Supplier Diversity

Managing Diverse Supply Chains for Innovation and Capacity Building

Changing business dynamics and globalization have made it imperative that supply chains provide innovation and minimal risks in supplying critical resources as companies grow and expand.
By Andrew Hale

Saying the business environment is dynamic today is like saying the sky is blue. Globalization has been a primary impetus for that dynamism, but many companies expanding on a global basis are discovering they are not fully utilizing the enormous potential of diverse suppliers in the global supply chain to produce innovation or to assist with meeting other business challenges.

Developing a diverse global supply chain can reap enormous benefits that include innovation and reduced risks, but it takes leadership that understands how to realize the potential buried in the existing supply chain and how to select the global suppliers with the leadership potential to build capacity as the company grows. Supply chain management is important to everything the company does, from reducing global risks to producing innovation to successful growth and expansion.

Unlocking Innovation in Supply Chains
End-to-end supply chains are critical to the ability of a company to serve its customers and earn profits. They are also crucial to the ability of a company to increase capacity while minimizing risks.

Adding to the dynamics is the fact that most businesses now have global supply chains with diverse suppliers, whether operating internationally and using global suppliers or developing a global supply chain for domestic operations. The challenge is unlocking the innovation suppliers can offer companies as they compete in the hyper dynamics of the business environment.

Developing an efficient supply chain is important, but if it stops there, the company is missing out. Effective supply chain leaders develop management skills that enable the building of supply chains that bring innovation to their customers. In the past, R&D was a "secret" process that did not include external partners, but that silo approach limits the stream of innovative ideas and, in turn, limits growth.

Key suppliers are an excellent source of innovation and can bring growth opportunities to their customers earlier and faster. The reason is due to the fact that suppliers are already familiar with their customer's business. Global diverse suppliers are also able to bring deep knowledge of foreign markets, including consumer and business needs and unserved or underdeveloped markets.

Creating Paths for Innovation Through Collaboration
Taking advantage of the innovation in supply chains requires leadership that has developed the skills to open paths for innovation and growth. Innovation alone is not enough because its successful implementation will lead to business growth, and growth requires suppliers that also are capable of increasing capacity to meet customer needs.

Partnering key suppliers with R&D and cross-functional team members is one way to develop an open innovation culture in which suppliers share their knowledge. This is the next step in supplier relationship management.

The Institute for Supply Management (ISM) has delved into the importance of supplier collaboration in today's marketplace. The ISM has found that the majority of supply chain value in many industries is external to the business. It also found that companies with advanced supplier collaboration capabilities outperform their peers in terms of EBIT growth and that 55 per cent to 65 per cent of innovations are sourced externally.

The value that skilled supply chain managers can unlock is found in innovation; service, quality, and risk improvement; and sourcing cost reduction. Innovation includes design-to-value to optimize products and bringing new products and technologies to market. Value from service, quality, and risk improvement flows from joint planning and capacity management, end-to-end transparency, and joint risk management. Value from sourcing cost reduction flows from joint end-to-end process and flow optimization, combining purchases for raw materials, and lean at suppliers.

Wanted: Well-Developed Supply Chain Leadership
Supply chain leaders have traditionally focused on cost, but today they need skills in global risk management, network design, supplier collaboration, flow analysis, capacity growth, sustainability, finances, analytics and insight extraction, reporting, and decision-making. They also need the skills to work with leaders across functions, reflecting the fact the supply chain is no longer a siloed function.

Innovation can flow from anywhere, but the supply chain professional has to make it possible by integrating the supply chain into a cross-functional network. One strategy is to introduce a bold innovation project that requires a cross-functional team approach that includes sales, finance, marketing and key suppliers.

Innovation and capacity building go hand-in-hand. The up-front assumption, of course, is that successful innovations will keep the company competitive and lead to sales growth in existing and/or new markets. Supply chain leaders should have developed skills in capacity planning and integrated flexibility in supplier outputs all along the supply chain involved in the innovation. This is a value-producing strategic process and requires the buying customer to share with suppliers the critical data analytics, like demand forecasting, and the capability to produce analytics that identify potential bottlenecks.

Transparency and business intelligence are two critical features of a supply chain producing innovation. History has shown that a company's reputation and future sales are seriously damaged when they market new and innovative products and services but are unable to keep up with demand.

Also Wanted: Quality Leadership at the Supplier Level
Combining leadership development and capacity building at the buyer's level is first, but the same process should occur at the key supplier level. The supply chain's value production is optimized only when the leadership in supplier organisations is well-developed.

Innovation, as mentioned earlier, is not just about new products or services. It can be innovation in operations triggered by collaborative input from suppliers or greater visibility in inventories across the supply chain and the flexibility to respond to improve the customer experience.

The "Geodis 2017 Supply Chain Worldwide Survey" identified five major trends in supply chains that businesses are addressing in order to innovate and evolve. They are: On-time and in-full deliveries, and improved product availability or delivery; supply chain complexity; the need for greater investment in the development of heads of supply chains; greater supply chain visibility from end-to-end; and agility in optimization and outsourcing.

Unleashing the innovation in the supply chain is a competitive value-producing process, but it takes end-to-end quality leadership.