The Next Wave of Innovation Requires Standardization
A new study from the University of Tennessee, Knoxville’s Global Supply Chain Institute demonstrates that decision fatigue impedes a company’s agility and profits.
“Coming to work every day and making complex changes to meet the latest product regulations that the consumer does not value on thousands of stock-keeping units can depress the best supply chain talent,” said Mike Burnette, director of the institute and author of the report Platform Life Cycle Management Best Practices.
According to the report, some 94 percent of executives believe managing complexity is essential but few connect the aspiration to profit share.
Burnette and his fellow supply chain faculty at UT’s Haslam College of Business found that companies employing platform management, a standardization strategy developed by the automotive industry in the 1920s, simplified their supply chains by 30 to 50 percent. They also saw a 10 to 15 percent reduction in cost and 20 to 30 percent faster new product initiative cycles.
A large global consumer packaged goods company participating in the study used platform management to streamline 16 different lavender fragrances down to three. The simplification delivered 15 percent cost savings and a 67 percent specification reduction.
“The next breakthrough in business growth will be found in the seams of the organization,” said Burnette. “When companies simplify their offerings, they can standardize their suppliers and processes. That means less time spent on daily business and more time to improve strategies and respond to market influences.”
Mondelez International, the global snacks company with billion-dollar brands such as Oreo and Nabisco, sponsored the study as part of its plan to reinvent its supply chain and create a demonstrable competitive advantage through simplification, efficiencies and cost reduction. After executing just half of its platform strategy, the company has realized 60 percent of its savings goal.
“Platform management is a simple concept that requires company-wide coordination and adoption,” said Daniel Myers, executive vice president of integrated supply chain at Mondelez. “A focus on standardization will drive speed and margin improvement. Using examples from leading companies and their platforms, UT’s study becomes a go-to resource on how to achieve organizational consensus and make the transition.”
Companies simplify by driving out aspects of product design and processes that do not deliver value to the customer. They can then standardize suppliers, creating volume leverage, and standardize processes, allowing them to respond to markets more quickly. Sustainable platforms are developed by technical leaders with a business need in mind.
Platform Life Cycle Management Best Practices is the first installment of the new Innovations in Supply Chain white paper series from the institute. The study identifies 29 best practices for the platform management life span.