Innovation is not only about designing new products and creating new business models, innovation is also essential in continually improving and redirecting operations and business processes.
A good example of this is innovation applied to the supply chain. Rather than supply chain management being confined to buyers scouring the globe for the best prices for suppliers and materials, companies should work closely with suppliers to innovate better, safer and more sustainable ways of working and developing and delivering products and services.
Michigan Ross Professors Jeff DeGraff and Izak Duenyas spent years working with global companies on innovation and supply chain management, and they bring that expertise to a new Ross Executive Education program, Global Supply Chain Innovation in a Changing Environment. In this extract, they explain the thinking behind the program:
“Supply isn’t just about buying things for the best price, and innovation isn’t just about coming up with great ideas,” DeGraff says. “They both need to be embedded in everything you do as a business; otherwise, you’ll come up with ideas that never see the light of day because you didn’t coordinate the two ends of your company — strategy and supply.”
Duenyas says the lack of coordination not only has killed many a great idea, it leads to wasted time and money.
“At a lot of companies, the buyers buy and the plant managers produce. Historically they’ve operated in their own worlds because that’s how the incentives work,” he says. “There’s a lot of blame that goes back and forth when things go wrong, but the real problem is they never get together. When you try to innovate in that kind of environment, it’s almost impossible to get buy-in, because any one group can stop something.”
Fixing this problem — which requires rethinking organizational charts, incentives, and team composition, just to name a few — is worth millions to companies.
That’s why the program focuses on real-world examples of success and failures in supply chain innovation. The program also runs simulations so participants can apply innovation lessons to their own supply chains.
“It’s really easy to talk about, but harder to execute,” DeGraff says. “But you have to do it. The companies that win are able to sync up the company’s evolving strategy with the supply that meets the strategy.”
Aligning strategy with supply also puts a company in a better position to know when to develop a new product or service in-house or to buy it from a supplier. Suppliers are a growing source of innovation for many large companies and, for them, innovating new products and processes is the only way to justify higher prices, Duenyas says.
For example, Apple designs its products and creates the operating system. Everything else is done by suppliers.
“The most valuable company in the world literally builds nothing,” DeGraff says. “The supply chain makes everything, meaning most of the innovation happens in the supply chain. That’s why Apple is so secretive about it.”
DeGraff says it’s better to think of supply chains as ecosystems of both suppliers and competitors, with roles constantly shifting.
“What’s really becoming the norm are mashups, or what used to be known as a federated system,” he says. “Given that’s the world we live in, it’s more important than ever to have a clear line of sight from the C-Suite down to your supply chain.”
Michigan Ross Global Supply Chain Innovation in a Changing Environment program is run next at Ann Arbor, MI, 11 September - 15 September 2017 and then again 19 March - 23 March 2018