Comment: Five steps to conquer supply chain innovation lag
The trend for digitalisation is creating new challenges for supply chain leaders. These include the need to adapt to a shifting global trade environment and rapidly changing customer expectations. Moreover, as growth is at the top of a CEO’s priority, chief supply chain officers (CSCOs) are under pressure to deliver digital technologies.
Bold changes, however, can create big problems, especially for an area as integral to a business as the supply chain. Turning great ideas into tangible value requires CSCOs to be skilled and knowledgeable at supply chain innovation.
Here are five steps that will help CSCOs structure their supply chain innovation processes:
This stage is about establishing the catalyst for change. A good idea isn’t enough. It’s crucial to rank ideas by how well they fit organisational goals, existing supply chain strategies and broad industry directions. A great idea is only useful if it addresses a shift in customer expectations or business needs. In an online retail setting, for example, supply chain automation that speeds up delivery may be a key differentiator that could grow a company’s market share. In the case of a power station, however, faster-than-expected delivery of coal may cause storage problems .The new idea may be extremely innovative in both situations, but its value depends on how well it fits the business strategy, organisational capabilities and the needs of the customer.
This stage should result in a decision on whether to proceed or not. Determining the benefits and risks of a new idea can be very challenging because there’s often little evidence available about the real value until the idea is put into practice. At this stage, there’s no substitute for hands-on evaluation activities such as experiments, pilots and trials which build practical evidence of both risks and benefits. Estimating costs is also a key aspect of evaluation. It’s best to assume that the ROI will be lower and later than initially expected, because some risks and costs become clear only in hindsight. Having the discipline to start small, to scale up successful ideas, and to stop failures quickly will contain risks and keep innovation moving forward.
Spread the word. Once a promising innovation has been identified, vetted and funded, CSCOs must gain support within the supply chain organisation, from the supply network and from customers, as well as from internal stakeholders. Marketing, education and networking should be ongoing activities, but they’re most useful after the evaluation phase, when it’s time to overcome resistance and recruit the advocates and partners needed to make adoption successful. Creating a ‘buzz’ around a new idea is also likely to garner more feedback, which can help guide the execution phase and highlight pitfalls that had not been identified.
Execution — in other words, getting people to adopt the required processes and tools — is the next step. Making it happen seamlessly requires multiple activities and wide engagement — training, official changes to processes and procedures, and possibly new roles and responsibilities, or even new hires. Imagine an implementation of improved supply chain analytics to identify and eradicate inefficiencies. Does your organisation possess the development and analytics talent to generate meaningful insight from the new data streams? Will your supply chain partners be able to integrate the new technology into their systems? Does your organisation have the resources to act on the findings?
As a supply chain organisation becomes proficient in deploying innovations, it will need continuous improvement projects to fully scale and capture the benefits. We increasingly see organisations taking a bimodal approach. This means using Mode 2 skills, teams and approaches to drive an initiative to a point where it no longer requires attention as a risky or uncertain proposition. Then, Mode 1 operations take on the responsibility for maintaining and continuing to exploit the potential. The CSCOs who will derive the greatest benefit from these steps are different enough from organisational norms to identify and progress high-quality ideas. Yet convergent enough to be grounded in business strategy and formal process in order to avoid the worst risks.
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Japan Seeks to Revive Stalled Semiconductor Industry
Post-pandemic, Japan has seen the consequences of relying solely on foreign imports for its semiconductors. Over 64.2% of its chips are usually imported from South Korea and Taiwan, leaving the country dependent on its neighbours. Industries from auto manufacturers to consumer electronics firms wait for chips, to no avail. But now, the Japanese government looks likely to put real funding behind its semiconductor industry, with top officials emphasising their support.
Domestic supply chains have never been more important. Rather than remain tied to international shipping routes during shortages and delays, governments are doing everything in their power to develop local lines of supply. But the question remains: can Japan pull it off?
How Will Japan Pay For It?
Herein lies our first issue. Japan’s debt has rapidly increased over the past few years, and the semiconductor industry will need roughly a trillion yen—US$9bn—in this fiscal year alone. This cost, however, pales in comparison to what Japan could lose if it fails to keep up with Europe and the US. Both nations have launched aggressive funding measures to revive their local semiconductor industries. And if Japan refuses to invest due to its debt, it could slow down progress in fields ranging from artificial intelligence to autonomous driving.
According to Tetsuro Higashi, the former president of Tokyo Electron and Japan’s top government advisor in semiconductor strategy, ‘If we miss this opportunity now, there may not be another one’. Yet one advanced wafer fabrication factory can cost more than US$10bn, and any money poured into the industry will go fast. That’s why Japan, rather than invest trillions and trillions in failing domestic firms, is considering a second option.
What Do They Plan To Do?
Japan now intends to look abroad and convince overseas chip foundries to come to its shores. Its past failures mostly centred on trying to merge domestic firms that were already going through tough times. ‘This sort of made-in-Japan self-reliance approach hasn’t worked out well’, said Kazumi Nishikawa, a director at the Ministry of Economy, Trade, and Industry’s IT division. ‘This time the goal is to offer a strong incentive for an overseas logic foundry to come to Japan’.
As follows, Japan will now reach out to industry partners and leaders in other countries, including the industry heavyweight Taiwan Semiconductor Manufacturing Co. (TSMC), to build Japanese bases. According to the South China Morning Post, the heart of Japan’s mission is a US$337.2mn research and development project in Tsukuba that will involve TSMC and more than 20 Japanese firms. ‘I think we need to cooperate with our overseas counterparts’, said Akira Amari, a senior member of the ruling Liberal Democratic Party. ‘[And] TSMC is the world’s top logic chipmaker’.
Indeed, if that’s Japan’s strategy, the future looks bright. TSMC recently set up a venture near Tokyo to research energy-efficient 3D chips with several Japanese partners. And in the future, the multinational chipmaker may consider expanding its Japanese operations—that is, if government incentives pave the path forward.