A Revolution in Supply Chain Management

Revolutionary innovations carry great promises; they capture the imagination and motivate people.
Manufacturing, procurement, distribution, and professionals in other supply chain functions are constantly looking for the next cutting edge.

But – how many innovations in supply chain management are truly revolutionary? How many have lived up to their expectations?

Most innovations in supply chain management reconfigure existing solutions and known methods and technologies rather than adding truly new knowledge or practice. Let’s understand why that is the case and what can be done about it.

Existing Approaches Show Diminishing Returns

Companies have invested millions of Euros in better forecasting techniques and systems, advanced planning and scheduling, various technology-based modernization initiatives (e. g., RFID). However, the results don’t come close to the original business cases. Forecast error is still a significant headache for many supply chain planners and managers. While advanced planning may have improved local asset utilization rates, service levels have not improved as expected. The product mix becomes increasingly complex in an attempt to provide mass-customized products. More and more, players in the supply chain acknowledge a “bi-modal” distribution of their inventory positions: too little of the right items (stock outs) and too much of the wrong items (overstocks).

Incremental change and improvement, labeled “continuous improvement” is common practice in most companies. This is definitely an important aspect of managerial practice. Such change allows a company to maintain its current position in a competitive market of similarly capable players. It is a sustaining innovation in Clay Christensen’s framework from his seminal work “The innovator’s dilemma”.

However, this leads to a critical question. In today’s buyers’ markets consumers and B-to-B-customers have more and more choice and expect shorter and shorter lead times; and more and more of these customers are ready to use their position in the market place to drive down prices and demand better service.

Given these conditions and an exceedingly volatile and complex environment, is incremental improvement still sufficient to secure the long-term survival of an actor in a supply chain?

We believe the answer is “no”.

Rather than looking for more sustaining innovations, companies must focus on disruptive innovation. While the product or service itself might be a good a place for such a chang