For the past few years, I have had the privilege of being invited to the École de Technologie Supérieure (ETS) to discuss the relationship between innovation and supply chain with students graduating from the Master’s program in Innovation Management.
In both corporate and academic forums, it is clear that many still underestimate the potential of the supply chain as a source of innovation to create significant competitive advantages. The fact that many procurement leaders are still looking for ways to play a strategic role proves this point.
Here are the key ideas discussed at these sessions. To fully understand the strategic role of the supply chain and the impact of innovation, it is important to approach the topic methodically. A quick overview of the key components of the supply chain and the links to strategy is essential and necessary.
The key components of the supply chain
Let’s remember that a supply chain includes all parties directly or indirectly involved in satisfying customer demands. Thus, the supply chain includes all the exchanges of products, services, information, and funds necessary to satisfy customer needs.
Thus, it is not limited to the distribution or manufacturing sector. The primary, secondary and tertiary sectors all have supply chains (often called value chains).
Depending on the configuration choices of the supply chain, it will be possible to maximize the value of that chain. That is, to optimize the management of assets, products and services, information and funds. Classic examples are Apple, Walmart, and IKEA, who have configured their supply chain to maximize value. Impacts are measured in optimal costs, lead times, or flexibility.
It is necessary and essential to have a global vision of the supply chain today. Even if many companies can’t influence all the actors of the chain, it is necessary to understand the associated risks and benefits. The current pandemic downturn has highlighted the challenges and impacts of global supply chains. For managers, it is essential to have a good understanding of the different levels, actors and risks associated with supply chains.
The importance of strategy
It is in this context that the supply chain takes on its strategic importance.
For Michal Porter, competitive strategy is about making choices to be unique in creating value for customers. It is about making choices that are different from the competition. Thus, it is possible to satisfy different customers, different needs, offer different relative prices or perform different activities.
As R. Martin mentions, strategy is a deliberate choice that involves customers, business models and competitive advantages. The Where to Play, How to Win.
The Business Model Canvas and the Value Proposition Canvas are also essential tools in thinking about the role of the supply chain. Depending on the configuration choices of the business model, the chain can play a crucial role in creating a competitive advantage.
Michael Hammer (the father of Reengineering) had an innovative vision on the subject in 2001. For him, the supply chain was the key element to rethink in order to maximize value creation.
According to the elements he discusses in his book “The Agenda“, it is necessary to
- Rethink value from the (end) customer’s perspective;
- Focus on collaboration and information sharing;
- Optimize business-to-business relationships;
- Think in terms of a networked enterprise where no activity should be performed more than once and where collaboration should be facilitated by transparent information shared by all.
Competencies, focus and outsourcing
Making supply chain choices is therefore about thinking in terms of core competencies. By focusing on activities and know-how where the company is unique, it is also possible to maximize the support of other companies that are experts in other areas.
These choices have led many organizations to outsource their activities (some with more success than others for different reasons). The concept of core activities and competencies is also central to the Business Model Canvas. Often overlooked, it is critical to focus on this as a business leader.
It is essential to focus on what makes the company unique (configuring competencies in a deliberate way to generate value). Think in terms of activities, not products. Activities are a key way to create a competitive advantage.
This means managing the supply chain deliberately. It must support the strategy. Each partner in the chain has an impact, and management must be proactive.
Ensuring strategic fit – Flexibility vs. uncertainty
The alignment of activities with the strategy must be maintained internally, between the different functions of the company and externally, between the different actors of the supply chain.
However, there are choices for executives. Depending on the uncertainties the company faces, decisions will need to incorporate a certain level of flexibility.
Uncertainties in the demand side of the business will need to be reflected in the degree of flexibility in the supply chain. Now, more than ever, these decisions are important. Current corporate pivots and business model adjustments are greatly affected by these issues.
Two supply chains can be configured differently to meet similar needs. The same company can also configure two different chains for needs with different uncertainties. Nothing is static, but the choices must be deliberate.
Innovation and supply chain
Innovation goes far beyond products and services. Business model innovation allows for a rethinking of the role of key activities and the importance of supply chain actors in creating competitive advantage.
However, it is also essential to consider the temporary notion of these advantages. Indeed, these advantages are nowadays short-lived. Whether it is the speed of technological developments or the rapid evolution of customer needs, we must be clear on one point. In a world of constant change, it is important to adapt and explore sources of advantage on an ongoing basis.
Rita McGrath brilliantly explores these ideas in her book The End of Competitive Advantage. For her, organizations must develop a strategic capacity to adapt and innovate. It’s all about strategic agility.
The maturity level of organizations will influence the energy deployed. A start-up will not have the same issues as a fast-growing or even a mature organization. However, the importance of agility and adaptability remains. The current challenges faced by organizations in the light of the pandemic prove this.
Innovation is, therefore, a must. Although, for many, it may focus on the company’s current activities, it is now more important than ever to explore new sources of growth.
The degree of change to the business model and the number of transformations will influence the degree of innovation. The notion of continuous exploration, testing and validation must become a management imperative. As the world is no longer static, this is an expertise that every organization must develop imperatively.
Methodologies, tools, and concepts such as Design Thinking, Lean Startup and those put forward by the authors of the Blue Ocean Strategy must penetrate the competency systems of organizations. Combined with a culture of collaboration and exploration, innovation can play a key strategic role.
By being proactive in the choice of activities to be executed internally and externally, by being deliberate in the collaboration and information sharing between partners, it is possible to maximize the impact of these strategic choices. Leveraging business model innovation to uniquely satisfy customers’ needs.
In a context of uncertainty, it is more than important to consider key players in the supply chain as not only suppliers but members of the network enterprise. It is no longer a question of relationships based on a “zero-sum game”. The success of one contributes to the success of the other.
It is, therefore, necessary to align the choice of suppliers and partners according to their contribution to the strategy, to manage relationships in order to optimize collaboration and information sharing. For some sectors, it is also possible to combine expertise and work closely together to explore sources of innovation.
For many years, procurement executives have been looking for a voice at the executive table. It is possible to say without a doubt that they have found it.