Challenges in Managing Innovation Across Supply Chains â€Evaluation and Implementation

[pic] Business Major-Minor Supply Chain Management Course Assignment Challenges in Managing Innovation across Supply Chains —Evaluation and Implementation Student: Ying Deng Student ID:1205690 Course Number: 07 14511 Teacher: Professor Dr Victoria Hanna Date: 10/01/2013 Acknowledgement This research paper is written for the subject: â€Å"Global Marketing† in the University of Birmingham. Firstly, we would like to thanks Almighty Lord to give us knowledge and keep us healthy during the whole period of our research work.Secondly, we are greatly indebted to our lecturer and advisor-Professor David Walker for his valued opinions and expert advice in the preparation of this thesis. Thirdly, we would like to express our appreciation to the convenient internet that greatly helped us to find whatever information that we needed. Finally, we want to express our gratitude to the Fujifilm Corporation for its kind assistance and support throughout the writing progress of this thesi s.We have also managed to collect some important information from the relative journals and books. All group members of the assignment University of Birmingham, April 2012 Table of contents Acknowledgement Abstract Importance of supply chain innovation Innovation and its source and types Challenge of innovation management—evaluation of innovation Effect of buyer-supplier power relations Example cases of success and failureChallenge of innovation management—implementation of innovation Implementation’s detailed challenges in different types of industry—service and physical goods Implementation’s detailed challenges in different types of industry—emerging and mature industries More challenges in innovation management REFERENCES Abstract Title of course: Supply Chain Management Program: Various. Authors: Ying Deng Supervisor: Dr Victoria Hanna Date: Sep 2012 to Dec 2012 Background: The complexity and scale of any firm’s supply chain has made the management of supply chain innovation difficult and full of uncertainty.However the fast developing market requires the supply chain to innovate as fast and efficient as possible. There are amounts of successful and failed cases of innovations across supply chain from the last centuries, yet it is a big challenge to successfully manage the innovations. Purpose: The purpose of the thesis is to investigate what Fujifilm did and is doing to develop in the global circumstance and with all the internal and external factors’ impacts, also what it probably will or should do in the future to maintain its current status and to improve.Conclusion: After evaluating Fujifilm’s history and current situation along with its recent marketing feedback data, also referring to abundant marketing theories and books, we will suggest Fujifilm to take various acts and strategies to remain competitive and maintain & increase its market share. Keywords: Supple chain, Innovation, Manag ement, Evaluation, Risk, Implementation, Buyer-supplier power, Product life cycle, Pre- and Post-contractual, service and physical goods, emerging and mature industriesThe â€Å"18 months law† (Gorden E, Moore, 1965) had suggested and been proved that the electronic market doubles its product’s function while halves its prices. The other industries, while maybe slower than the electronics but similarly fast changing, suggests, that the businesses innovate in every possible aspects within and related to themselves, to fit into the fast pace of today’s dynamic world with the information explosion, to catch up with the increasing globalization, savage price competition, increased customer demand for enhanced quality and reliability.Studies and experiences show that R&D spending is strongly positively associated with the probability of introducing a new product, and most of the businesses are willing to invest in the R&D activities to create the internal innovations (BRDIS data, NSF 11-300). However, apart from the internal R&D, the innovation can also be gained both from the supply chain itself such as by re-organizing resources or enhancing distribution systems, and the other ends across the supply chain, such as improvement from end-users’ feedback. One of the well-known examples is P&G's Continuous Replenishment Planning (CRP).The company Proctor & Gamble changed the entire value chain by driving orders based on DC withdrawal and sales data that successfully improved its service and reduced costs across the supply channel (Roger C. Vergin, & Kevin Barr, 1999). The direct customer input derives innovation, such as the overall product concept, and the timing of the launch to packaging and delivery (Kevin O'Marah, 2005). Other typical examples including innovations caused by improved assembly line such as the Ford Company in the early 1910s, and advanced technologies and processes such as the enhanced Ocean shipping container by Malcom Mclean in the 1956, etc.According to Porter’s five forces theory, the business is affected by its suppliers, customers, new enchants and new substitutes (Micheal E, Porter, 1979). Supply chain as it stands for, is usually regarded as the flow of resources and products from the supplier, through the firm, to the customers. Supply chain links the supplier, the