Industry TalkRegular Industry Development Updates, Opinions and Talking Points relating to Manufacturing, the Supply Chain and Logistics.
The Connection Between Supply Chain and Logistics Innovation and Retail Success
The recent past has highlighted the importance of supply chain and logistics performance, and that many retail supply chains are in dire need of innovation.
A recent study by Descartes of 1,000 supply chain and logistics executives in Europe and North America identified that the challenges of the past several years have caused more (57%) companies to accelerate their innovation initiatives, with an even greater amount (65%) planning to invest more in supply chain and logistics innovation initiatives in the next two years.
But what is the connection between supply chain and logistics innovation and retail success, and what role does management support play in both? Chris Jones, EVP, Descartes explains.
What accelerates—or inhibits—innovation?
One of the goals of the study was to get a sense of the connection between innovation and business health. Descartes wanted to understand how three key factors—management importance, financial performance and employee turnover—enable supply chain and logistics innovation and, conversely, how innovation enables financial success and reduces employee turnover. The hypothesis was that management importance is a self-fulfilling prophecy; that is, if senior management believes supply chain and logistics innovation is important, it would be reflected in the strategies and actions taken.
Similarly, companies with better financial performance would be able to direct more resources toward supply chain and logistics innovation than those with lower financial performance—and better performers would also reap the financial benefit of the innovations they deployed. Finally, Descartes anticipated employee retention to be critical as supply chain and logistics innovation requires deep domain expertise, and workforce stability helps build and maintain this level of expertise.
The relationship between business performance and innovation
The study’s respondents ranked themselves as below in terms of management importance, financial performance and employee turnover:
The responses from these three areas were compared against each other to see if there was any correlation between business success and perspectives on innovation. The results indicated that innovation importance, financial performance and employee turnover have a significant impact on each other. A higher level of senior management importance placed on supply chain and logistics innovation goes “hand-in-hand” with better financial performance and lower employee turnover.
Management focus, better financial support and a more stable workforce are critical for accelerating supply chain and logistics innovation. Conversely, a lack of senior management support and financial wherewithal, and higher employee turnover are significant inhibitors to fostering innovation.
Respondents who said innovation was important to senior management were 20% more likely to be better financial performers and 13% more likely to experience lower employee turnover.
Figure 2: Impact of innovation importance on financial performance and employee turnover
Further, respondents who said they were better financial performers were 20% more likely to have senior management who believes innovation is important and 16% more likely to have lower employee turnover.
Figure 3: Impact of financial performance on management importance and employee turnover
Further, respondents who said they had lower employee turnover were 15% more likely to have management who believes innovation is important and 23% more likely to have better financial performance.
Figure 4: Impact of employee turnover on management importance and financial performance
Which comes first—innovation or business success?
Because innovation importance and financial success are intertwined, there may be a tendency to think about them as a “chicken and egg” story; however, there are enough stories in the media that point to how supply chain innovation has led to business success to conclude what comes first.
This is why it’s so important to educate the C-suite on the value of supply chain and logistics innovation—as they control the funds and resource allocation.The C-suite, ultimately, is the accelerator of innovation. Those retailers with senior management support are twice as likely to innovate at a pace that is ahead of the competition or industry leading and are 17% more likely to expand innovation IT spending. Which begs the question: How are you working with senior management to get them to understand the value of supply chain and logistics innovation?