SUPPLY CHAIN INNOVATION IS PERCEIVED IMPORTANT FOR COMPETITIVENESS

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1 the danish supply chain panel SUPPLY CHAIN INNOVATION IS PERCEIVED IMPORTANT FOR COMPETITIVENESS It is hopefully not a secret that the supply chain management area offers a wide range of opportunities for companies to maintain or even strengthen their competitiveness. Therefore it is fatal if innovation in the supply chain is neglected. Read the article and become aware of the drivers and main barriers for supply chain innovation. BY PROFESSOR JAN STENTOFT, PHD, AND ASSISTANT PROFESSOR OLE STEGMANN MIKKELSEN, PHD, DEPARTMENT OF ENTREPRENEURSHIP AND RELATIONSHIP MANAGEMENT, UNIVERSITY OF SOUTHERN DENMARK, KOLDING ILLUSTRATION: SHUTTERSTOCK Supply chain management offers approaches to improve the bottom line in terms of cost reductions in various areas such as purchasing, inventories, manufacturing and transportation. Supply chain management can also contribute to an improved top line in terms of increased turn over due to e.g. delivering superior products and services at the right time and at the right place. In many companies the supply chain consumptions are relatively high percentages of the overall cost consumption. It is not unusual that the cost to drive the supply chain (i.e. the total cost spend in procurement, the cost to ruin factories and the distribution cost) can count between 60 to 80 % of the total turnover. Innovation becomes fatal if neglecting in the supply chain management area. Therefore, we encourage top management to consider their supply chains as innovation objects with the same strategic emphasis as products and service innovations. Conceptually, we prose that supply chain innovation can be understood in terms of business processes, network structures and technology (figure 1). 48 DILForientering FEBRUAR 2017 ÅRGANG 54

2 Supply chain business processes consist of structured sets of activities designed to produce specified outputs within different process areas (e.g. order fulfilment, demand management and supplier relationship management). Supply chain network structure is about the internal as well as external network links to other functions and firms. Such links are internal cross functional links and external links in tiers downstream to customers and upstream from suppliers. Other links can be with competitors and diverse knowledge suppliers such as consultants, public agencies and universities. The third component in figure 1 is technology that consists of a high variety of different technologies that can come into play in the design and execution of business processes. Such technologies are e.g. basic ERP systems, bar code technology, RFID and the so-called disruptive technologies such as 3D printing, 3D scanning, drones, mobile internet, Internet of Things, and big data (Stentoft & Mikkelsen 2016; Stentoft et al. 2016). The overall idea with figure 1 is to create consciousness about the need to initiate and complete supply chain innovation projects and their content elements both contains and affects processes, DANSK RESUMÉ Det er ingen hemmelighed, at supply chain management-området giver virksomheder en masse muligheder for at opretholde og endda styrke deres konkurrenceevne. Derfor er det også fatalt, hvis udvikling og innovation af værdikæden bliver forsømt. Læs artiklen fra The Danish Supply Chain Panel og bliv klogere på drivkræfter og barrierer bag supply chaininnovation. /Redaktionen networks and technology. In this article, we present and discuss the recent mini-survey from The Danish Supply Chain Panel that focuses on the panel s practices and judgement of relevance within the supply chain innovation umbrella. Supply chain strategy and supply chain innovation projects In order to work strategically with supply chain innovation, it is important to have a supply chain strategy. The supply chain strategy must be linked to the overall corporate strategy and aligned with other functional strategies (see alignment tool Stentoft & Thoms 2014). Hence, the first FRAMEWORK FOR UNDERSTANDING SUPPLY CHAIN INNOVATION Recognize a need for change in business model (performance gap) Supply Chain Business Processes Develop solutions for new business model Supply Chain Technology Supply Chain Network Structure Implementation of new business model Figure 1. Source: Arlbjørn et al DILForientering FEBRUAR 2017 ÅRGANG 54

