What is supply chain innovation? In a 2013 white paper, the MIT Center for Transportation & Logistics defined supply chain innovation as “the combining and application of a mix of inventions, existing processes, and technologies in a new way that achieves a desirable change in cost, quality, cash and/or service.” A lot has changed over the past 10 years, including the role and importance of supply chain and logistics innovation. Why are companies innovating today? Where are they focusing their supply chain and logistics innovation efforts? What role is technology playing in this area? Those are some of the questions I discussed with Chris Jones, Executive Vice President, Industry and Services at Descartes Systems Group, on a recent episode of Talking Logistics.
Why Innovate Today?
Supply Chain and logistics innovation is certainly not new, but why should companies continue to innovate in today’s environment? I asked Chris to share some of the recent research Descartes has done on this topic.
In its survey, conducted with over 1,000 logistics executives, Descartes found that resilience and cost were the two most cited reasons companies are innovating today. “Resilience has been a hard lesson for everybody the past couple of years and the high inflation last year globally, and likely continuing this year, is driving a focus on cost,” Chris says. “It’s both the cost of materials and the cost of borrowing that is important now.”
“The strong focus on resilience is interesting,” continues Chris. “In my discussions with executives, many are sourcing parts and materials locally, even though they may pay a higher price, to ensure they have them when they need them. But they’re also carrying less inventory because they are less worried about getting it. There’s a huge tradeoff there.”
Effects of the Pandemic
I asked what role the pandemic may have had in spurring innovation. Chris notes that the pandemic drove many companies to change their business models and competitive positioning. “It was the prime driver for people to do more,” he notes.
“The other key point from the research was the impact it had on getting senior management more involved in fostering innovation. The C-suite people are saying, ‘We have to do something.’ And those already involved with innovation said they have to increase the volume.”
Where is Innovation Focused?
The Descartes research shows that a lot of the innovation focus today is on inventory management and fulfillment. Chris indicates this is largely a result of the need to improve the customer experience, which executives said was their most pressing need for the next two years.
Chris also found it interesting that from a technology standpoint, the respondents’ main innovation need was in warehouse management, but other functional areas were right behind it. Simply put, opportunities for innovation were across the board.
Connecting Supply Chain Innovation and Business Success
For innovation to begin, any expenditures require corporate approval, which in turn requires companies to define the expected business value. I asked Chris how companies are making that connection.
Chris notes that a key factor shown in the research was that almost 60% of the surveyed companies already had strong interest in innovation among top management, which helps in getting efforts approved.
A cross-current in the research was a question about an organization’s turnover, with the assumption that high turnover leads to a depletion in organizational knowledge. “This understanding of the business is what often creates the ‘ah-ha’ moments critical to innovation,” Chris says. “And this correlated with the degree of management interest in innovation.” You can also argue that a lack of innovation will lead to higher turnover, especially among younger workers.
Lastly, the research looked at financial performance. It showed that companies with better financial performance also tended to be more interested in innovation.
On the flip side, the biggest inhibitor to innovation was companies being risk averse. “If you’re really doing innovative things there is going to be some risk there,” Chris notes. “Unfortunately, many corporate financial models or project approval models look to take out risk, but with innovation, you’re not going to have all the answers up front.
“Ultimately, innovation is going to come from tying it to things like revenue generation, competitive differentiation or improving margins. Those are the kind of things where management is going to say it’s worth taking the risk.”
The Future of Supply Chain Innovation
In light of some economic headwinds, what is the future of innovation in supply chain and logistics? What role will ‘hot topic’ technologies like machine learning and AI play? Chris shares some interesting insights and advice on those questions and more, so I encourage you to watch the full episode for all the details — and download the research report tool. Then keep the conversation going by posting a comment with your questions and comments.