business and the end-users (customers), as one of its key natures. The other features include its complexity caused by the fact that businesses’ product manufacturing or service providing usually involves more than one supplier and customer.These facts lead to the high possibility of innovations from the supply chain. Not only has the physical goods’ flow in the supply provided opportunities of innovation, but also the information flow from the opposite direction of the physical goods. The sources of innovation are mainly concluded as â€Å"push† and â€Å"pull† (Clegg, Juliana & Pilkington, 2 011). The â€Å"push† stands for technological opportunities that breed the innovation. The â€Å"pull† stands for market needs that urge for innovation. Also, there are more than the two sources, such as regulation change, users’ feedback, staff, etc.Innovation across supply chain can be from both to the â€Å"pull† and â€Å"push† fact just as the examples of Ford and P&G respectively. As stated above, the vast source of innovation of supply chain and from the supply chain provides a great pool of ideas and potential. However, accordingly, the variety also raises the problem of whether a specific innovation actually suits the business and the industry, and whether it can actually fulfill the aim of innovation—to make the profit rise, to satisfy stakeholder’s interests better by changes such as reduced cost or added value.The scale of supply chain raises the uncertainty of an innovation. This brings us to the discussion of challenges in managing innovation. How to evaluate the suitability of a supply chain innovation to an firm? Will there be any potential constraints to the innovation in the supply chain? How to deal with the timing issue of the evaluation? Will this innovation be risky in any part of the supply chain, from the supplier to the customer? Innovation can mainly be sorted into four types: Product, Process, Position, and Paradigm (4P’s).Whichever it is sorted into, innovation can be defined as a new idea, or the recombination of old ideas, or a scheme than challenges present order, or a formula, or a unique approach (Van de Ven, 1986:591). Most examples of the simple innovation are R&D departments’ new product design. This type of innovation are usually based on careful market research, built after detailed study of profitability and potential risk, released into the market after thorough limited-scoop test and trial. model) During all this process, the staff of the firm can gain full understanding of the design, and the design can be changed at any stage of the process to fit into the firm’s expectations and the market’s current trends. Also, as this type of innovation origins within the firm, the main timing issue of it will lay on the dynamic need and technology of the external market environment, while the consideration of competitors’ imitation/substitute can be comparatively lower as all the details could be kept in house or by patenting.On the other hand, innovations from the supply chain could be different. As the innovation can lay in any part of the supply chain, such as a enhanced information exchange system, or the distribution system’s transformation, the innovation will need thorough evaluation process to decide its suitability, such as the Farbey et al. (1993) and  Farbey & Finkelstein (2000) IS implementation’s evaluation framework. The effect of the innovation might not fit into the firm’s market envir onment and its current situation’s strategy.One of the most important aspects of the supply chain management is to study the buyer-supplier power relation, to reduce cost and increase value of the supply chain. Innovations across the supply chain, whether it is an information update or system reform or use of new technology, they can influence the power relation of the supply chain, desirably or undesirably. Positive changes to the power relation can help the firm gain a favorable position in or after the process of purchase/signing of contract.Taking the consideration of buyer-supplier power shift before an innovation is adopted is vital to the success of its implementation. The power relations, affected by information, scarcity and utility, can actually decide the profitability of the production and risk distribution between the firm itself and its suppliers & buyers. If the innovation to the supply chain lowers the liability to specific supply of materials, for example, th en the firm’s buyer power towards its supplier increases, with a possibility to bargain for lower prices on the materials.If, however, the liability is increased by the innovation, the supplier’s power increases, giving them the power to increase the selling price. The innovations, bringing changes to the current buyer-supplier relations, have the risk of lowering the buyer/supplier power of the firm, hence putting the firm in a unfavorable position in the supply chain, with the consequence of new or increased cost paid to suppliers, or reduced price to the buyers. It may also cause a decline in quality or efficiency as a series consequence.The wrong evaluation of the changes an innovation can bring to the supply chain and its buyer-supplier relations can be disastrous. Let us have a look at the Aris Isotoner’s 1994 sourcing calamity case. Trying to lower the