I interviewed Tingting Yan who discussed Supply Chain Collaboration and Innovation.
It's nice to speak with you today Tingting. This is going to be an interesting topic on supply chain collaboration and innovation. My first question is can you provide us with a background of yourself?
It's my pleasure, Dustin, just to join this conversation. I graduated in 2011 with a PhD in supply chain management from Arizona State University. So starting at that time, I was working on my dissertation in the area of how does a manufacturer better work with a supplier in the new product development project. So my dissertation really goes very deep into the black box of supply chain collaboration. And then I actually found out a lot of interesting phenomena, and then we tried to [inaudible 00:00:50] the puzzles a little bit by then.
Particularly, we found this over communication problem because, at that time, people were still talking about this under-communication. So we need to communicate more. We need to share more information. But actually, my dissertation found out that, in fact, it's not under-communication that hurts innovation. In fact, it's over-communication. Or you communicate with the wrong party.
In 2011 after I graduated, I joined Wayne State as a tenure-track assistant professor, and I continue to work in this area to better understand how this collaboration works, because everyone understands collaboration is important, but then in the area of innovation, it's not that easy.
I continue to work in this area and continue to publish in major supply chain management academic journals and serve on different editorial boards as a reviewer. And I also teach in many of the supply chain management areas, the courses on both undergraduate level and MBA level. And I also advise some Ph.D. students. And also, I recently started to lead a study abroad in China group, to take our students to China for them to understand that, particularly when you're talking about collaborating in the global context, it's important for students to understand that people in different parts of the world behave differently. They have different value systems. So it was very interesting to just infuse my research in teaching and then help students to understand that supply chain collaboration is not an easy task.
Can you talk about what is supply chain innovation and collaboration?
Supply chain collaboration refers to any type of inter-organization or collaboration among firms in the supply chain. So this definition actually could really refer to so many types of supply chain collaboration. So a manufacturer, they could collaborate with its direct supplier on the project that focuses on cutting the purchasing costs, probably by removing some waste in the supply chain — maybe inventory waste, maybe the lead time.
Or, another firm, they could collaborate with just customers — some more downstream supply chain partner in introducing a new product to the market. So you can see that collaboration along the supply chain can happen among the firms that have a vertical buy-in supply in relationship. Or sometimes it could happen between firms on the same tier. Say two suppliers, they collaborate together for a customer. So you have a triad here. Sometimes the collaboration can even happen in a network, which means you have more than one tier. Two firms participate. A group of companies come together.
Also, the supply chain collaboration can vary based on the goals. What's their focus? You might collaborate for cutting lead time. You might collaborate for innovation.
My research area is more in this supply chain collaboration for innovation — so basically, how could companies in the supply chain — actually, more accurately speaking, in the supply network — could collaborate and then to innovate together.
Talk about the importance of collaboration and innovation in the supply chain.
In today's world — very competitive.And I think most of the companies — no matter whether you are big or small — more or less agree that no firm could innovate by itself. Many of the critical innovation resources actually lie outside a firm's boundary. And a firm more have heard the word "Open innovation." Firms need to open up its innovation process to external partners. And among so many other external resources, a firm supply chain composed primarily by the firm's direct and indirect material in the service supplier, they're usually this very rick source of innovative ideas and technology for the firm.
As someone who is based in the US auto city, Detroit, I have witnessed this transformation over the last couple of years in the auto industry from the mechanical to the electronic wonders. And actually, to look at any of the cars that are running on the road today, if we look under the hood of those cars, actually the auto show is now going on in Detroit right now. So if you go to the auto show and you look at those cars, many of those innovations are the result of close collaboration between auto manufacturers and their suppliers. And many of those innovative technologies are driven and sometimes led by supplier — not by the auto manufacturers.
The same pattern exists across most other industries. So cross industry. Firms could all benefit from innovation of analytical software suppliers by better understanding the data, the big data, related to their internal in the supply chain operation.
Just imagine the fact to most of the companies, they spend 60 to 70% of their total cost of goods sold in the supply chain. Just by that number, you can see how much the supplier could affect a company's innovation performance. So I would definitely say that supplier driven innovation, they are and they will become an even more important competitive advantage for any firm in the future.
Thanks. My last question is can you talk about how it's done effectively and where you've seen some good results?
That's a very good question. In fact, in the past couple of years, we have been doing some consulting projects for big companies. And what we've found is innovation is really a very unique and challenging performance dimension for a company to manage. It's not like cost. It's not like quality. It's not like time, which you can really put a number on easily, which you can qualify and then you can measure. Innovation is something that people know what it is once they see it, but then it's very hard for them to predict where it's going to happen and also to really put a dollar sign along with the dimension.
What we found out is no matter. It's good for big companies or small companies. They all struggle with measuring even their own innovation performance, let alone to assess a supplier's innovation performance and potential. So I would say that for those companies who are doing slightly better than others, they definitely need to understand three things.
First of all, they understand motivation. Think about it. Most of the time, those innovative suppliers, they are very powerful suppliers. Everybody wants to work with them, for Apple, for Google. People know they're very innovative, so they're very attractive, which makes them powerful. A big question for any company to think about is why would an innovative supplier be willing to help me innovate among so many other customers that this supplier works with?
A word that is very popular here in the auto industry is a customer of choice, which is what many auto manufacturers are now competing to be. They want to be the customer of choice for those innovative suppliers so that supplier is motivated to share its top secret with them and then to help them become more competitive. So the number one task is motivation. Are you the customer of choice, which really relates on the buyer-supplier relationship?
Secondly, we know that the suppliers are playing increasingly important roles in innovation. But many times, how do you know which supplier has bigger innovation value for my company? Because here there is a big difference between innovation performance versus innovation value.
When we talk about performance, it's more like, does this supplier have innovative technology?and then, Does it have a lot of patents? It invests a lot in R&D activities. But no matter how creative, how many new technologies the supplier has, if those technologies are not useful for my needs, then the supplier has little, very limited innovation value for me.
It's like when the girl goes shopping to buy a pair of shoes. The pair of shoes from the big brands, and it's really expensive, and it looks really good, but then the shoes don't fit. It's not comfortable to wear that pair of shoes. That means that the shoes, although it's very good by itself, has very limited value.
For buying companies, it's very important for them to have a good understanding and to know which supplier has bigger value for me. So you have to be able to assess the value of a supplier's innovation.
Finally, I would say it's one thing that's kind of related to the second point, is for the buying company to have a very effective structure. So for any suppliers who are willing to come to you, they're motivated to work with you, and you know the supplier has valuable innovation, it's important that the buying company has a very effective internal organizational structure, particularly related to the purchasing organization. It's important for the company to have the right structure so that the supplier's ideas, their technologies, can arrive at the right place within the organization. And this is particularly true for big organizations like General Motors, those big companies, where the supplier technology can just easily disappear because the organization is just too big. So if the idea, the technology arrives at the wrong place, basically the wrong person is assessing or is using that technology for the wrong product, for the wrong component, or integrated in the wrong process. Then ultimately, the buying company still cannot realize the value of supplier innovation.
That's what we see as very critical, a last step. You have to have a very eft internal structure to make sure the ideas, the technology, they arrive at the right place, assessed by the right person at the right time.
Thanks, Tingting, for sharing today.
You're very welcome.
About Tingting Yan
Associate Professor of Supply Chain Management at Wayne State University