Throughout history, our lives have been transformed by groundbreaking advancements. Today, it is impossible to imagine a world without smartphones, Google Maps, or the marvels of modern science. Innovation shapes our daily experiences and propels businesses forward, driving growth and competitive differentiation.
Last week we joined 1600+ supply chain peers at the 2024 Gartner Supply Chain Symposium in Europe. One of the sessions that stood out is Planning as the Enabler of Innovation Success, delivered by Ingrid Gonzalez McCarthy, Senior Research Director in the Gartner Supply Chain Planning Team. This session explored how supply chain planning can influence an organization’s innovation process. As Gonzalez noted, innovation is the heartbeat of progress. Case in point, across industries, more than 25% of total revenue and profits comes from the launch of new products, which highlights their pivotal role in market success. However, innovation is not without its challenges. Empirical research shows that 40% of innovations fail, leading to significant resource wastage and revenue loss. A key reason for this high failure rate, explained Gonzalez, is the delayed involvement of supply chain teams, often only engaging near the execution phase. This last-minute scramble forces teams into a firefighting mode, trying to adjust orders and manage unforeseen issues on the fly.
A survey conducted by Gartner analyzed some of the key challenges in launching innovations, revealing that 32% of organizations operate in silos with poor collaboration. One would think that after decades of discussion around breaking down silos we would be in a better position. The reality is quite different even though effective collaboration and early identification of potential challenges are crucial for successful innovation. Engaging the appropriate stakeholders early and often, such as supply chain planners, allows for the review of assumptions, preparation for potential issues, and a clear understanding of supply constraints. It ensures that decisions regarding materials, suppliers, inventory, and capacity planning are well-informed and timely, facilitating a smoother product flow through the network. While in concept this seems obvious, in practice this basic concept is challenged by outdated processes and supporting technology.
The speaker outlined three key areas where supply chain planning leaders can focus on for driving innovation success:
1. Forecast the Unknown with Attribute-based Forecasting
One major hurdle in launching new products is the lack of historical data, leading to an average forecast error of 50% across industries. Attribute-based forecasting offers a solution by focusing on individual product characteristics and modeling their behaviors. Advanced data models in supply chain planning software can manage extensive information, identifying patterns in attributes like product color, fabric, in addition to external factors such as weather.
This approach involves creating clusters of products or attributes that behave similarly, enabling more accurate forecasts for new products. Cross-functional data such as market share, price elasticity, and distribution points are crucial.
Employing advanced forecasting tools with AI and machine learning can transform this data into actionable insights, improving decision-making and innovation outcomes.
Our Take: Attributes help fill in a lot of gaps. However, don’t get stuck just looking at one or two attributes. Go beyond to understand how the many attributes can impact the success or failure of a new product. For example, you wouldn’t just forecast based on size or color, you want size, color, style, fabric, location, etc. to influence the output.
2. Perform Post-Launch Reviews to Learn and Improve Future Innovations
The launch of a product is just the beginning. Continuous evaluation of the innovation's performance is essential for steering it back on track if necessary. A comprehensive post-launch review should cover three aspects: financial metrics (volume, revenue, margins), product performance (sales, advertisement, market share, competition), and project execution (timeliness, quality, milestone achievement).
Establishing a culture of continuous learning and having the right governance in place are critical for sustained success and improvement in future innovations.
Our Take: Innovations in AI enable more advanced ‘look back’ capabilities to expand the scope of influencers on an innovation’s success. External data such as risk factors, supplier reliability, weather, construction, employment figures, etc. can all play a significant role in the success of a new product/launch. Don’t limit yourself to data within the four walls. Branch out!
3. Expand Your Network through External Manufacturing
Utilizing external manufacturers can significantly enhance innovation by accelerating time-to-market and expanding product offerings. This requires effective collaboration with external partners, and the right technology that enables a highly collaborative environment.
Companies should map out key activities within and adjacent to supply chain planning, clearly define roles and responsibilities, and establish robust communication paths with manufacturers.
Our Take: Integrating external manufacturing into the Sales and Operations Planning (S&OP) process and considering scenario planning for potential disruptions can further strengthen the relationship with partners. Close collaboration and a well-defined operating model are vital for effectively leveraging external capabilities.
Conclusion
As Gonzalez wrapped the session, she restated that we need to acknowledge the role that supply chain planning plays in innovation. The role of supply chain in the process goes well beyond execution. Involving planners early in the product development process, companies can better prepare for potential issues, optimize supply chain efficiency, and drive profitable growth.
Embracing advanced planning solutions, AI/ML for forecasting, conducting thorough post-launch reviews, and fostering strong external partnerships are key strategies for enhancing innovation success.
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