Supply Chain Innovation

Looking at the world in terms of supply chains gives us a unique, end-to-end perspective on the products and services we consume every day. It also helps us think about how we can change things to reduce costs, increase value, or mitigate risks. But in order to make improvements, we need to be willing to challenge the status quo. So this week’s newsletter is focused on supply chain innovation.

Paradigms Matter

The conversation about innovation needs to begin with an understanding of paradigms, and a great starting point for that discussion is Thomas Kuhn’s book, The Structure of Scientific Revolutions. Kuhn was interested in how our scientific view of the world evolves. For example, for thousands of years European scientists believed the world was composed of four elements - Earth, Water, Wind, and Fire. That paradigm - a shared understanding - dominated the scientific world because it was the best explanation available given what was known at the time. The paradigm was disrupted, however, when scientists developed new tools and began to learn about chemistry. It didn’t happen overnight, but a new paradigm gradually became dominant, and the old one became obsolete. Today, the benefits of this change seem obvious, but back then there was probably a fair bit of resistance.

James Utterback applies a similar approach by thinking about business paradigms in his book Mastering the Dynamics of Innovation. Basically, he argues that innovation is about disrupting the established paradigms for products and processes, which he calls the dominant design. We’ve all seen how the dominant designs for computers and telephones have changed in the past 15 years, and now we're watching the dominant designs for cars and trucks changing, too. 

What gets me really excited are the innovations that we are seeing in supply chains! Much of this paradigm shift is being driven by Amazon, but there are lots of other companies that are doing innovative things, as well. James Rice has been one of the pioneers in trying to define what is, and what is not, a supply chain innovation. And, more importantly, in looking at how companies can use supply chain innovation as a competitive strategy. Here's the way that I'd sum it up:

“A supply chain innovation is basically any variation on the dominant design.”

Mr. Supply Chain

One of the interesting things that I've gleaned from Jim's work is that many of the most valuable supply chain innovations actually involve repurposing processes, tools, and technologies that are already well-established in another field or industry.

Two Types of Innovation

Clayton Christensen built a huge following with his book, The Innovator’s Dilemma. Christensen argued that there are actually two kinds of innovation: sustaining innovation and disruptive innovation. (A few years ago, Gartner began promoting a similar idea as “Bimodal Innovation” where they refer to Mode 1 and Mode 2 approaches.) Sustaining innovation is really aligned with what supply chain folks consider process improvement - using tools like Lean, Six Sigma, and the Theory of Constraints to improve quality, reduce costs, and eliminate waste. These innovations help to sustain and improve an existing business, process, or product. But disruptive innovations represent a totally different approach to making or delivering something. In other words, they are a challenge to the established paradigm or the dominant design. So disruptive innovations have the effect of making an existing product or process obsolete.

The truth is that both kinds of innovation are good for some companies, and bad for others. In order to be successful over the long term we need to master both kinds of innovation. One of Christensen’s observations was that big companies tend to be naturally better at implementing sustaining innovation practices, but smaller companies tend to be better at disruptive innovation. While they may choose to play to their strengths, they also need to be aware of their vulnerabilities.

Drivers of Innovation

Right now, our supply chains are under tremendous pressure to adapt, and the only real answer is for us to innovate. Here are five examples from a long list of forces that every supply chain needs to respond to:

• Sustainability - Circular, renewable, and ethical requirements
• Geopolitics - Nationalism and trade barriers
• Automation / Technology - Drones, autonomous vehicles, machine learning, quantum computing
• Demographics - Changing customer (and employee!) expectations
• Health and Safety - Managing the risks from COVID and variants, along with other health and safety concerns

We will see many innovations that change our supply chains because of these forces. So, we really need to ask whether the innovations will help our business, or make us obsolete. And that is why every supply chain leader with a long-term perspective should be looking today at how to make sustaining and disruptive innovation processes an active part their own organizations.

How this affects supply chain professionals? The world around us is changing quickly and unpredictably. Innovation is essential for survival, and can create new pathways for success. Through the past two years we’ve seen how companies that were able to adapt quickly could benefit from disruptive forces, while those that had a rigid supply chain were more likely to suffer harm. We need to understand the dynamics of innovation in supply chains and promote efforts to improve efficiency, while also exploring entirely new approaches that might disrupt our dominant paradigms.

What do you think? What are some of the best examples of supply chain innovation that you have seen? How can companies get better at both sustaining and disruptive innovation?

Additional Resources

• Fostering Innovation learning path on LinkedIn Learning
• Supply chain innovation: A conceptual framework by James Rice (MIT CTL Whitepaper) 
• A Fresh Take on Supply Chain Innovation by James Rice (MIT Sloan MR)
•  Mastering the Dynamics of Innovation by James Utterback
• The Structure of Scientific Revolutions by Thomas Kuhn

Who is Mr. Supply Chain?

Daniel Stanton is a supply chain industry veteran and the best-selling author of Supply Chain Management For Dummies. He is dedicated to empowering professionals through education and technology. His courses on LinkedIn Learning (formerly Lynda.com) have been viewed by students around the world, and he's a frequent speaker at educational conferences and industry events.