Why Good Supply Chain Innovations Lose Deals They Should Win

Article 1: Part of the Beyond the Buyer series.

Over the course of my career working in and covering reusable packaging and supply chains, I have watched a particular kind of commercial frustration play out with consistency. A vendor, usually savvy and experienced, usually sitting on a product that genuinely works, walks out of a concluding sales pitch empty-handed. The technology delivered as promised in the pilot.  The results of performance and durability observations were solid. And yet the deal didn’t close, or worse, never got serious consideration in the first place.

The reason, almost invariably, is some version of the same problem: the numbers didn’t add up for the buyer, even when they clearly added up for the system.

This is not a sales problem. It is a measurement problem, and underneath the measurement problem lies an incentive architecture problem. Even when a more complete analysis can be assembled, the person being asked to approve the investment may not control the budgets where the benefits actually land. Understanding all three dimensions of the problem matters for vendors trying to build credible business cases and for buyers trying to make genuinely informed decisions.

The Pallet Spectrum

The pallet is a useful place to start, because most people in supply chain understand it, and because it illustrates the problem with unusual clarity.

Consider three points on a spectrum of increasing sophistication:

A conventional wooden GMA pallet costs relatively little to acquire. It is also relatively fragile, has a short service life in high-throughput environments, generates debris when it degrades, and provides no information about its own location or condition.

A durable plastic pallet costs more, sometimes significantly more. Its advantages are real: longer service life, fewer replacement cycles, better load consistency, reduced product damage, and lower waste handling costs. A buyer who controls all of those cost lines and tracks all of those outcomes can build a compelling case for the investment. Many buyers don’t.

An IoT-enabled durable pallet adds a layer of intelligence: real-time location, shock detection, temperature monitoring, and utilization tracking. The value proposition is broader still. The data it generates can reduce asset loss for the pool operator, cut detention charges for the shipper, lower damage claims for the logistics provider, improve forecasting accuracy for the retailer, and provide documentation that reduces dispute costs for everyone in the chain. When paired with advanced IT services for supply chains, these insights can be integrated across transportation, inventory, and warehouse management systems to drive greater visibility and operational efficiency throughout the network

Each step up this spectrum represents a more sophisticated and more genuinely valuable innovation. And at each step, something interesting happens: a larger fraction of the total value created lands outside the budget of the person being asked to pay for it.

The salesperson is typically talking to one of the beneficiaries. Not all of them. Often not even the largest one.

Where the Value Actually Goes

When a durable IoT-enabled pallet performs as designed, its economic benefits are distributed something like this:

The primary buyer,  typically the brand owner or shipper, captures savings from reduced pallet replacement costs and improved asset utilization. These are real, but they represent only a portion of the total value created.

The logistics provider that handles the pallet benefits from fewer damage events, lower claims processing costs, and better handling efficiency. They didn’t buy the pallet. They didn’t ask for it. But they experience its effects every day.

The distribution center operator benefits from reduced racking wear, lower maintenance call-outs, and  in the case of wooden pallet alternatives, reduced time spent managing wood debris. This last point is worth pausing on: janitorial hours in a busy distribution center are a real budget line, directly influenced by pallet deterioration, and rarely considered in a pallet procurement decision.

The retailer benefits from improved on-shelf availability, reduced shrinkage, and fewer inbound exceptions.  Retail floors do not get scraped from exposed fasteners on the pallet bottom deck. These effects are downstream from the pallet specification decision by several steps, but they are not imaginary.

The claims and insurance functions,  whether internal departments or external insurers, benefit from reduced claim frequency and faster, data-supported dispute resolution. They are latent beneficiaries of an investment they had no voice in making.

None of these actors typically appears in the business case that the procurement committee reviews. The business case captures what the buyer can measure, in the buyer’s budget, over the buyer’s planning horizon. Everything else is invisible, not because it doesn’t exist, but because the measurement architecture wasn’t designed to capture it.