3 PRACTISE OF SUPPLY CHAIN STRATEGY AND SUPPLY CHAIN INNOVATION PROJECTS How important is it, in your opinion, that your company have a welldefined supply chain strategy that is linked to corporate strategy? 4,52 To which degree is your top management aware of that your supply chain is a source for competitiveness? 3,91 To which degree do your company have a well-defined supply chain strategy that is linked to corporate strategy? 3,65 To which degree do your company in general execute development/innovation projects in your supply chain? 3,58 Figure 2. Source: The Danish Supply Chain Panel thing we sought to ask was if the companies in this survey do have a well-defined supply chain strategy that is linked to corporate strategy, and how important the respondents think this is. The answers, based on a 5 point Likert scale from very little degree/importance (1) to very high degree/importance (5), appear from figure 2. Several interesting issues emerge from the responses in figure 2. First we observe that the respondents find it rather important (4.52) that their company have a well-defined corporate linked supply chain strategy, while simultaneously they find that this is the truth to only some degree (3.65). In other words, it seems that there is a gap between importance and implemented reality. Second we observe from figure 2 that there is a gap also between the perceived importance of a well-defined corporate linked supply chain strategy and the top management awareness of the supply chain as a source for competitiveness (3.91). The gap between awareness and importance, could to some extend explain the gap between importance and implemented reality. If top management is not aware of or does not focus on the supply chain as a source for competitiveness, it may prove hard to convince top management to invest and allocate resources into developing the supply chain. This is mirrored in figure 2 in the fact that innovation projects in the supply chain are only to some degree executed (3.58). Following the SCI framework in the introduction, we have asked questions to which degree the company find innovation important and what their current practices are. The first set of questions pertains to eight supply chain management processes (Lambert & Cooper 2000). Supply chain management business processes The responses to the questions on supply chain management processes presented in figure 3, in which we have depicted importance and current practice of the processes respectively, are again based on a Likert scale from 1 (Very little degree/importance) to 5 (very high degree/importance). As it appears from figure 3, all the supply chain business processes lacks behind in current practices compared to perceived 50 DILForientering FEBRUAR 2017 ÅRGANG 54

4 SUPPLY CHAIN MANAGEMENT BUSINESS PROCESSES Customer Relationship Management - importance Customer Relationship Management - current practice Customer Service Management - importance Customer Service Management - current practice Supplier Relationship Management - importance Supplier Relationship Management - current practice Order Fulfilment - importance Order Fulfilment - current practice Demand Management - importance Demand Management - current practice Product Development and Commercialization - importance Product Development and Commercialization - current practice Manufacturing Flow Management - importance Manufacturing Flow Management - current practice Returns Management - importance Returns Management - current practice 2,50 2,72 4,17 3,42 4,02 3,42 3,96 3,35 3,79 3,54 3,75 3,12 3,62 3,19 3,48 3,15 Figure 3. Source: The Danish Supply Chain Panel importance. In other words, all the processes in the survey entail gaps in terms of importance versus current practice in several areas. First, it is not surprising that customer relations management and customer service management processes are reported as the most important by the respondents. After all, it is the customers that pay the bills. But it is surprising that customer relationship management even though it is the process with one of the highest level of current practice, it is also the process with the largest gap between importance and current practice ( = 0.75). Also supplier relationship management is high on the list in terms of importance (3.96). With an average of 3.35 on current practice it creates a gap of 0.61 between importance and current practice, which is also among the highest gaps. It is interesting that the three highest averages on perceived importance are focussed towards external relations downstream and upstream. At the same time, the three supply chain processes have some of the biggest gaps suggesting that much still has to be accomplished in the three supply chain process areas. Hereafter follows more internally focussed supply chain processes such as order fulfilment, demand management, product development and manufacturing flow management. Even that demand management is placed in the middle of the importance field (3.75) it is the supply chain process with the second highest gap (0.63) toward current practice, suggesting that respondents still notices much potential in working with this process. This provide some evidence for that Sales & Operations Planning is still a challenge in many companies though this set of practice has been available on more than two decades (Stentoft et al. 2016b). At the very bottom of importance we observe the supply chain process returns management (2.72), which also holds the smallest gap compared to current practice (0.22). So it is fair to say that current practice does overall correspond with perceived importance. On the other hand it is interesting that this supply chain process is rated rather low in importance, as this process is expected to increase in importance in the future. 51 DILForientering FEBRUAR 2017 ÅRGANG 54

