Innovation and Supply Chain

Innovative Supply Chain

A successful supply chain requires an organization to be clear about its business objectives. A successful supply chain also requires innovation and adaptability.

An innovative supply chain is largely driven through sharp business focus and synergy generated from an integrated functional approach. Some key factors that are essential to build an innovative supply chain are:

1. Culture and Leadership: Organizations must encourage employees to be creative and innovative. IBM encourages an organizational culture with innovation emphasized in every employee's job description and evaluation. Top management support for an innovative supply chain creates a positive environment for change. An innovative organization should also foster a culture open to ideas. An innovative organization must recognize poor decisions and failures as part of a normal business process.
   
   
2. Reward Innovation: IBM's ISC team in Scotland has developed 200 innovation projects in two years. IBM awards the best innovations.
   
   
3. Motivation to change: A successful implementation of innovation necessitates organizations to constantly motivate for innovation. The approach may be out of sheer necessity or the will to excel constantly. With integrated functions, it is necessary for supply chain managers to become innovators.
   
   
4. Innovative employees: It is essential to have the right employees at the right place for successful innovation. Innovative employees are creative, enterprising, desire change for the better constantly and can visualize differently. Employees may be initiated into innovation through training, benchmarking, professional development, job rotation or even recruitment of fresh talent.
   
   
5. Break traditional barriers to innovation: A supply chain is traditionally considered as an operational function. Hence, innovation takes a backseat. However, operational workforce led by line managers should explore opportunities to innovate, improve existing processes and restructure operations with other functions.
   Innovation is not a new discipline in most organizations. However, the usual strategies in innovation and approaches adopted and succeeded in the '80s and '90s, are no longer sufficient. Organizations must involve in exciting experiments and innovation to reinvent the way they create the future, for "business as usual" does not always produce the desired results.
   
   
6. Evaluate the organization’s present state of innovation: Supply chain managers must benchmark the existing supply chain against the competition and keep track of business trends. It is also important to adopt constantly techniques that enable better performance from service providers so as to adapt the supply chain in accordance with the nature of product.
   
   
7. Prioritize Innovation: Companies acknowledge that innovation is the only sustainable source for growth, competitive advantage, and new profits. However, only about 25 percent of the companies consider innovation as the key strategy to be successful in today’s competitive environment. Organization must consider innovation in the supply chain as top priority and a responsibility of all employees, even the lower level employees. Organizations need to understand and evaluate the impact of innovation. This will allow organizations to put supply chain innovations on the same level as product innovations.
   

In a dynamic environment, organizations are forced to adopt an innovative supply chain management strategy to ensure success and long term survival. For best results, innovation should be backed by the management and elicit the participation of all the employees. Innovation has always led organisations to stand out

Essential principles for managing innovation:

• Comprehensive approach to innovation.
• Innovation must include an organised, systematic, and continual search for new opportunities
• Involve everyone in the innovation process.
• Work constantly to improve the environment for innovation.

Supply Chain Masters

Achieving supply chain mastery. A few examples:

Dell Computers: Dell was struggling as a second tier PC maker until 1994. After it implemented a new business model, “build to order”, Dell eliminated its inventories and adopted a direct selling approach. The just-in-time (JIT) systemyielded rich dividends. Dell quickly became a market leader. Dell was able to make computers much faster than it produced earlier. Plant uptime also went up to a record 95 percent.
Click to download full text of this Case Study in PDF format: Dell's Supply Chain Management Strategy

Baxter: Baxter; in the hospital supply business established powerful partnerships with hospital customers in the mid 80’s. Baxter adopted ‘vendor managed inventory’ and managed its customer’s inventories within their hospital facilities. Also, by following ‘stockless system’, a supply chain innovation, Baxter transformed itself from a supplier of increasingly commodity like products to a distinguished provider of value added services.

Procter and Gamble (P&G): The ‘continuous replenishment system’ was pioneered by P&G when it partnered with Wal-Mart. Based on Wal-Mart’s product movement data; P&G replenished the stores. This supply chain innovation brought a striking turnaround in the consumer products and retail industries.