This Is a Structural Problem, Not a Failure of Analysis

It would be easy to read this as a critique of procurement teams, or of vendors who don’t tell the full story. That’s not the intent. The measurement gap we’re describing is structural; it is baked into how supply chain organizations are built, how budgets are assigned, and how KPIs are defined.

KPIs in supply chain organizations are assigned to functions, not to assets. The maintenance budget doesn’t know it’s being affected by a pallet specification decision made in procurement six months ago. The claims department doesn’t connect its workload to the packaging choices made upstream. The janitorial contractor isn’t tracking debris volumes by pallet type.

The data to make these connections often already exists within the organizations that would benefit from it. It simply isn’t assembled for this purpose. No one has the mandate or, in many cases, the cross-functional access to connect the dots.

This is what economists call a spillover: an economic effect that falls on parties outside the original investment decision. Supply chain spillovers are well documented in academic research. A growing body of empirical work confirms that when one firm in a supply chain innovates, its partners, both upstream and downstream, experience measurable economic effects (Isaksson, Simeth & Seifert, 2016; Zheng, Chen & Zhao, 2025). The challenge is not recognizing that these effects exist. It is measuring and attributing them in a way that informs real decisions.

The result of this measurement gap is a systematic pattern: innovations are evaluated on a partial benefit stream against a full cost. The economics look worse than they are. Deals that should close don’t. Products that should be adopted widely remain niche.

The Paradox of Sophistication

Here is the counterintuitive finding that sits at the heart of this problem: the more sophisticated and genuinely valuable a supply chain innovation is, the harder it tends to be to sell, precisely because its benefits are more broadly distributed.

A simple cost reduction that flows entirely to the buyer’s budget is easy to justify. A complex innovation that creates value for six different actors across the supply chain, most of whom aren’t in the room, is structurally disadvantaged in the procurement process, regardless of its actual merit.

This means that the innovations most likely to face commercial headwinds are often the ones that create the most total system value. That sobering observation should concern anyone with a stake in supply chain progress.

It is worth being precise about the nature of this problem. Conventional analysis does not simply produce an incomplete picture of supply chain innovation value; it produces a directional error. The bias is not random. It consistently and systematically undervalues the most sophisticated innovations relative to simpler alternatives, because the gap between total value and captured value widens as the benefit stream broadens. A procurement process that treats this as an occasional oversight is misreading what is actually a structural feature of how supply chain investment decisions are made.

What a More Complete Picture Looks Like

Addressing this problem requires two things that are related but distinct.

The first is better measurement, a structured way of identifying all the actors who experience economic effects from an innovation, mapping the benefit streams that flow to each of them, and aggregating across the system with appropriate treatment of what economists call transfer payments (costs that move between parties rather than representing new value creation).

The second is better commercial structures, including pricing models, contracting frameworks, and value-sharing mechanisms that align who pays for an innovation more closely with who benefits from it. It is worth noting that regulators have already recognized a version of this problem in the environmental domain. Extended Producer Responsibility laws in the United States and the Packaging and Packaging Waste Regulation in Europe are both mechanisms for forcing procurement decisions to account for cost streams such as waste handling, end-of-life recovery, and material externalities that conventional analysis ignores. The economic equivalent of that regulatory logic, applied voluntarily through better analytical frameworks and commercial structures, is exactly the direction supply chain innovation evaluation needs to move. Pooling models in the pallet industry are a partial solution to this problem. Outcome-based pricing, where vendors are compensated based on documented performance outcomes rather than asset acquisition, is another approach, and one that IoT data makes increasingly tractable.

Neither of these is simple. But neither is impossible. And the first step toward both is naming the problem precisely enough to do something about it.

A Framework for the Full Picture

In our upcoming white paper to be published on packagingrevolution.net, Beyond the Buyer: A Multi-Stakeholder Framework for Evaluating the True Economic Impact of Supply Chain Innovation, we propose a structured methodology for exactly this kind of analysis. The Multi-Stakeholder Benefit Attribution Model (MBAM) provides a five-step process for identifying all stakeholders affected by a supply chain innovation, mapping the benefit streams that flow to each, measuring what is measurable with appropriate confidence levels, and aggregating across the system in an analytically defensible way.

