying to utilize some of the new inventions and capabilities to innovate processes. Some will be leading adopters, some will be followers – in part defined by the company culture, and in part defined by the nature of their industry.

One last thought here. Innovation can't just come from someone in top management who just read a great article or book about innovation and then demands his or her company to be innovative. The firm has to be willing to test, trial, experiment and even fail in order to find uncommon improvement opportunities. Innovation isn't a wish. It's a process that can deliver great outcomes with persistence.

Gary Forger is contributing editor of NextGen Supply Chain. He can be reached at [email protected].

Jim Rice joined the MIT Center for Transportation & Logistics (CTL), where he is deputy, in 1995. He can be reached at [email protected].

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