There are a couple of things we know to be true: Innovation is an imperative in the business world. And the supply chain touches virtually every aspect of the enterprise. While those maxims may be universally accepted, companies don't always connect the dots between them. That failure could cause even the most promising innovation (think a new product or service introduction) to fail outright, or at minimum, keep it from realizing its full potential.
So says a new report from the University of Tennessee's Global Supply Chain Institute (GSCI). Titled "New Product Initiative Best Practices," the report notes that an estimated 80 to 90 percent of the thousands of new products launched each year fail. The study goes on to suggest that some of the blame for those failures can be found in the tendency of organizations to ignore (or at least not adequately account for) supply chain considerations when building a new product's business case.
"A new product impacts all elements of the supply chain, from raw material procurement through the conversion process and out to logistics fulfillment," said Mike Burnette, associate director of the GSCI and one of the report's authors, in a story on the school's website. Given the supply chain's far-reaching influence, you might reasonably assume that companies would include their supply chain leaders in the planning process. But that's not always the case. All too often, businesses bring the supply chain people in only after the plans are set, expecting them to deliver on a strategy that's been handed to them. "In most companies, supply chain leaders are considered executors of innovation strategies, focused on optimizing costs and improving operational efficiencies once such strategies have already been determined," said Burnette.
That's risky business. Launching a new product or service is a high-stakes endeavor, with serious implications for the bottom line. Unfortunately, things can go south pretty quickly if the plan doesn't take the supply chain's capabilities and limitations into account, according to Burnette. "The costs of a new product's supply chain can easily outstrip its profit generation, and consistently poor new product initiative management leads to SKU [stock-keeping unit] complexity, which can cripple the company's supply chain," he explained.
The study indicated that businesses are more vulnerable to these missteps than you might imagine. Fewer than 29 percent of respondents to the GSCI survey, which was conducted across more than 50 supply chain leaders, said their company identified and mitigated the risks of new initiatives effectively. Further, the respondents reported that they actively participated in new-product planning processes less than 65 percent of the time.
But the news wasn't bad across the board. In addition to the survey, the authors conducted in-depth interviews with leaders at 16 benchmark organizations to learn more about their processes and identify best practices. Among other things, they found that, without exception, these leading companies included their supply chain leaders in their product development efforts. "[These] benchmark companies no longer take the approach that supply chain should simply deliver on what marketing and sales design," Burnette said in the story. "The expectation for supply chain leaders to positively impact this process by providing the costs and investments to develop each new product has shifted from 'nice to have' to a requirement."
These companies should be considered leaders in this regard. And if you haven't already adopted the same approach, you might want to follow their example.
Editor's note: The report on new product initiatives, written by Mike Burnette, Ted Stank, Ph.D., and J. Scott Meline, is the fifth in the GSCI's "Innovations in Supply Chain" series. All of the reports are available for download at haslam.utk.edu/gsci/publications.