Turn Your Supply Chain into an Innovation Engine

In the February 19, 2025 episode of HBR On Strategy titled "Turn Your Supply Chain into an Innovation Engine," Harvard Business Review delves into the transformative power of open digital supply chain platforms. Hosted by Kurt Nickish, the episode features insights from Kasra Ferdows, an operations management professor at Georgetown University, alongside Hao Lee of Stanford's Graduate School of Business and Jinde Zhao from China Europe International Business School. The discussion centers around how companies can leverage their supply chains not just for efficiency, but as catalysts for innovation.

Introduction: Haier’s Rapid Response to Crisis

The episode opens with a compelling case study from 2019, where Haier Group, a global leader in home appliance manufacturing, responded swiftly to the COVID-19 outbreak in Wuhan, China. Faced with an urgent need for mobile isolation wards, Haier collaborated with a Chinese home furnishings company and multiple suppliers across its supply chain to prototype, build, and deliver these units in record time. This rapid response was facilitated by Haier’s open digital supply chain platform, showcasing how integrated and transparent supply chains can drive innovation and address unforeseen challenges.

Understanding Digital Supply Chain Platforms

Traditional vs. Open Platforms

Kasra Ferdows begins by contextualizing the landscape of digital supply chain platforms. Traditional platforms, exemplified by giants like Amazon and Taobao, primarily focus on specific stages of the supply chain, such as ordering, inventory management, and logistics. These platforms are typically closed systems, where the platform owner controls access and participation is limited to those who formally join the network.

Kasra Ferdows [04:03]: "Digital platforms have been really expanding very rapidly in the management of global supply chains. Supply chain platforms have been mostly focusing on traditional supply chain transactions like ordering and inventory and fulfillment."

However, Haier’s approach diverges significantly. Unlike conventional platforms, Haier’s Cosmoplat is open, encompassing multiple stages of the supply chain and integrating functions beyond mere transactions. This openness fosters a more collaborative environment, enabling diverse participants to contribute to innovation and problem-solving.

Kasra Ferdows [06:32]: "One of the differences in Haier's platform is that it's actually open. It really includes more than one stage in the supply chain and is doing a lot more than just the typical supply chain functions."

Features of Haier’s Cosmoplat

Cosmoplat, Haier’s digital platform, stands out due to several key features:

1. Openness: The platform allows a broader range of participants, including suppliers from various stages of the supply chain, to interact and collaborate.
2. Multi-Functional Integration: Beyond traditional supply chain tasks, Cosmoplat integrates functions like R&D, engineering problem-solving, regulatory compliance, and customer feedback.
3. Decentralized Control: Unlike many platforms that serve as a central “control tower,” Cosmoplat operates on an organic, decentralized model where Haier does not mediate interactions between participants but provides a transparent environment for collaboration.

Kasra Ferdows [07:01]: "They have the visibility, but they are not the gatekeeper between them. If they want to bring a third person among them, that can also work. This is a very interesting organic design that you don't see in many other platforms."

Overcoming Challenges of Open Platforms

Trust and Reputation

Opening a digital platform introduces challenges, primarily around trust and reputation. Companies may hesitate to join an open platform due to concerns about data security, intellectual property, and the potential for competitors to access sensitive information. Establishing trust among participants is crucial for the platform’s success.

Kasra Ferdows [10:02]: "You really have to develop the trust and you have to have a reputation and you have to have a savvy about technology."

Technological Savviness

Managing an open platform requires a certain level of technological expertise. Companies that lack the necessary technical capabilities may find it difficult to effectively participate or contribute to the platform’s growth.

Organizational Design

The success of Haier’s Cosmoplat is not solely due to its technological infrastructure but also its organizational design. Haier has cultivated an internal culture that embraces collaboration and transparency, ensuring that the platform operates smoothly and effectively.

Kasra Ferdows [10:46]: "There is a human organizational side to Haier that allows this platform to really function a lot better than maybe some other companies."

Facilitating Innovation through Supply Chain Platforms

Beyond Efficiency: Fostering Innovation

Haier’s platform exemplifies how supply chains can be transformed from mere logistical frameworks into innovation engines. By integrating functions like R&D and customer feedback directly into the platform, Haier enables rapid prototyping and iterative development of new products.

Kasra Ferdows [11:00]: "The real vision behind this platform was to make sure that we can connect with people that know the answers or can provide the answer and work with them."

Case Study: Smart Refrigerators

A prime example discussed is Haier’s development of a smart refrigerator line. Utilizing the platform, Haier was able to quickly gather user feedback and customize features to meet diverse needs.