The framework draws on elements of Total Cost of Ownership, Activity-Based Costing, and Life Cycle Assessment methodology, but is purpose-built for a problem none of those frameworks was designed to solve. It also distinguishes explicitly between benefits that can be converted to monetary estimates with reasonable confidence, including direct cost savings, labour reductions, damage avoidance, and asset utilization improvements, as well as benefits that are economically real but resist clean quantification, such as organizational learning, relationship quality improvements, and industry-wide demonstration effects.

The goal is not to inflate the economics of supply chain innovations. It is to measure them more completely, and in doing so, to support better decisions on both sides of the transaction.

For Vendors

If you are selling a supply chain innovation with a distributed benefit stream, the most important question to answer before your next procurement meeting is not “how do I present the numbers better?” It is “whose numbers am I missing?”

Map the full stakeholder landscape. Identify where the value actually lands. Understand which benefits are flowing to actors who are not in the room and have no voice in the decision. Then think carefully about how to bring those benefits into the conversation, whether through engaging the right organizational level on the buyer side, restructuring the commercial proposition, or commissioning independent third-party validation of the full system-wide impact.

The evidence from independent academic research is increasingly clear that supply chain innovations do create value well beyond the primary buyer. The commercial challenge is making that value visible in a form that decision-makers can act on.

For Buyers

If you are evaluating a supply chain innovation, the most important question to ask of any business case you receive is not “do the numbers add up?” It is “whose numbers are in here?”

A business case that captures only the benefits accruing to your procurement budget is not necessarily a well-constructed business case; it may simply be an incomplete one. The more sophisticated the innovation, the more likely it is that substantial value is landing in adjacent departments, in partner organizations, or in functions that don’t typically feed into procurement decisions.

That doesn’t mean every innovation with diffuse benefits is worth buying. It means that the evaluation framework needs to be as wide as the benefit stream. Extending the analysis, internally, across functions, before making a final call, is not excessive rigor. It is appropriate rigor, applied to the right question.

And the idea of casting a wider net isn’t a new idea. The idea of cross-functional teams in decision-making is decades old. In The Necessary Revolution (2008), Peter Senge stressed the importance of bringing the “entire supply chain” into the room to support more enlightened courses of action.

The Bigger Picture

Supply chain innovation is not stalling because the products aren’t good enough. In many cases, the products are a substantial improvement. The challenge is that the commercial and analytical infrastructure for evaluating them has not kept pace with the sophistication of what’s being offered.

Closing that gap, through better measurement frameworks, better commercial structures, and a more complete understanding of where supply chain value actually lands, is one of the more important and underappreciated challenges in logistics today.

It is also, we believe, a solvable one.

References

Isaksson, O.H.D., Simeth, M., & Seifert, R.W. (2016). Knowledge spillovers in the supply chain: Evidence from the high tech sectors. Research Policy, 45(3), 699–706.

Zheng, L., Brooks, L., Chen, Y., & Zhao, Y. (2025). Do the benefits of innovations spill over from suppliers to customers? Accounting and Finance Research, 14(3), 1–17.

For the full reference list and complete methodology, see the white paper at packagingrevolution.net.

Articles in this series:

Article 1: Why Good Supply Chain Innovations Lose Deals They Should Win

Article 2: Most of the Value Your Supply Chain Innovation Creates Never Makes It Into the Business Case

Article 3: Why Total Cost of Ownership Isn’t Enough, And What to Do About It

Article 4: The Pallet Core Revenue Problem: Why Pallet Procurement Decisions Have Hidden Economics

Article 5: What We Can Measure, What We Can’t, and Why the Difference Matters

Article 6: The Measurement Problem Is Catching Up With Technology