How innovative is your supply chain?

Contribution by Kai Keppner – Marketing Manager  from the Inventory &  Supply Chain Division at INFORM

The inflationary use of the word “innovation” has not done its appeal any favors. For years, we have been bombarded with advertising suggesting that the world is in a constant state of transition in all aspects of life, from hair care to advanced driver assistance systems. While this is partially true, as macroeconomist Robert Gordon points out in his TED Talk, development has slowed over the last few decades. In addition not all “innovations” can be called truly innovative. The difference between an innovation and a mere novelty becomes apparent when the prior makes a strong contribution to the net value of a company. Value is added when a product, service or production process is decisively improved. This type of progress is also thus an innovation. As many innovation seeking consumers were disappointed to find out about the latest release from a certain smartphone manufacturer; to simply update a products color scheme is not innovative.

Despite the at 4 all actuality, innovation or “renewal” is still the main impetus of economic development. At an individual level, a company’s ability to innovate is the main means of remaining competitive. As Steve Jobs once said: “Innovation distinguishes between a leader and a follower.”

Logistics processes must also be renewed

In order to keep up with competition, new ideas must be developed and products need to be renewed accordingly. Innovation is however not only tied to products, but also to its logistics processes. Historically, innovations are created in both categories: with ground-breaking product advances there have always been developments of new concepts which have had a lasting effect on the supply chain, like for example Taylorism and assembly-line production. The historical success of the T-model from Ford was not solely due to the automobile alone, but also in part thanks to the development of mass production.

Equally as important as introducing new products to the market is further developing the supply chain itself. Innovative products will not inevitably lead to success in the market place if they are imbedded in an inflexible supply chain. If customers, for example, are faced with long delivery times, then a product must be truly remarkable in order to avoid a shift to competitors.

Investing in continual innovation

What makes it apparent that supply chain innovation is a hot-topic is reflected in the interest of experts regarding the matter. The Bundesvereinigung Logistik (BVL) (National Logistics Association), a neutral, nonprofit organization in Germany that promotes “awareness for the importance of logistics and supply chain management”, made innovation the featured topic of last years’ conference. In the run up to the event the BVL challenged German logistics companies to be more innovative with their approach. As an example, here in Germany, on average, companies invest around 2% of their annual turnover in research and development; in logistics this amount is however the lowest.

Optimization as a prerequisite for innovation

Yet the ability to continually innovate is not guaranteed in every supply chain. A prerequisite is adaptability, encompassing not only supply chain processes, but also a company’s organizational structure and software programs. Companies which actively adapt on all levels, create new hotbeds for innovation. The mantra which leads to success? Don’t just manage, optimize!

In addition, so that e.g. the ERP-system does not hinder innovation, implementing a special add-on system for optimization is recommended. This provides the ERP-system with the necessary flexibility, and amongst other things, the ability to decisively improve the planning quality. Furthermore, procurement, production, and distribution processes will in this regard, also be optimized daily and adapted to the current conditions.

In the end, optimization also means the willingness to change, taking an open-minded approach towards new developments and essentially, to create a continual stream of innovation through optimization. Often it is this open entrepreneurial spirit, which guarantees the necessary progress in a competitive market.  I would like to end with the words of the English philosopher Francis Bacon who summarized the topic succinctly:

[blockquote style=”1″]He that will not apply new remedies must accept new evils: for time is the greatest innovator.[/blockquote]


And now my question to you: How highly do you rate the meaning of innovation in modern supply chains? What processes require more innovation?