Scholastic, a world's leading publisher and distributor of children's books is another example of a supply chain master as it increased revenues substantially, by adopting a unique supply chain business model.

Supply Chain Costs

Reducing Supply Chain Costs

Collaboration with suppliers and customers to cut supply chain costs is a key strategy employed by most companies.

Why reduce supply chain costs?
The economy has made the traditional supply chain ineffective. Across industries there is no relief from ever-increasing raw material prices and declining sales. So the only option now for survival is to decrease costs. Corporations are looking at cutting costs across their supply chains. An effective way to bring down supply chain costs is to collaborate with the suppliers and customers. Most organizations realise that competition is not between companies but between supply chains.

According to supply chain strategists, the modern day supply chain strategy is based on three principles:

1. The end customer contributes to the cash flows of the supply chain.
2. Supply chains management must include every component of the chain that contributes to the profits.
3. Supply chain management should not be price centric, and must include management of technology, quality and product performance.
   

Therefore, the latest model of supply chain management emphasizes the management of information, relationships and inventory. Surveys that though organizations are excited about e-supply chain management, it is the physical delivery and sourcing that forms the bottom line of strategies. Managers should examine the processes that underlie supply chains and would evolve solutions that would facilitate costs savings and generate higher returns.

In most cases the supply chain costs escalate due to poor communication. Supply chain strategies that enhance the effectiveness of information systems must trim down inventory, logistic costs and boost customer satisfaction. However, new systems or processes should be introduced only based on efficient metrics and consistent data. A good example is Bechtel Group, where a plan to improve supply chain efficiency was held up because it lacked right metrics.

Reducing stock/inventory levels is profitable the supply chain. Some research surveys reveal on an average a typical manufacturing company spends 56 cents on inventory for every one dollar of revenue, while retail and wholesale organizations spend even more. By saving each dollar in inventory, the pre-tax profit can increase by one dollar. Wal-Mart is a good example for a corporation that has gained from an efficient inventory management system. Its success is credited to the well automated two-step distribution process. GlaxoSmithKline has developed internal supply chain consulting groups. The internal supply chain consulting groups comprise of the CIO, procurement officer and senior officers from legal and R&D departments.

Another approach to supply chain is to view supply chain management as a cost centre. Shell Oil operates the cost centre in consultancy mode. The costs savings achieved are shared among the cost centre and the other departments that work in tandem with the centre. Home Depot involves all the members of the supply chain including transporters and vendors. Such new approaches focus on reducing internal costs across functional departments.

Some other supply chain cost management initiatives include CRM, engineering control, global supplier development etc. Chrysler received a spate of suggestions from suppliers when it declared that cost savings would be shared. American Honda Motor Co maintains an enormous database that has cost drivers for each and every part that is sourced. This data is shared with the suppliers and savings that result are equally distributed.

Related reading: “Reducing Costs Across The Supply Chain”: R Handfield

Supply Chain Excellence

The Centre for Transportation and Logistics at MIT (Massachusettes Institute of Technology California,USA) has structured a three-year project, named Supply chain 2020. This project will mainly look at what ought to be the components of an excellent supply chain system. The project was launched eight months ago. The aim of this project is to provide companies with trends and events of the near future, which will leave an impact on the business.

The project envisages some unexpected circumstances companies may have to encounter. These scenarios include shortage of fuel, an absence of low cost producer countries, no third world economically backward country etc.

Four characteristics that an excellent supply chain must have are:

• Supply chains are a vital part of an entire business design. They enhance and support the strategy.
• Excellent supply chains are based on a complementary model, not on operating model that gives space to competitive advantage.
• Supply chain is highly performance oriented and the performance is measured by a balanced business metrics.
• Excellent supply chain influences a model set for business practices, like operation, strategy and operational model
  

Glaxo Smithkline Supply Chain Challenges –Part II

Glaxo Smithkline (GSK) spends about GBP 800 million to develop a drug. Its efforts and money will go waste unless its customers get the product in time without any defects and have no difficulty in handling the package. In other words, every facet of GSK’s supply chain should be up to the mark. The previous article highlighted some of the supply chain challenges GSK faces. This article illustrates GSK’s response to those supply chain challenges.
Countering Market DynamicsLate pack customisation