• User Insights: Through the delivery and service management module, Haier discovered that users stored not just food but also skincare products and herbal extracts, each requiring different environmental conditions.
• Customized Solutions: This insight led to the design of refrigerators with specialized chambers tailored to varying levels of moisture, airflow, humidity, and temperature.

Kasra Ferdows [13:48]: "They found out that many of the users used refrigerators to store things that require different levels of moisture and temperature, so they designed different chambers for that."

Organic Growth

Cosmoplat’s structure allows it to grow organically, adapting to emerging needs and challenges without a rigid master plan. This flexibility is likened to a tree that branches out naturally, responding to the environment.

Kasra Ferdows [16:12]: "It's nice about this platform is that it grows organically. It doesn't have to have a master plan... It's almost like a tree."

Practical Advice for Other Companies

Leveraging Existing Software

Kasra Ferdows emphasizes that companies do not necessarily need to invest in entirely new systems to transform their supply chains into innovation engines. Existing software can be adapted to support more open and collaborative functions.

Kasra Ferdows [20:49]: "It's much more about policies and routines... they don't need a new architecture."

Starting Small

Companies should consider initiating their platform projects on a small scale to build trust and demonstrate value before expanding. Starting with a few trusted partners allows for manageable growth and the establishment of robust collaborative practices.

Kasra Ferdows [23:19]: "You could start with only three or four, five suppliers or some people. It doesn't have to be global."

Quality Over Quantity

Unlike traditional platforms that rely heavily on the network effect, Haier prioritizes the quality of relationships over the sheer number of participants. This approach enables meaningful collaborations that drive innovation without necessitating a large initial user base.

Kasra Ferdows [17:27]: "The emphasis is much more on the quality of relationship as opposed to the quantity of the participants."

Lessons for Leaders

Visionary Leadership

Leaders must have a clear vision of how an open supply chain platform can serve as a tool for innovation. This involves looking beyond immediate efficiency gains to long-term strategic benefits such as enhanced collaboration, rapid adaptation, and continuous innovation.

Kasra Ferdows [21:37]: "It's about developing an attitude or policy to reach out and connect with resources and capabilities wherever they are."

Embracing Open Innovation

To fully leverage the potential of their supply chains, leaders should adopt an open innovation mindset. This means encouraging external partnerships, integrating diverse perspectives, and fostering an environment where collaborative problem-solving is the norm.

Flexibility and Adaptability

Leaders must ensure that their organizations are flexible and adaptable, allowing the supply chain platform to evolve in response to new challenges and opportunities. This adaptability is crucial for sustaining innovation over time.

Platform Ownership and Scalability

Not Necessarily for Big Players

One of the most significant takeaways is that ownership of an open supply chain platform is not restricted to large, global companies. Even small and medium-sized enterprises can develop and benefit from such platforms by starting small and focusing on building strong, quality relationships.

Kasra Ferdows [23:19]: "You don’t need to be big nor do you need to be the top dog... you could start very on a limited basis with a few suppliers."

Incremental Growth

Platforms can begin with a focused scope and gradually expand as trust is established and as the organization gains experience in managing collaborative relationships. This incremental approach mitigates risks and allows for sustainable growth.

Kasra Ferdows [24:44]: "You can find a garden to start in. You can start very on a limited basis with one or two suppliers."

Conclusion: Transforming Supply Chains into Innovation Hubs

The episode wraps up with a synthesis of the insights shared by Kasra Ferdows, highlighting the transformative potential of open digital supply chain platforms. By fostering transparency, encouraging collaboration, and prioritizing quality relationships, companies can turn their supply chains into powerful engines of innovation. Haier’s Cosmoplat serves as a pioneering example, demonstrating that with the right vision and organizational design, supply chains can transcend traditional roles and become integral to a company’s strategic innovation efforts.

Kasra Ferdows [25:34]: "Once you start working with them, then you start selling them other things. You can learn from it and expand as you wish."

Key Takeaways

1. Openness Enhances Collaboration: Open digital platforms facilitate greater transparency and collaboration across multiple stages of the supply chain, driving innovation beyond traditional efficiency gains.

2. Start Small and Scale Gradually: Building trust and demonstrating value with a few key partners can enable platforms to grow organically and sustainably.

3. Focus on Quality Relationships: Prioritizing the quality of interactions over the quantity of participants leads to more meaningful collaborations and innovation.

4. Adapt Existing Systems: Companies can adapt their current software infrastructure with the right policies and routines to support an open and collaborative supply chain platform.

5. Visionary Leadership is Crucial: Leaders must cultivate a clear vision and supportive organizational culture to fully leverage the potential of supply chain platforms as innovation drivers.

By embracing these strategies, organizations of all sizes can transform their supply chains into dynamic, innovative ecosystems capable of responding swiftly to changing market demands and unforeseen challenges.