5 SUPPLY CHAIN NETWORK ACTORS Internally (e.g. cross-functionally) - importance Internally (e.g. cross-functionally) - current practice Suppliers - importance Suppliers - current practice Customers - importance Customers - current practice Third party providers (.e.g logistics providers) - importance Third party providers (.e.g logistics providers) - current practice Universities - importance Universities - current practice Consultants - importance Consultants - current practice Public agencies - importance Public agencies - current practice Competitors - importance Competitors - current practice 1,45 3,71 3,10 3,18 3,45 3,02 2,92 1,98 2,68 2,69 2,35 1,90 2,10 4,14 4,08 4,39 Figure 4. Source: The Danish Supply Chain Panel The second element in the supply chain innovation framework is supply chain network structure. Here we have asked the respondents to what degree they have innovated together with various supply chain network actors. The answers are shown in figure 4. As shown in figure 4 the supply chain innovations with internal actors are perceived as most important (4.39). It is also observed supply chain innovations with internal actors are also first and foremost carried out together with internal supply chain actors (3.71). However, the gap (0.68) also shows some potential for improvement. Suppliers and customers are reported as second and third in importance of actors to pursue innovations with 4.14 and 4.08 respectively. However, theese actors are also the ones with some of the largest gaps when it comes to current practice (1.04 and 0.9). Thus, these areas also have potentials for improvement. Third party providers are seen as a somewhat important actor with an average of Interesting, universities are also seen as a somewhat important actor when pursuing supply chain innovation with an average of However, thecurrent practice is only indicated as 1.98 leaving the second largest gap of This gap indicate a room for improvement where universities needs to move out from their ivory towers and seek practical relevance with their research and where practitionerns need to lower their guards and with an open attitute take new critical refelections to consideration about their practices (see e.g. Schacht 2016). The third supply chain innovation element is supply chain technologies. In this section the respondents should answer questions about to which degree they work with various technologies in the supply chain. The results appear in figure 5. Figure 5 reveals that planning and execution systems, such as ERP, APP and MRP, in average, are seen as the most important supply chain technologies to be used in the companies with an average of 4.31, and is at the same time the technology that is mostly used in current practice (3.90). This 52 DILForientering FEBRUAR 2017 ÅRGANG 54

6 SUPPLY CHAIN TECHNOLOGIES Planning and execution systems - importance Planning and execution systems - current practice Communication systems - importance Communication systems - current practice Analytics technology - importance Analytics technology - current practice Identification systems - importance Identification systems - current practice Electronic marketplace - importance Electronic marketplace - current practice Automation of knowledge work - importance Automation of knowledge work - current practice Advanced manufacturing technologies - importance Advanced manufacturing technologies - current practice Advanced materials - importance Advanced materials - current practice 3,35 3,39 3,33 3,16 2,47 3,02 2,51 2,84 2,22 2,51 2,10 4,31 3,90 4,08 4,06 3,96 Figure 5. Source: The Danish Supply Chain Panel may not be surprising as these systems are the backbone of most companies manufacturing, planning and control. However, the current practice is slightly behind perceived importance (0.41). Communication systems (e.g. electronic data interchange, web-based communication tools, mobile communication solutions, the Internet of Things, cloud technology), analytics technology (e.g. business intelligence, statistics and analytics software) and identification systems (e.g. barcodes, radio frequency identification) following as highly important supply chain technologies with averages closely around 4.0. The level of current practice for the three supply chain technologies are at the same time among the highest in the survey, however still potentials exist. This is especially true for communications systems, which holds the largest gap between importance and current practice (0.73). Electronic marketplaces (e.g. e-portals, e-auctions, supplier collaboration tools) come fifth in terms of importance, however, with the second largest gap towards current practice (0.69). Not much importance is ascribed towards automation of knowledge work, advanced manufacturing technologies or advanced materials. Ambidexterity After having focussed on the elements of supply chain innovation we now turn to the challenges of simultaneously operating the day to day business and developing the supply chain for competitive advantage. This dilemma is called ambidexterity and is concerned with right balance of resources dedicated to exploitation (daily operation) and exploration (business development), respectively (see e.g. Arlbjørn et al. 2013). The answers on to what degree the respondents pursue supply chain operation or supply chain development activities are shown in figure 6, with blue bars indicating operation related themes while green bars indicates themes related to supply chain development. Average scores on operation statements and development statements are 3.61 and 3.33 respectively. Thus, in terms of the state- 53 DILForientering FEBRUAR 2017 ÅRGANG 54

