September 01, 2017

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.

Read More in Supply Chain Management Review