Supply Chain

Successful Product Innovation Requires Supply Chain Insight

“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 complexity, which can cripple the company’s supply chain.”

Innovation is an imperative in the business world, but of the tens of thousands of new products launched each year, an estimated 80% to 90% fail.

A new study from the University of Tennessee, Knoxville’s Global Supply Chain Institute suggests some of the fault resides in the tendency of organizations to omit supply chain considerations when assessing 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,” says Mike Burnette, associate director of the Global Supply Chain Institute, at the University of Tennessee Knoxville, and author of the newly published white paper on the study, New Product Initiative Best Practices.

“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.”

The study surveyed more than 50 leaders at leading companies and identified 16 benchmark organizations for deeper interviews on new product innovation. Fewer than 29% of respondents said their company identified and mitigated the risks of new initiatives effectively, and supply chain leaders actively participated in most new product planning processes less than 65% of the time.

“Benchmark companies no longer take the approach that supply chain should simply deliver on what marketing and sales design,” Burnette says. “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.”

The paper details how effective supply chain leaders help manage all the processes, systems, and tools associated with new product initiatives to assure that innovations do not hurt overall company growth. It also outlines nine best practices to ensure that new product initiatives increase value.

“All of the best practices underpin the idea that innovation needs to be considered in a total business context,” Burnette says. “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 complexity, which can cripple the company’s supply chain.”

Burnette explains that as product and service offerings proliferate, each individual SKU’s total percentage of sales shrinks and with it, the ability to predict demand. This exponential growth in complexity is one of supply chain’s greatest challenges, and the paper devotes a case study to one benchmark company that simplified SKUs to focus on net growth products.

 

 

Note: This article originally appeared on the University of Tennessee Knoxville website.

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