cost, the executive of the company replaced the in-house production with outsourcing from suppliers in o ther Asian locales. However, this approach did not reduce the cost but raised it around 10-20%. Also, the responding speed was found slower, and the quality of the product was plummeted.As a series result, the company’s sales halved, causing more than $100 million loss and long lasting effects that required more investing to maintain the company. The Aris case is a clear example of how important it is to accurately evaluate the suitability and risk level of an innovation. The idea of outsourcing needs to be considered together with the current difference between in-house production and buying from suppliers. Not only the cost need to be considered, but also the quality of the product, and the speed of product supply.Taking it a little further, the communication process with the supplier can incur unexpected costs, for example, the lawyer fee. The matter of unemployment to the old plant’s employees could possibly cause HR problems that need time and effort to solve. The financial situation of the company may go through cash flow issues since the purchase of product can be much more expensive than raw materials. If the case is the other way around, that a company wants to bring the components’ production in-house, there can be multiple considerations, too.Apart from the problem of cost, location and quality, there can be human resource (suitable staff for the new plant, for example) and technology problems. As the production technology is comparatively new to the firm’s staff, it could be difficult to build up efficiency with the same cost at the beginning. Before an innovation to the supply chain is brought into practice, it is crucial to consider every possible impact that this innovation can have. Based on the scale of even the tiniest company, this could be difficult not to miss any aspect.In fact, supply chain innovation is more than difficult to go over restricted-scale test as there are actually no samples of supply chain. Eith er put the innovation into practice to observe the result after a while, or â€Å"simulate† it in imaginary models that cannot be perfectly detailed and has considerable mistake rates. Even if the suitability and risk level of an innovation can be accessed, can the response of the whole supply chain be quick enough and accurate enough? Will the integration of changed resources, information, the staff’s thinking and supplier updating be in time?Will there be â€Å"distortions† within the communication between the ends of supply chain? Is there any demand or idea conflict in the different fraction of the supply chain? These can all be the challenges that an innovation in the supply chain can meet. Also because of the innovation across the supply chain can hardly be kept in house, the firm’s competitors can get access to the ideas and the two firms may enter the situation that whichever introduces the new idea into the market first gains more advantage.Thus the innovation from the supply chain might end up as low or even no profit after evaluation, adoption, development and testing. This brings us to the challenge of proper implementation method and speed of the innovation. Based on different types of the supply chain, natures of different industries and the different environment of the market, the concerns and priorities of the implementation can actually be completely different. We will look into the difference between service and physical goods supply chain, and the difference between mature and emerging industries’ supply chain in the following paragraphs.All the challenges mentioned above can be seen in both service supply chains and physical good’s supply chains. These two types of supply chains share many same challenges, such as cost management, resource allocation, etc. They both need to be more dispersed, digitized and dynamic to catch up with the market trends. Unless the physical goods industry can successfull y digest the brought-innovation to gain its own patents, the two types of industries will both face the challenge of competitors’ imitation and timing.They will have differences of challenges, such as () but the major ones are usually the same as mentioned above. However, their priorities could be totally different. Though the service and physical goods supply chains face the same challenges mentioned above, there are some major differences between these two types of supply chain innovation. The difference is not shown by challenge’s types, but by the importance or significance of the same challenge.For example, service supply chain face the challenge of updating their staff’s knowledge of the new innovation as human resource is vital to the business and they actually face more intangible innovation than tangible ones, while physical goods supply chains might need to focus more on updating the plants and materials to follow up the new innovation’s require ments. Service, as an intangible product, focus its value more on technologies, techniques and human resource that accomplishes the service, and customer interaction level is generally higher.This implements that the service industry will focus more on intangible equities than tangible ones. When an innovation is in operation, for example, a