Supply chains, JIT, BPR and lean innovation

This chapter moves from the single operation to the supply chain and to approaches for radical change and fast learning: JIT, Business Process Re-engineering, disruptive innovation and lean innovation.

Supply Chain Management (SCM)

SCM coordinates activities across suppliers, manufacturers, distributors and customers. Its goals: deliver value to customers, reduce costs, improve responsiveness, and coordinate information and material flows. Modern firms increasingly focus on core activities and outsource support activities, which makes supplier relationships strategically important.

Suppliers are often important sources of innovation. Involving them leads to better designs, lower development costs, faster innovation and access to specialized expertise. Successful SCM depends on trust, information sharing, coordination mechanisms and strong relationships.

Just-in-Time (JIT)

JIT is a production philosophy focused on eliminating waste: produce only what is needed, when it is needed, in the required quantity.

• Benefits: lower inventory costs, less waste, faster response to demand, improved efficiency.
• Requirements: reliable suppliers, accurate information, strong coordination, continuous improvement.
• Characteristics: tight scheduling, efficient information flows, high-quality processes, close supplier relationships, minimal inventory.
• Challenges: high dependence on suppliers, greater vulnerability to disruptions, more frequent transport, need for strong trust.

Because there is minimal inventory as a buffer, a disruption anywhere in the system can affect the entire operation. In global supply chains, differences in culture, systems and business practices make coordination harder.

Business Process Re-engineering (BPR)

BPR is the radical redesign of business processes to achieve major improvements in cost, quality, speed, service and efficiency. Unlike continuous improvement, BPR aims at fundamental change. It questions existing ways of working, redesigns entire processes from scratch, often involves restructuring and seeks dramatic performance gains.

Risks: loss of organizational knowledge and experience, employee resistance, high implementation costs, and failure if the underlying business model is weak.

Key debate: organizations need both incremental innovation (continuous improvement) and radical innovation (major transformation). The challenge is knowing when each is appropriate.

Disruptive innovation (Christensen)

Christensen argued that successful companies often fail because they focus too heavily on existing customers and technologies. New technologies initially appear inferior but improve over time and eventually disrupt established firms. Leaders lose position because they ignore emerging technologies, focus only on current customers and optimize existing products instead of exploring new opportunities.

Lean innovation

Lean innovation applies lean manufacturing principles to innovation and product development. Core principle: maximize customer value while minimizing waste. Instead of spending years on development, firms build quickly, test early, learn from customers and adapt continuously.

Lean innovation process:

1. Identify the Minimum Viable Product (MVP): the simplest version that delivers customer value.
2. Test with customers in real-world conditions.
3. Learn and adapt: improve, modify or pivot based on responses.
4. Repeat until a competitive solution emerges.

Lean principles (in the lecture listed under Eric Ries and lean startup):

1. Identify customer value from the customer's perspective.
2. Map the value stream: identify all activities that deliver value and remove waste.
3. Create flow: let value move efficiently through the system.
4. Establish pull: develop products based on actual customer demand.
5. Seek perfection: continuously improve and eliminate waste.

These five principles come from lean thinking (Womack and Jones, Lean Thinking, 1996). Eric Ries applied lean thinking to startups with the MVP and the build, measure, learn cycle.

Benefits: faster learning, lower development costs, reduced market risk, earlier customer involvement and more experimentation.