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"Innovative disruptions in Sourcing and Procurement" or so it seems!

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There are examples from the world of sourcing and procurement that I can share from my experiences and a few of them come close to being disruptive, within the given scenarios, if not downright disruptive.


We have heard of Clayton Christensen's Innovative Disruption, which refers to an innovation or an innovative product that can disrupt the current market for an existing product. He explains this in The Innovator's Dilemma. Some classic examples are the Hydraulic Excavators against the Cable Operated Excavators or the emerging Cloud Computing that can disrupt or displace the need for local physical media to store digital data in the form of USB Flash Drives. I was thinking, maybe there are examples from the world of sourcing and procurement from my experiences (mostly Automotive) and projects that I can share and a few of them come close to being disruptive, within the given scenarios, if not downright disruptive. And of course, these examples can be debated to from a certain point of view, which is what I welcome.

The first example that comes to my mind is from Automotive! At one point in time, more than a decade ago, I was buying Wiring Harnesses ("extremely engineered products" that undergo a detailed product development and evaluation process that also make it one of the most sophisticated, complex and costly components to source - to put in perspective, there are 300 circuits and a bunch of 1000 connector switches in a simple B class notchback car! The development time can be close to 30 months) The supply chain is very complex due to the nature of these components - there are electrical and electronic components, terminals, switches, sensors, plastics, junction boxes . . .  you name it.

The wires used in these harnesses traditionally were not lead free and halogen free. When PVC burns, it releases a substance called dioxin that harms the Ozone layer. Making halogen free harnesses involves investment in processes and machinery, that makes the product uncompetitive. Suppliers were not willing as not all OEMs would invest for this. So, what we did was to involve the engineering team to drive halogen free harness development for a global model so that we could start discussions with suppliers. As expected, there was a lot of resistance to it (we should call it "tremendous tremendous initial resistance"). We came up with a detailed strategy - one included asking suppliers to check which other automotive OEMs would be interested in switching over to halogen free wires, and the second involved checking if halogen free process itself can be aggregated at a global level. What was adopted finally over a sourcing spread across 3 years included components from both these strategies that drove down costs significantly. As I am speaking to you now, most OEMs in India have started to use halogen free wires. This change has been witnessed only in the last decade and has been central to wiring harness supply chain over these years. 0% to 80% change in this automotive domain in India. Can we call this disruptive?

One more example I have is the Tata Nano itself. Is it a disruptive technology? Obviously no. But it has elements of disruptive ideas that have challenged existing wisdom. If the theme of making a car for two thousand dollars is not disruptive, then what is? For instance, the engine is at the rear, the luggage compartment is in the front, it has a central speedo meter for both RHD and LHD versions and to top it all, the starter that was proposed was a motorcycle one! All OEMs develop parts specific to a car model that increases the costs due to restrictions on cross sharing of IPs. But the Nano uses sourcing concepts that are open source models for a significantly large number of components. Also sourcing and engineering teams have used concurrent engineering and value engineering concepts to drive down costs further. However, how successful has the Nano been is something that is debatable. The underlying concepts are not.

One last disruptive concept closely related to supply chain or procurement function is the QR code. Not many people are aware that the QR code was developed by one of Toyota's Keiretsu (do you recall my blog on Keiretsu suppliers) companies called Denso, which is one of the most innovative organizations to date. QR codes was meant for vehicle and components tracking in warehouse and car yards. Its use now is very significant across the supply chain including Inventory tracking, shipping and logistics. A certain wildlife park in Florida went on to have QR codes installed on the hiking paths to enable hikers get information on local fauna! To put it in perspective, a QR code holds 100 times the information a bar code can hold and the allowance of error margin is also much higher. But why is it that even though the company that holds the patent to it, has granted free license on it, there is no significantly enduring increase in market share for QR codes. The answer is in the value network it can create - most significantly, not many users find it hassle free considering the fact that one would need a QR App to read it and a strong data connection to go along for loading the webpage. These are some key reasons why the QR code hasn't really replaced the bar code even though the QR code is impressively disruptive in a few Automotive OEM procurement domains.

There are a few more examples I think are disruptive or missed being disruptive,  that I have not mentioned here. I welcome your views - would be happy to respond and keep the conversation going. Thank you.

Comments

Good blog. Provides a wider industry based perspective.

Valuable information on Innovation and its implication on the current techology/process used. Thank you Prashanth.

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