Global supply chain expert shares his insights with SA professionals
Integrating supply chain management with new product development can reduce the lifecycle costs and increase the ultimate profitability of new products.
Kevin O’Marah, a US-based and internationally renowned thought leader on supply chain management, shared his latest report on this increasingly important strategy with South African business professionals at a presentation hosted by Imperial Logistics. As chief content officer of SCM World, a global community of senior supply chain professionals, he is well placed to offer unrivalled insights into cutting-edge supply chain practices. According to SCM World survey data, most supply chain organisations believe new product development and launch is now an essential capability.
“Supply chain professionals have known for decades that decisions made early in the concept development or design phases of new products determine most of the full lifecycle costs, and therefore the profitability of new products,” O’Marah told his South African audience. “The interesting questions for supply chain strategists, who have largely already migrated to organisations designed to exploit this phenomenon, are all around how to do so systematically while staying ahead of the accelerating pace of innovation.”
To produce his “Design for Profitability” report, O’Marah analysed data for two fundamentally different kinds of supply chains: those that integrate innovation with supply chain and those that isolate them from each other. “We sought to understand what kinds of people, skills, perspectives and organisational strategies foster the integration of new product development and launch with supply chain.” He has dubbed those supply chain professionals who consider new product development and launch an essential part of supply chain (53% of the 700-plus individuals in the sample) “innovation integrators”. “Those who say it is not important (14% of the sample) are ‘innovation isolators’,” he expands. “In analysing the data about how these two groups approach business strategy, supply management practices and talent development, we see big differences. Innovation integrators are more accountable for revenue growth and even share prices. Integrators are significantly more likely to have a seat at the table with other business leaders than are isolators. When asked how their CEO perceives the role of supply chain, 54% of integrators believe the function is regarded as an equally important part of business success as sales and marketing or research and development. Fewer than half of isolators say the same.”
“Innovation integrators are also managing more demand complexity, have deeper and better supply network visibility, and are well ahead in using social networks to inform supply chain strategy,” O’Marah says, adding that another characteristic shared by integrators is their aptitude for talent development. “They are clearly more successful in acquiring and developing talent. Innovation isolators, on the other hand, remain deeply siloed in their approach to organisational design.”
Among the essential practices that more effectively tie engineering and new product development to supply chain management, he has identified three key principles that underlie most successful efforts to improve design for profitability. “These are platforming, supplier engagement in innovation and new product development and launch orchestration. Platforming is the practice of managing complexity with base designs (or platforms) and add-on ‘modules’ to offer variety without requiring completely new development projects. Platforming also helps to protect critical intellectual property when engaging external parties in engineering or manufacturing.”
Supplier engagement in innovation is the practice of reducing the total number of suppliers while investing more deeply in relationship management and trust building with chosen critical suppliers to facilitate joint technology or capacity development.
Elaborating on new product development and launch orchestration, it entails coordinating all players, both inside and outside the four walls of the company, to deliver on schedule every piece of the successful launch. “It is more than just programme management and demands precision even more than speed. To provide a basis for establishing better integration between supply chain and product development we have developed a maturity model that illustrates in stages how such integration usually evolves. The model starts with a pure silo view and ends with a completely integrated organisation capable of full lifecycle design for profitability.”
O’Marah’s Design for Profitability report also reviews technology supporting this strategy, and he reports that there are some well-established and successful tools, especially in computer-aided design. “Other areas are somewhat lagging, including product data management, supplier collaboration and, in particular, portfolio management and customer requirements management.”
Success stories from business leaders like Microsoft, Unilever, Cisco, Fiat and Elizabeth Arden formed part of O’Marah’s engaging presentation, and he outlined the benefits they have reaped through integrating supply chain with new product development. “Many companies whose supply chain and new product development processes are tightly linked are organised with some or all accountability for innovation management hard-line controlled by supply chain,” he says.
O’Marah recommends that business leaders looking to
enhance their organisations’ design for profitability performance should start
with a maturity assessment that identifies where the processes for managing
supply, product and customer need are integrated, where they are at least in
contact, and where they are fully disconnected. “From this start it is possible to address the central problem, which
is defining ‘profitability’ in terms that apply across all parts of the
business and across the full lifecycle of the product.”
Kevin O’Marah: Chief Content Officer of SCM
World
