Process innovation is the application of a new technology or method in its products or services that helps a company stay competitive and meet customer demands. Competition in the market, high speed of globalization, increasing customer requirements and developments in technology lead companies to apply innovation in their production processes. Because process innovations allow companies to increase production speed and save money or time.
Process innovation may include changes in equipment and technology used in manufacturing, or changes in tools used to assist the supply chain and distribution system.
The use of automatic renewal systems in order processes by retail stores is an example of process innovation. Previously, an employee would manually go through all the products one by one to determine how many items needed to be ordered. This was both time consuming and could lead to insufficient stocks due to minor errors in estimation.
Using statistical models to automate product ordering as a more modern way saves time and money. Accordingly, having stock levels with a better determined product amount increases the speed in serving customers and of course customer satisfaction.
As an example of a company implementing process innovation:
- Ford's move to a mobile assembly line in production not only simplified vehicle assembly, it also reduced the time required to produce a vehicle from 12 hours to 90 minutes.
- After World War II, when Toyota was on the verge of bankruptcy, the company started to apply the “just-in-time manufacturing” approach to keep up with the competition in the market. An approach that relies on ordering only the parts needed at the moment, rather than ordering and storing large quantities of machines, has saved the company time, money and space.