new set of service, the service supply chain may suffer huge losses if its human resource and technology cannot follow the change, which may even lead to complete failure on the innovation. Also, the tight relation between service and customer participation requires the supply chain to be highly agile (Narasimhan, et al, 2006) to deal with changing demands.On the other hand, the physical goods supply chains are less strained to keep their staff on the trend. After evaluation of innovation, they are more affected by the problems related to physical production, such as material’s moving, location, distribution, etc. In emerging markets and mature ones, there can be difference of priorities to manage challenges, too. See it from the product life cycle theory (PLC), the mature markets’ products have stabilized consumer base, and the strategy of the firm is set and focused.The mature industries tend to have more incremental innovations either on process or on the product, thus they might need more time to evaluate the innovation based on existing products, and the consideration of cost and stuff/culture conversion. The strategies such as cost leadership, focus strategy, or differentiation give specific demand of innovation—lower the cost, or quicker delivery, or advanced function, etc. The human resource is well equipped with needed knowledge and technique, whereas the thinking of staff is harder to change.The priority of innovation management could be stabilizing, maintaining, improving, thus call for incremental innovation. The challenges are featured as trying not to affect existing value creation activi ties. Opposite to it, the emerging industries are going through fast growth, and demands radical innovation that has the potential to largely increase revenue or significantly reduce cost. The emerging industries have more possibility to encounter major breakthroughs and the radical innovations. There may be tense competition for market share. The market is unstable and the corporate strategies could change every day to follow market trends.Based on the emerging market, the supply chain’s innovations need to be fast responding and competency-building. The difference of innovation’s requirements can result in different evaluation standards and different methods to carry out the innovations. What’s more, we can see from the buy-supplier relation perspective. The emerging industries’ supply chain may hold more possibilities of communicating with new suppliers for new resources, so there need to be thorough consideration of the pre-contractual power relations . Wrong estimation of power relations may cause unnecessary costs.This requires more work on cost management and balancing benefits between different parties. In some of the cases, emerging industries face less competition, so the challenge of timing could be minor, but a few other cases mainly on service industries show that the emerging business could face even more severe competition and their profitability can vary significantly according to the introduction time. The suitability of innovation could be even harder to decide, because they will need to evaluate by speculation instead of looking for existing experience.They can consider less on the culture/staff conversion, though, as the thinking mode has not been set up yet. While for mature industries the existing pre-contractual relations are relatively stable because the information and resource of the buyer and supplier, no matter whether they are new entrants or existing firms, will actually be more stable. They will need to consider post-contractual power relations carefully, though, when the supply chain innovations are related to the replacement of suppliers. The transaction cost economy (TCE) shows that any changes to existing contracts can raise uncertainty hence raise risk to the supply chain.Based on individual industries’ difference, the challenges of managing innovation across the supply chain can be different in importance, significance and difficulty to settle. The nature of the industry, for example, whether it is national or international business, determines the priorities of challenge management. This is more specific to the individual differences, and requires experience and thorough research and careful design to successfully manage the innovations. The above mentioned challenges of evaluation and implementation are just two aspects of the challenges that innovation across the supply chain might encounter.There are also other challenges, such as managing conflicting requirements between the innovation’s development and the existing system, managing long term human resource and culture in relation to the innovation, developing the proper strategy to achieve win-win situation with the new innovation, etc. The last two mentioned above link to the features of the supply chain—more than one party is involved. The difference of staff and culture between the source party of innovation and the receiver party of it leads to the need of change in minds for the new innovation.The fact of involvement of the multiple parties leads to the possibility of win-win situation. However, this possibility could be a challenge because this could be a scenario of the game theory. 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