7 factors defining supply chain innovation in high-performing companies
The term innovation often evokes idea of a radical technological shift. While these shifts can indeed be radical, they can also be incremental. The purpose of innovation can quiet simply be expressed as the cultivation of new ideas, technologies or processes to increase productivity and output - ideally with the same amount of input or less.
Innovation in the supply chain is commonly referred to as the development and improvement in the supply chains operate. As supply chains serve as the backbone of trade, the shipping industry is pushing to improve the way in which products, information, and transactions flow through the network.
At the recent Global Liner Shipping Virtual Event, Patrick Maley from BluJay Solutions shared his company’s research on the what is driving supply chain innovation*. Specifically, how high-performing companies were prioritizing their technology investments.
Through anecdotal conversations with customers and following industry trends, “we wanted to connect the dots on the idea that companies that prioritize the customer experience over cost cutting we're better at adopting technology. Which lead to better financial performance than their peers,” states Maley.
The rate at which technology is changing as become so fast that it's even difficult to be a fast follower, if you are slower on the technology adoption curve and try to catch up and adopt the latest technology one can be too late as technology is likely to change again.
Maley believes the organizational skill of adopting new technology speaks to a company culture, organizational design, vision, and company purpose. But are the companies that fit this model actually doing better financially?
“We sliced this up the research into a number of interesting views. We look at it by financial success, technology adoption shippers versus LSP's (logistics service providers), and by geographic region. This year we added two new slices into the mix. First, we slice the data by generation. Secondly, we investigated respondents’ attitude towards resilience in the time of COVID-19,” observes Maley.
The additional of these two sets of questions was to investigate whether the generational divide is having a cumulative impact on the supply chains move to emphasizing the customer experience. Additionally, resilience has shot at the top of every supply chain leaders list, “It’s COVID today. In five years, it will be something else,” Maley offers.
“In short, we indeed saw a clear-cut relationship between the company's ability to adopt technology and their financial performance.”
Customer experience will dominate the supply chain
In defining customer experience Malay notes that one Senior Vice President in the supply chain said that, “customer experience is being able to not just meet with the customer expectations of the customers are such as on time delivery on time in full. But being able to exceed expectations in performance. How do we understand what they want before they want it? As a supply chain executive, it's always at the forefront of my mind as I look at new technology that it must help me exceed our customers’ expectations.”
According to the research, the pandemic has not dampened the movement to improve the customer experience. Despite worldwide stock issues and delayed deliveries, overall respondents remained firm in their belief that the customer experience will become the number one brand differentiator moving forward. 62% of the survey respondents agree or strongly agree that customer experience will overtake price and product as a number one brand differentiator over the next five years. This is a slight increase from the same research done in 2019 where 61% responded the same.
“Last year, we saw a sizeable difference between North American companies and those in Europe and Asia. North America companies were much less likely to agree that the customer experience was more important. And this ties in with another view where LSPs and third-party logistics (3PLs) globally, we're much more likely to believe that the customer experience is more important.”
Maley continues, “LSP’s and 3PL’s don't want to compete on price. If you're an LSP, you know what I'm talking about. Their entire business is about delivering value for their customers as they live the customer experience and that's their differentiator. As 3PL's are more prevalent across Europe, it makes sense that Europe and the US would answer these questions differently.”
The future of the supply chain will be greener and more transparent
By generation, Maley states that 55% of silent Boomer respondents agree or strongly agree that customer experience will become the number one brand differentiator - 11% lower than for all the respondents combined at 62%.
Gen X and Millennial Gen Z respondents had higher percentages 64 and 65%. Maley believes that the sizable difference makes sense if you believe that the older we are, the less we like change.
One might argue older people don't like change is hardly research based and I agree, but there are some stats that would support this notion. “For example, in Europe, only 57% of Internet users aged 55 to 74 bought goods or services online in 2019 compared to 76%, and 78% for 16 to 24-year olds.”
“The same in the US, only 49% of Internet users over 65 made a purchase online in 2019, compared to 77% for 45 to 54-year olds and 86% for 18 to 24-year olds. The newer generation is entering the workforce in larger numbers while Boomers are starting to retire ever larger numbers.”
Maley believes these numbers align with the increasing numbers of respondents each year that believe the customer experience is overtaking price as the top brand differentiator. When investigating how well these respondents were adopting technology Maley observes that innovators and early adopters are far more likely to focus on a customer experience versus their late counterparts.
“Companies that are good and seek to adopt new technology are not solely adding technology to lower costs or improve efficiency. They are also adding new ways to interact with their customers to create better and stronger brand experiences.”
What is driving innovation in the supply chain?
Maley believes the influence of the pandemic is changing views about innovation drivers. Considering the large economic and financial impact of the COVID-19 crisis, it is not surprising that reducing costs would be the top factor driving supply chain innovation. However, Maley believes that it is interesting to note the differences in response when reviewing answers of early and late adopters by generation
“Here we see a spike in sustainability for driving innovation coming from the younger generation which really not too surprising. Nearly half of millennials and Gen Z are more attracted to making a positive impact on society and communities and starting a family - that's according to a 2019 Deloitte Millennial survey.”
“Last year, around 70% of Millennials said they prefer to work in a company with a strong sustainability agenda and three quarters of them are even willing to take a smaller salary. As sure as the tides, the influence of a new generation will be shaping supply chain for years to come.”
What are the capabilities most important to delivering an enhanced customer experience?
