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Innovations occur at multiple points across an entire supply chain. No matter how incremental these innovations, the quality and cost improvements add up to produce superior products for consumers.
A recent survey of supply-chain firms in the U.S. automobile sector maps out this incremental innovation effect. By surveying thousands of firms that supply components to automobile manufacturers, economists Susan Helper and Jennifer Kuan found that innovation has become more collaborative over time. The share of suppliers along the chain that were contributing to final part designs increased from 48 percent in 1989 to 70 percent in 2011.
In the past, component manufacturers tended to produce based on specifications provided by the end user. Now, they interact with the end user to understand where their components fit in the overall design. Doing so allows component manufacturers to tweak their designs based on their specialized knowledge so that the final parts perform better. This leads to higher productivity and better products for consumers.