7 SUPPLY CHAIN OPERATION AND SUPPLY CHAIN DEVELOPMENT We constantly focus on achieving our supply chain related KPIs We constantly fine-tune operational processes in the supply chain to keep our current customers satisfied We constantly fine-tune operational processes with other internal functions to keep our current customers satisfied We constantly fine-tune operational processes with our customers to keep them satisfied We proactively pursue new supply chain solutions The supply chain often looks for creative ways to satisfy our customers' needs We are constantly seeking novel approaches to solve supply chain problems We constantly fine-tune operational processes with our suppliers to keep them satisfied The supply chain organization responds to demands that go beyond existing products and services The supply chain has time allocated for developing a competitive supply chain 3,67 3,63 3,49 3,47 3,45 3,39 3,22 3,20 3,14 4,04 Figure 6. Source: The Danish Supply Chain Panel ments included in this mini-survey the respondents self-perception is that they to a higher degree are pursuing operations practices than development practices in their supply chain. In fact, four out of top five practices are operations practices. Only the operations statement on constantly finetuning operational processes with suppliers to keep them satisfied is not in top five. This result just informs how the respondents perceive their resource consumption. It does not tell whether this is right or wrong. Companies do differ along several parameters and in some companies their might not need to be a high focus on development (i.e. on low technology intensive companies) whereas in others there might be a huge demand for this. Our main recommendation is that companies need to create consciousness about their own right balance of this ambidextrous phenomenon. OVERALL PROJECT PORTFOLIO AND RESOURCE ALLOCATION TO DEVELOPING THE SUPPLY CHAIN We find it important to have a dedicated task focusing on development activities in the supply chain 4,12 We have a dedicated task focusing on development activities in our supply chain 3,53 We find it imporant to have an overall overview of planned and ongoing development projects (small to large) (portfolio) in the supply chain 3,94 We have an overall overview of planned and ongoing development projects (small to large) (portfolio) in our supply chain 3,59 Figure 7. Source: The Danish Supply Chain Panel 54 DILForientering FEBRUAR 2017 ÅRGANG 54

8 As it shows in figure 7, companies on average find it important to a high degree to have both a dedicated task focussing on development activities (with an average of 4.12) as well as to have an overall overview of the development projects (with an average of 3.94). However, especially the dedicated task of focussing on development activities lack behind implementing (3.53), while it seem that the companies are approximately on par with importance and current status on project overview. Drivers for supply chain innovation Initiation of supply chain innovation needs drivers. Therefore it is interesting to uncover how the supply chain panel sees what triggers their supply chain innovations. We have asked the respondents to mark the three main driving forces for developing their supply chains. The answers to this question are depicted in figure 8. Internal demands are in this mini-survey marked as the most driving force in developing the supply chain with 84 % of the respondents followed by external requirements from customers (67 %). Internal demands have different faces. The results do not separate whether such an internal demand is caused by e.g. customer complaints at first hand. An internal demand can thus be a true internal demand wishes to do it better or it can be a result based on stimuli from e.g. customers or suppliers. Also 43 % of the respondents view demands from top management as an important driver for supply chain innovation. Interesting only 18 % has marked respond to competitors practice as an important driver for supply chain innovation. More plausible possible explanations to this may exist. On one hand it could be because the respondents perceive themselves as already superior to competitors and, hence, does not need to respond to competitor moves. Otherwise, the companies do not pay attention to what competitors are doing. This type of attitude may be a dangerous one as seen in the case of disruptions of supply chains. On the other hand it may also be that companies pay attention to competitor moves but in a proactive way develop the supply chain to gain competitive advan- DRIVERS FOR SUPPLY CHAIN INNOVATION (SEVERAL MARKS ALLOWED) Internal demands to improve performance 84 % External requirements from customers 67 % Demands from top management 43 % Demands from sale/marketing External requirements/opportunities from suppliers Respond to competitors practice Change in legislation Demands from owners Other 29 % 24 % 18 % 12 % 12 % 6 % 0 % 10 % 20 % 30 % 40 % 50 % 60 % 70 % 80 % 90 % Figure 8. Source: The Danish Supply Chain Panel 55 DILForientering FEBRUAR 2017 ÅRGANG 54