Maley reports that real time visibility to orders, shipments and inventory was rated the most important factor to delivering enhanced customer experiences at 36% - a 13 % increase from the previous year. Time-definite delivery is ranked second with 17% of most beneficial votes - also, a 13% increase from the previous year.
These gains came at the expense of quick and easy returns and drop shipping which both saw a decrease. However, the capability with the biggest gain in the research was business intelligence, analytics, and machine learning which moved up to the third spot overall with 16% of the votes - a 23% increase from the previous year.
Maley points out that technology adopters are leading the way once more with Millennials and Gen Z being four times more likely to choose machine learning and AI than their Boomer counterparts.
What is holding back supply chain innovation?
While siloed systems and/ or processes (17%) and outdated IT systems (14%) remain as the top reasons inhibiting innovation in the supply chain. Maley reports that two new responses geopolitical and trade uncertainty and the lack of flexibility or innovation is supply chain partners tied for third place (12%).
“For innovator early majority companies, geopolitical and/ or trade uncertainty received the most top barrier votes at 16%. In contrast, only 7% of top barrier votes from laggard, late majority companies,” states Maley.
“The uncertainty in global trade is likely to have postponed investment and innovation in some of the more progressive companies. It's no secret that companies like stability when it comes to investing for the future.”
COVID-19 as a catalyst for supply chain resilience
While Maley believes that COVID-19 has been a catalyst for change, but supply chain resilience is not a new concept. Crises have been with the industry from the beginning of time, but COVID-19 has accelerated the importance of establishing greater resilience in the supply chain.
“As a supply chain professional, I was really proud of our industry as it stepped up during this time and put on a display of urgency, an efficiency that prevented a far worse crisis. It's an exciting time to be in supply chain,” comments Maley.
As part of the one-to-one conversations done as part of the research a US-based supply chain manager noted that, “I'm amazed and impressed how everyone handled it. The trains run on time for the most part. Carriers did what they had to do, and everyone performed admirably. We were all in it together and we really figured out how to make the best of it.”
Based on the lessons learned and the changes to how companies design and operate to be more resilient, Maley reports that a greater percentage of above average performance companies (from early innovators and the majority of early adopters) expect to make many or extreme changes compared to average or below performance companies (laggard and the late majority counterparts).
“In other words, the good will get better. We've seen this as really a big separation event and weaker companies will suffer as a result of this type of planning,” cautions Maley.
“When we slice it up by generation, we see almost exactly what I would expect to see if you subscribe to the notion that the older we get, the less we like change. It shows up here for Millennials and Gen. Z (38%) as they advocate extreme changes more than other generations - Silent/ Boomer 31%, and Gen. X 34%).”
“Following on this line of thinking that the strong and the week will continue to separate, there were interesting results when looking at what functions and processes would be under the microscope. In the late majority group, as well as the average and below average performance groups, we saw a significant number wanting to focus on sourcing strategy.”
Maley suggests this is a sign of these groups struggling and being hit harder by the pandemic. He suggests this could be due to these groups having a less diversified network of suppliers that are more advanced counterparts. On the difference between shippers and LSP's, he states that it makes sense considering LSP's or not as heavily involved in sourcing as the shipper or the brand owner.
One Gen. X manufacturer had shared a great perspective on sourcing and resilience, states Maley. He noted that due to our competitors having some sourcing issues they had been able to capitalize on a significant amount of business. They had additional capacity that we were able to turn on and ramp up very quickly, and they went from running 12 lines to 30 in the flip of a switch. Maley believes this is a great example of a company that picked up market share due to their investment in resiliency.
What actions companies are taking going forward to create more resilient supply chain? What capabilities do they view as most important?
The number one response here was developing stronger and more transparent relationships with key suppliers (53%) observes Maley. Cross-training employees came second (49%) and expanding and diversifying the supplier base came third (43%).
Reflecting on the results, Maley believes that thinking more about supplier networks and relationships have come to the forefront with COVID. With product shortages and product delays rippling through the supply chain, he notes that companies which had a broad base of suppliers and strong relationships we were far better prepared to adapt to the challenges.
With regards to capabilities which respondents found most important during this time, the top four - by a wide margin - were related to improve visibility, managing demand, and the ability to simulate demand and inventory with what-if capabilities (60%).
Maley observes that when looking at this view by innovators versus laggards and financial performance, “you could see the innovators and high performance see this technology as far more important than their laggard counterparts, and they'll likely use it to further separate themselves.”
“One supply chain leader – who was a millennial used what-if solutions to allow them to scenario plan and identify possible constraints to serving their customers. What I liked even more about what she said she was about their roadmap to teamwork, and how important teamwork is for delivering a great customer experience.”
“She said it's really the people that make it work and being close to your customers. It's relationships and personal relationships which help them understanding how important in order is to a customer when it's channelling allocations. Technology is great but it's really the people that make it all work.”
Maley reflects that it is interesting to learn how each of the generational segments see these challenges, and the ways to address them. He believes there's no doubt the younger generation is having an increasingly larger impact on supply chain strategies, “While conventional wisdom, or maybe social media wisdom, is frankly hard on Gen. Z and millennials, I'm very bullish on the future. I've hired many millennials and Gen Z people and have found them engaged, team oriented, hardworking, creative, and digitally nimble. In my experience they bring really unique viewpoints that only a generation raised with technology can bring.”
* BluJay Solutions and Adelante SCM, in partnership with the Council of Supply Chain Management Professionals (CSCMP), conducted an online survey of supply chain and logistics professionals in 2020. They received over 250 respondents from supply chain leaders from Europe, North America, Asia and Australasia.
