We know that, in a competitive environment, companies must innovate to survive; however, it is not uncommon to see the operational conflicts that arise with the introduction of new products (INP), including increased complexity in the supply chain, production incompatibilities and diversion of team attention. As a result, impacts of varying proportions can be expected in various functions of the supply chain, including demand management, purchasing, production, inventory management, logistics, infrastructure and maintenance, in addition to quality control. But how can a company be innovative and efficient at the same time? This is the subject of this article, in which we will present the case of MeatCo (fictitious name), a highly innovative food manufacturer.
With a competitive strategy focused on innovation, with frequent launches of new products, MeatCo was able to substantially grow its sales, at the cost of decreasing its profitability. The company even launched, in a period of just two years, more than 300 new products and, even with the discontinuity of some articles, it increased its product offer from 223 to 302 items. Therefore, it is a reasonable hypothesis to assume that the increase in complexity associated with innovation is at least part of the explanation for the reduction in profitability from the company.
Interviews with company employees identified differences in perception of the impact of innovation between different departments, which could undermine efforts to develop a coherent innovation strategy. For example, the Commercial area was under pressure to support multiple product variants to meet the demand of increasingly specific customer segments. A operations team, on the other hand, found itself struggling to efficiently deliver an increasingly diverse and complex product range.
A operations strategy from MeatCo boiled down to offering high service levels, produce articles of better quality and deliver fresh produce. Achieving these goals can be assessed using service level indicators (fill rate), compliance with product quality (return rate) and stock freshness (turnover), respectively.
When analyzing the case, we realized that the introduction of new products impacts the operation directly and indirectly. Through hypothesis tests, it was possible to examine not only the timing of these impacts on the level of service, quality and freshness of the products, but also the extent to which the intensity of these impacts varies according to the degree of product innovation. the main ones direct impacts are associated with changes in focus and the learning curve. The indirect impacts are related to the complexities arising from the greater variety of products, including greater demand uncertainty, production exchanges more frequent and greater risk of contamination food cross (increasingly varied allergens). Furthermore, it was observed that the degree of product innovation exacerbates the impact of INP in the operation, depending on the amount of changes required in the operation to produce and deliver the new product.
It was also observed that the impact of NPI is more evident in the long term, as sustaining frequent introductions of new products over a long period can compromise operational performance proportionately more than the immediate impacts of new product launches alone. In addition, the INP can promote the uncontrolled growth of the variety of products, if not combined with a clear category management strategy, which can seriously harm the operation due to the increase in complexity.
But… what to do? Companies in a similar situation should establish structured and systematic innovation plans, avoiding random introductions of new products and establishing a pace of innovation that can be supported by the operation. The operation needs right time to adapt to each innovation and the faster they can do it, the greater their ability to innovate, without the operation suffering too much. On the other hand, by establishing clear plans of category management, companies can avoid unnecessary assortment expansion promoted by innovation, which can harm operational performance if not well managed. In addition, these measures must be supported by the improved reliability, availability, and information flow throughout the organization and in customer-supplier relationships.
By mitigating potential negative operational impacts from the introduction of new products, these recommendations are a good starting point for conflict resolution between innovation and efficiency in fast-moving consumer goods companies that wish to remain competitive in terms of products, costs and service.
References:
– Laranjeira, L. (2020). Exploration & Exploitation: Reconciling Product Innovation and Supply Chain Performance in Consumer Packaged Goods Manufacturing. Doctoral Dissertation. Zaragoza Logistics Center – MIT SCALE Network