9 BARRIERS FOR SUPPLY CHAIN INNOVATION (SEVERAL MARKS ALLOWED) Lack of time (more focused on operation) 77 % Lack of man power (project participants) 69 % Lack of internal development oriented capabilities 58 % Too much silo mentality in our company High supply chain complexity Lack of burning platform / lack of hunt An unbalanced company in terms of power between sale/ marketing supply chain, product development and finance) Lack of financial resources Lack of top management awareness Lack of supply chain strategy 50 % 44 % 38 % 33 % 27 % 27 % 21 % Other Lack of supply chain KPIs 13 % 10 % 0 % 10 % 20 % 30 % 40 % 50 % 60 % 70 % 80 % 90 % Figure 9. Source: The Danish Supply Chain Panel tage and be one step ahead of competitors as one respondent replied. Barriers for supply chain innovation In line with other supply chain panel surveys, we also this time desired to understand what challenges the respondents perceive that holds them from making innovations in their supply chain. The respondents were asked to list the five main challenges perceived. The answers are illustrated in figure 9. By far the most cited barrier for supply chain innovation, we observe 77 % of the companies reporting lack of time. In other words, daily operations win over development. We find it interesting to challenge the perception of lack of time. In most of the mini-surveys in The Danish Supply Chain Panel during the last five years we have seen this factor in the top of main barriers whatever topic we have investigated. One view of this phenomenon can be that it simply has become an accepted wisdom to say we lack time. Perhaps we need to be more productive in all means. Another, and more serious view is, that top management has limited understanding of development activities and are too much focussed on daily performance. Also lack of human resources to take the task of developing the supply chain is often an issue (69 %). To a lesser extent, but highly related, the lack of internal development oriented capabilities is likewise often rated as a top five barrier for supply chain innovation. As is also shown in figure 8 many companies still truckles with internal silos (50 %). Compared to a similar survey in 2012 (Arlbjørn & Mikkelsen 2012) we observe that top five have all increased in terms of how many companies have marked them as barriers. Lack of time has gone up 20 % from 64 % in 2012 to 77 %, while lack of human resources has moved from 62 % to 69 % and at the same time lack of internal capabilities has jumped from approximately 30 % in 2012 to now 58 %. Quite interesting, and in our opinion alarming, we ob- 56 DILForientering FEBRUAR 2017 ÅRGANG 54

10 serve that silo mentality has gone up from around 30 % that mentioned in 2012 to now half of the companies mention this as a barrier to supply chain innovations. A complex supply chain has increased from approximately 30 % to now 44 %. The numbers indicate that companies are even more challenged now on time, human resources and internal capabilities than in 2012 and that companies has not been successful in breaking down the walls between the silos on the contrary. Under other some respondents have written lack of creativity skills/innovation skills and too many projects going on at the same time. Conclusion This paper has set out to present and discuss the findings of a mini-survey distributed to The Danish Supply Chain Panel about their perception of relevance and current practice of supply chain innovation. The survey indicates several interesting findings. Firstly, the survey reveals a gap in the respondent s perceptions of their own judgment of the supply chain as a source of competitiveness compared with their judgement of how their top management perceive it. This calls for a need to teach top management in supply chain management practice and theory. Main business processes pursued are external oriented (customer relationship management, customer service management and supplier relationship management). Main actors in supply chain innovation projects are internal stakeholders and customers and suppliers. Main technologies in supply chain innovation are planning and execution systems, communication systems and analytical technologies. The respondents scores on operation practices compared with development practices obtain higher average scores. The two highest scoring drivers for supply chain innovation are internal motivation and customer requirements. Top three barriers are lack of time (too much focus on operation), lack of man power and lack of internal development oriented capabilities. We hope these results will stimulate discussion on this phenomenon in your organizations to assess your own practice and potential of supply chain innovation to develop, maintain or further enhance the supply chain as a competitive advantage. / References Arlbjørn, J.S., de Haas, H. & Munksgaard, K.B. (2011), Exploring supply chain innovation, Logistics Research, Vol. 3, No. 1, pp Arlbjørn, J. S., Mikkelsen, O. S., Munksgaard, K. B., Schlichter, J. & Paulraj, A. (2013), Konkurrencekraft gennem supply chain innovation, Institut for Entreprenørskab & Relationsledelse, Syddansk Universitet (se også Arlbjørn, J.S. & Mikkelsen, O.S. (2012), Omkostningsfokuseret supply chain innovation, Dilf Orientering, Vol. 49, No. 4, pp Lambert, D.M. & Cooper, M.C. (2000), Issues in supply chain management, Industrial Marketing Management, Vol. 29, No. 1, pp Schacht, M.K. (2016), Forskere: Teorivældet udsulter virksomhedsnær forskning, MandagMorgen, August, 22 ( Stentoft, J, & Mikkelsen, O.S. (2016), Increased expectations of using disruptive technologies in supply chains, Dilf Orientering, Vol. 53, No. 1, pp Stentoft, J., Mikkelsen, O. S. & Brinch, M. (2016a), Big data applications in sourcing processes, Dilf Orientering, Vol. 53, No. 4, pp Stentoft, J., Scholte, E. & Breil-Hansen, P. (2016b), Den stærke værdikæde: Sådan skaber du konkurrencekraft, Libris, Valby. Stentoft, J. & Thoms, L. (2014), Konkurrencekraft gennem Supply Chain Innovation: Værktøjer, Institut for Entreprenørskab & Relationsledelse, Syddansk Universitet (se også www. recoe.dk/publications) 57 DILForientering FEBRUAR 2017 ÅRGANG 54