Drive Innovation Using Collaborative Supplier Relationships (Part 2)
Building Supplier Collaboration Capabilities
The four primary steps to drive innovation through supplier collaboration are identified in Figure 2. For each of the steps, tactics are identified that enable supply chain leaders to successfully collaborate and execute the innovation strategy.
Figure 2: Four steps to build supplier collaboration capabilities
Develop Innovation Strategy
To keep the organization focused, executives must identify innovation priorities and objectives for each of their product categories. For example, they could be segmented by product into the following categories: (1) Transformative, New to the World Innovation (2) Substantial New to the Category Innovation (3) Close-In Line Extension Innovations (4) Productivity Driven Innovation (5) Sustainability Driven Innovation. Deploying more than two strategies to a product category will drive an unfocused approach.
Successful supply chain and procurement leader collaboration begins with early and clear communication of innovation objectives to suppliers. Executive engagement with key suppliers is critical for communicating strategies effectively and for developing strong relationships at all levels of the organization. To facilitate the communication, supply chain and procurement leaders along with suppliers can co-develop supportive category roadmaps that outline initiatives over a multi-year horizon.
Build Framework with Collaboration Partners
Based on the innovation strategy, supply chain and procurement leaders need to identify existing suppliers and source new suppliers with the capabilities that are likely to contribute to the innovation pipeline. The supply base should be segmented to identify priority suppliers where partnerships and enhanced collaboration processes can be deployed. Efforts to improve trust and communication will be focused on these partners to enhance the collaborative culture.
One of the key tenets to building trust and goodwill is sharing vital and confidential information. Supply chain and procurement leaders need to proactively consider legal and intellectual property issues and build a framework where both sides are fully aware of the relationship. Three major components of the legal framework include (1) Terms of confidentiality between the two parties (2) Descriptions/definitions of the projects resulting from early ideation sessions (3) Pre-alignment on the ownership of intellectual property including patents, trademarks, and/or manufacturing secrets.
It is important to keep the legal framework as simple as possible and not get into lengthy, protracted discussions about contract details. Contract disputes are counterproductive to collaboration and do not foster trust and goodwill. The use of easily understandable tenets helps understanding on both sides –for example, the two parties may agree that the supplier may own the IP for the physical technology/component/ingredient and that the purchasing organization would own the IP for the application of that technology/component/ingredient.
Use Innovation Processes to Enable Collaboration
Innovation is typically managed by two linked processes. The first process, the “fuzzy front end”, is the ideation process – the generation and capture of ideas and solutions that are supportive of strategic goals. To start the process, supply chain and procurement leaders can initiate cross-company innovation workshops, build online idea portals, and sponsor cross-company innovation training. Once suppliers generate ideas, it is important that they be categorized and stored so that the broader enterprise can access the knowledge.
The next step is to generate a product concept for the generated ideas. This is the beginning of the next major process – new product development (NPD), which is typically more formalized and time bound. This is where new products are designed, tested, commercialized, and launched. The use of a stage gate process provides clear go/no go decisions at project milestones, ensures executive alignment and sponsorship for new products, and drives accountability to maintain project timelines. Suppliers benefit as supply chain and procurement leaders are able to provide clear direction to partners, thereby enabling trust and goodwill. To foster a collaborative relationship, supply chain and procurement leaders need to provide clear feedback to suppliers.
Establish Metrics to Measure Collaboration Effectiveness
As compared to more standard transactional metrics such as cost, quality performance, and on-time performance, supplier metrics focused on innovation are significantly underdeveloped. Without a good set of metrics, it is difficult to objectively determine, track, and compare supplier innovation performance. As a result, it is difficult to reward good innovation performance with incremental business. Supply chain and procurement leaders need to use a comprehensive set of innovation metrics so that successful performance is identified and rewarded with additional business opportunities. Innovation metrics should be deployed to measure quantity of ideas, quality of ideas, innovation cost and resource consumption, and cycle times.
Joshua Nelson has over 16 years of experience managing and leading product development, operations improvement, and supply chain teams to deliver solutions to strategic problems.
Benjamin Werner has experience with spend analysis, purchase-to-pay process and technology improvement, and procurement organization design.
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