To counter the challenge of supplying to a multifaceted US market and low volume niche markets, GSK implemented the late pack customisation programme. While typical production runs were up to 30,000 numbers for cost effectiveness, GSK could effectively produce as low as 100 or 500 packs at a time with this programme. For instance, basic boxes were volume filled with blisters at the pack site and shifted to the two distribution centres in Europe. At these centres, clear labels were printed online with country related information and applied automatically. Even country specific folded leaflets were attached automatically. Quality was ensured with three two-dimensional bar codes, one pre-printed on the box, the other pre-printed on the leaflet and another printed online on the label. Online inspection on the codes could be performed at one go owing to their inline position.

Countering Packaging Complexities
Global Pack Management

With more than 36,000 SKU’s and a six-month life cycle of its products, handling packaging specifications, associated graphics and artwork changes was an enormous task. Standardising the packaging changes was another major obstacle. GSK developed the Global Pack Management (GPM) to handle this complexity (currently in use for its prescription products). The GPM programme focussed on four major issues:

1.Change Standardisation- Packaging changes are standardised using global training and implementation programmes.
2. Developing a pack catalogue- All employees have access to a central and current set of all GSK’s packaging information. This helps foster idea sharing while achieving packaging optimisation simultaneously.
3. Central artwork development: Accordingly, only four centres (strategically chosen at US, UK, Italy and India) were to service the packaging graphic needs of all products. Earlier, 250 centres performed the same activity.
4. Uniform and centralised information technology- This helps streamline workflow. Since all the employees use the same central applications (For example, GSK adopts the graphics industry standard Apple Macintosh computers and software) it ensures uniformity. There are no serious encryption issues, if packaging artwork is transferred between similar standard systems.

Paperless labelling/electronic leaflets

According to FDA regulations, all drug companies in the US must print and attach labels to every product going into the market. So, any label or leaflet change can take up to a year to reflect with pharmacy stores first emptying existing inventory. Working along with the Pharmaceutical Research and Manufacturers of America (PhRMA), GSK has been striving hard to push forward its paperless labelling initiative. The aim of paperless labels and electronic leaflets is to prescribe information to healthcare professionals electronically. This will help instant updation as any change in the leaflet/label is reflected automatically. Patient safety is the ultimate goal of GSK.

Online Printing

GSK is working on developing online printing that matches the speed of the packaging line and prints at the desired quality level. Efforts are on to keep costs of online printing down.

Countering Supplier/Outsourcing issues
GSK realises the importance of finding and qualifying multiple suppliers to avoid any supply disruptions. For instance, for its popular Advair Diskus device, GSK has three suppliers, two in Europe and one in the US. The goal is to have enough capacity globally with all suppliers producing identical components with identical tooling on identical machines. Meeting strict regulations is of prime importance. Communication can play a vital role in establishing coordination among multiple suppliers. GSK uses an electronic CAD package. The CAD package has drawings indicating minor details and any subsequent or ongoing review to every component to overcome communication gaps if any.

Countering Operational/production challenges
GSK limits the number of equipment suppliers to minimise downtime. For instance, on one packaging line it has one supplier Schubert’s four robotic systems. The robots do the cartooning and case packing as well. In response, Schubert offers GSK the benefit of assigning a dedicated team that works for GSK alone. The team also has an office in GSK’s plant itself. Healthy supplier relationships have helped GSK minimise downtime. Moreover, all equipment from a single supplier facilitates a better understanding of the equipment functioning, than having disparate machines for same tasks. Thus training costs are also less.

Furthermore, GSK uses a central TIPS production management system that minimises downtime. The system tracks downtime data allowing for ongoing production improvements. GSK is able to maintain product quality with vision cameras and online inspection using bar code scanners. GSK prefers to be the rapid follower instead of being bleeding edge with respect to technology adoption. Instead of using ‘packaging only’ lines, GSK uses lines, which are integrated to do final assembly and packaging also.

GSK’s efforts as illustrated above have been successful. Organisations can follow its Supplu Chain Management strategies as they truly extend the value of product, packages, plants and people.