The speed of innovation has increased significantly over the last 15 years. The success of technology and innovation leaders like Alphabet, Apple, Amazon and Microsoft illustrates this development.
Current technological developments not only have an impact on end-customer markets but more and more use cases are emerging for companies from Industry 4.0, IoT, cloud technologies, robotics and AI.
Core of innovation is to enable people do tasks better than they previously could, or make them do things that they couldn’t do before. It is obvious that considerable opportunities are associated with innovation. Those that are able to keep up with the speed of innovation are able to continually offer new products to the market and/or improve productivity. The effect on supply chain is obvious: The risk of products ending-up in obsolescence or significantly lagging behind competitor supply chain performance is diminished.
Three types of innovation
There are three different types of innovation whose effects can range from incremental to disruptive changes: product & service innovation, process innovation and business model innovation.
As for product & service innovation the trend of shorter life cycles bear the risk of quick devaluation of the products that are held on stock. The most obvious impacts on supply chain are high inventory levels and the risk of stock obsolescence. Thus, as the old products are being cannibalized by the new ones the risk of high working capital and high costs exists (i.e. stock keeping costs and write-offs). Furthermore, wrongly allocated resources can prevent your innovative products to hit the market (as the pipeline is filled with older versions of the products).
Process innovation is usually not obvious for end-customers as its focus is to develop or improve business processes to reduce cost or increase revenues. The most cited example of process innovation is the invention of the moving assembly line of Henry Ford which simplified assembly, helped to standardize work, and shortened production lead time tremendously.
When thinking about process innovation today, you should ask yourself whether a specific customer requirement is the basis of your processes or if it causes a noticeable interruption. There are countless ways for process improvements that can be realized through the use of AI, machine learning, cloud technologies etc. Sensorification & real-time monitoring of the supply chain, for example, enables the application of management principles originally developed for local systems to globally distributed supply chains such as Lean and Continuous Improvement. By creating a digital twin that reflects the state of a supply chain in real-time, Gemba (go and see) can be performed virtually. It also fosters a common understanding and enables higher levels of trust and closer collaboration between all involved partners.
Coming to business model innovation: The business model of a company describes how value is generated. Changes to the business model can be minor or far reaching: Either you change your role or you change what you offer. Think about RollsRoyce’s power-by-the-hour concept for aircraft engines. For one thing, they generated a completely new revenue stream. For another and more importantly, they changed the way of traditional MRO services. The benefits for power-by-the-hour customers are also obvious: enhanced robustness of the supply chain through better predictability of maintenance, minimized operational disruptions, reduced waste, increased efficiency as well as clear total cost of ownership.
No matter what innovation strategy a company pursues, it should be ensured that it is properly formulated and stringently followed. That means you need to operationalize your strategy by breaking it down to concrete targets. This is the basis to shape an organization that can cope with today’s high pace of innovation. By doing so, you need to do your utmost that your organizational structure and processes support the achievement of those targets. This requires the definition and realization of targeted measures and actions.
AIO Impact supports your goal setting and tracking of outcomes. It helps automate and create more efficient daily routines and frees-up your organization’s capacity for innovation.