TALENT INNOVATION DIRECTION RESPONSE INCLUSION 10 New Ideas for Generating VALUE By Sumantra Sengupta Running low on ideas on how Innovation is the lifeblood of your supply chain can bring all companies. This could be in the form of new products, services or even new value to the business and to new operating models. In the absence of your trading partners? Looking for innovation, a company will face the certain innovative concepts that will capture “death by commoditization” effect over a period of time. Yet where the supply chain is management’s attention and drive concerned, innovation seems to be lacking in future investment in the supply chain? all too many cases. It is rare to fi nd an orga- The ten ideas presented here nization thinking about—let alone investing in—supply chain innovation. However, they can help on both counts. will readily spend hundreds of millions of dollars on product and service innovation. Sumantra Sengupta is a vice president at Why is this the case? Why does investment in sup- Hitachi Consulting, based in the firm’s ply chain process innovation lag so far behind the growth Los Angeles office. He can be reached at and strategic importance of the function? To fi nd some [email protected]. answers, I revisited an article that I wrote for Supply Chain Management Review in 2004 titled “The Top Ten Supply Chain Mistakes.” Five years later, it’s evident that many companies across industries are still making those 20 Supply Chain Management Review · May/June 2009 www.scmr.com SCM090501TenIdeas 20 5/7/2009 12:37:26 PM mistakes. They remain slow to adopt even basic best prac- EXHIBIT 1 tices to leverage the supply chain’s power. So if they are still struggling with the fundamentals, it’s not surprising Impact Areas of the Ten Ideas that they haven’t given much thought to innovation. But by not embracing innovation companies foreclose on an important opportunity to add value to their busi- ness and to their supply chain. This article sets forth ten innovative supply chain ideas that can add value. They can lead to positive outcomes in any economic environ- Cost Sustainability ment. Applied aggressively during turbulent economic Management Ideas Ideas times like these, however, they can yield powerful results 3,6,7,8 that will position companies well for the upturn we hope 1,2,3,4,7,9,10 and expect to come. Revenue Ten Innovative Ideas Enhancement Ideas 1,2,4,5,6,7,8 The ten value-adding ideas presented here will be refl ect- ed in different parts of the P&L and balance sheets, as we describe below. Exhibit 1 groups the ideas, some of into the current commodity cost structure. They were which overlap, into three broad impact areas—revenue spending less of their time and innovation budget look- enhancement, cost management, and sustainability. ing into alternate sourcing models for current products While management buy-in and cross-functional coordi- and more on exploring alternate design materials that nation are essential to making these ideas work, they all would also positively impact post-production support, reside squarely in the domain of the supply chain func- including parts and spares management. tion and its managers. The whole concept of design-driven manufactur- ing and alternate bill of material structure, though long Idea One: overlooked, is capturing new attention these days—and Shift the focus from order-to- with good reason. Shifting the focus to design-to-sup- delivery to design-to-support port will enable companies to fully explore their inherent We’ve all spent endless months (and sometime strengths in product design and innovation while con- years) focusing supply chain management on tinuing to drive down supply chain costs. However, this the order-to-delivery (OTD) process. This made shift will necessitate the adoption of lean and agile man- inherent sense since OTD represents 15 to 25 percent of ufacturing principles that emphasize rapid prototyping the supply chain variable cost in the typical company. Over and speed to market. And that means achieving the right the years, many companies have developed strong compe- mix of agility with stability that we have always strived tencies in the traditional activities of Plan, Buy, Make, and for in our supply chain practices. Move, which are geared to planning and delivering with sustained excellence. In the face of constantly escalating Idea Two: commodity pricing and a decrease in immediately available Look for hidden values in substitute sources of supply, however, many companies reverse logistics. have found that the cost drivers have shifted to the product The reverse value chain has traditionally been design and bill of material structures. treated as more of a compliance and regulatory Recently, we were engaged in two fairly lengthy dis- issue than a generator of value or competitive cussions with the heads of global operations for a con- advantage. Yet reverse logistics costs as a percent of revenue sumer health care and a medical device company. Both can range between 3 and 6 percent, depending on the type companies are global in their customer and supply base. of industry and product. Returns can range widely—from In addition to sharing common supply chain challenges, 4 percent all the way up to 50 percent in the publishing both these executives had one common goal: To change industry, for example. Obviously, returns represent a prime the product design process to adapt to the shifting com- source for discovering signifi cant value that can immedi- modity pricing market. The two executives both were ately drop to the bottom line. focused on driving their entire design and research team Some cellular network providers, for example, have to explore alternate materials that would not lock them gained sustained startup cost advantages by offering www.scmr.com Supply Chain Management Review · May/June 2009 21 SCM090501TenIdeas 21 5/7/2009 12:37:32 PM Ten Ideas refurbished or remanufactured phone sets at a fraction and manufacturing planning; new product commercial- of the cost of the new equipment. These efforts have ization cross processes; customer service and sales cross been driven by a well-executed return and manufactur- functional processes. ing process for equipment that is not at end of life. 2. Specify the lead times required to perform the pro- As corporations increasingly adopt green initiatives as cesses and elapsed time necessary to perform the asso- a core part of the value chain, they fi nd that component ciated tasks. This suggests that all associated tasks are refurbishing and reuse can be a source of additional value. performed to add specifi c value for the product or the This approach, coupled with the right set of controls for services that the company is providing. reusable products such as wooden pallets that are tradi- 3. Find logical breakpoints in the process. With tionally considered disposable, can positively impact the demand planning, for example, these breakpoints could cost basis by a factor of 1 to 3 percentage points. be process mapping and analysis, data analysis, data A well-constructed reverse logistics framework socialization and realignment based on inputs from cross includes the following components: a dedicated returns functional groups, and commitment to plan. Each of the network that is separate from the company’s forward net- task segments listed above has a logical breakpoint and, work; processes designed specifi cally for the reuse and hence, can be treated as a self contained segment. reverse logistics activities; incentives for the dealer/retail 4. For the various task segments, create a “right shore” network to perform value-added services such as effi - map that is balanced against the associated lead time ciently sending back damaged product or incorrect orders; boundaries. This will lead to extracting the best use of and predictive tools and technologies to accurately predict global skills that are available within the company or with inventory velocity needed to ensure customer satisfaction. partners that can provide the required process services. As a competitive lever, appropriate cost drivers for the Utilizing the simple four-step approach will ensure reverse logistics effort also must be in place. that the company is globalizing the supply chain func- tional processes as well as utilizing the talent pools that Idea Three: are available across the world. This will enable creation of Globalize the functional processes functional centers of excellence across the organization’s and adopt a “follow the sun” geographic span while freeing up overburdened resources model for skill deployment. to now execute the required supply chain process. Information technology outsourcing has become mainstream over the past 15 to 20 Idea Four: years. The global delivery model for outsourced IT ser- Manage the supply chain using vices has migrated from on-site to “right-shore” —based the concept of floor-and-surge on cost, skills and technology availability. It is common- to deliver with increased agility place to have a U.S.-based company’s help desk call andless waste. answered in Philippines with a back up agent in Ireland In the Supply Chain Management Review and remote services for desktop support coming from article mentioned earlier, we discussed the concept of India. This taps into the English speaking skills in the having multiple supply chains within a company. Today, Philippines, the tax advantages of a location like Ireland, that concept may be more relevant than ever as compa- and the technical skill base and good bandwidth avail- nies balance the need to be market responsive against able in India. ever escalating total landed supply chain costs. We have not seen the application of similar think- Companies still tend to operate one supply chain and ing applied to supply chain processes such as planning, manage all end-to-end activities using the same level procurement, customer service, and innovation.