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White Paper
A Framework to Enhance
Supplier Innovation
About the Authors
Vikas Gulia
Vikas Gulia is a domain consultant in the Innovation and Transformation Group (ITG)
within the Manufacturing business unit at Tata Consultancy Services (TCS). He has over
11 years of experience in Consulting, IT, and Manufacturing with cross-functional
expertise in strategy planning and execution, IT, and production. Gulia is a Certified
Supply Chain Professional (CSCP) from APICS, USA.
Rajeev H
Rajeev H is a consultant in ITG within TCS Manufacturing business unit, and has 15 years
of experience in consulting and in the automotive industry. Having worked with global
customers on business solutions in the areas of Oracle value chain planning, supply
chain planning, and logistics, he has managed multiple end-to-end global
implementations and rollouts in Oracle ERP. Rajeev is a certified practitioner in Inventory
Management (CPIM) and Supply Chain from APICS, USA.
Abstract
With rising customer expectations and the evolution of disruptive supply chains, suppliers
are increasingly playing a critical role in product innovation, multi-channel commerce
and integrated supply chains. The concept of supplier collaboration has evolved from
a combative, uneasy and negotiation-focused relationship to a modern innovation
focused collaboration.
Companies need to deploy a focused and framework based program to encourage supplier
innovation in their supply chains. In this paper, we discuss a supplier innovation framework
that focuses on people, product, communication, and continuous improvement (P2C2). This
framework is a robust step towards enabling supplier collaboration focused on innovation.
Contents
6
To understand the importance of supplier collaboration, it is necessary to understand the supplier
partnership maturity matrix. Figure 2 depicts the phases in supplier collaboration maturity cycle that result
in an innovation based partnership.
TCS experience suggests that supplier collaboration platforms continue to be a key innovation trigger for
procurement and sourcing solutions. Expanding customer expectations and the need for suppliers to
outsmart competitors in providing newer solutions and products contribute to innovation-based enterprise
partnerships.
Once supplier collaboration evolves to an innovative partnership phase, the next step is to enable supplier
innovation. The following section describes a comprehensive model and framework for enterprises to
harness several opportunities for supplier innovation.
7
Enabling the Supplier Innovation Model
The supplier innovation enablement model helps modern enterprises realize their potential in offering new
products and services through a collaborative supply chain. To enable supplier innovation, companies need
to undertake an innovation program a concerted step towards engaging with suppliers for product and
procurement innovation. The key components that cover all dimensions of an innovation program include
people, product, communication, and continuous improvement. These components (P2C2) are described
in Figure 3.
People Product
Supplier
Innovation
Communication Continuous
Improvements
n Communication Strategy
n Supplier Summits n Supplier Development
n Cultural Integration n Balanced Scorecard
n Performance Feedback Meetings n Quality Certification
n Cloud and Social Media n Collaborative Product Launches
n Mobility and Pervasive Computing n Collaborative Promotions
8
n Supplier councils with subject matter experts (SMEs) in the field of innovation contributing as participants
in sub-committees
n An executive-level relationship management team
n Memoranda of Understanding (MOU) and alliance agreements with key stakeholders (including
representatives from business functions such as R&D, manufacturing, finance, and marketing) of
participating suppliers
The supplier council is a platform for periodic interaction between representatives of buyers and suppliers to
iron out issues such as cost, quality, delivery performance, and exchange of innovative ideas. This is the top
level body which devises strategies for various operational aspects and helps to significantly lower the time
to market for the new product pipeline. The council meets periodically to take stock and plan strategies to
achieve shared objectives.
The executive level relationship management team ensures time and commitment from top decision
makers. Given the importance of an innovation program, commitment from the top management can help
minimize risks.
The MOUs and alliances must be focused on establishing a broad based and cross-functional relationship.
This helps ensure multiple collaborative programs that capture value enabled growth and facilitate
consolidation of spends with participating suppliers.
There are a few key considerations in establishing the 'people' aspect of the supplier innovation
enablement model:
Supplier segmentation: The suppliers should be segmented based on the criticality of services or products
supplied, valuation of the product being delivered, the maturity of supplier relationship based on history of
delivery performance, and the quality delivered. This segmentation helps in devising relationship strategies
and determining who should be represented in the supplier council and at what level.
Expectations management: The supply chain councils must outline the shared objective charter, and the
periodicity of meetings and channels of interaction. The transactional and strategic aspects of interactions
must be clearly outlined in advance.
Supplier assessment: Every supplier should be graded and scored based on the reliability, quality, cost,
innovations, and history of engagement.
Cultural alignment: The stakeholders should be convinced of the symbiotic aspects of collaboration.
Program performance: The supplier council must also develop a set of innovation program metrics to track
the performance of the program. The key performance indicators (KPIs) can be categorized as:
n Financial metrics repeat business, increments in revenue, reduction in cost, return on investment on
innovation projects, and the breakeven threshold
n Innovation program metrics number of ideas received, number of ideas progressed, number of
innovations realized, process maturity, efficiency, program duration, and adherence to schedules
9
n Company-focused metrics number of ideas incubated, percentage of total R&D budget spent on
supplier innovation, number of supplier innovation programs launched, percentage of successful joint
development programs, protection of company intellectual property rights, and reduction in time to
market and time to profit for New Product Introduction (NPI)
n Supplier-focused metrics level of awareness about the program, level of active participation
(percentage of active suppliers and how engaged they are), and number of co-innovation projects
Product
The product is at the core of an organization's innovation strategy. To achieve efficiency in enabling the
'product' ingredient of an innovation program, enterprises should create an infrastructure that includes
shared R&D facilities, innovation hubs, and technology sharing agreements. This will ensure engagement
and shared innovation metrics for supplier participation early on in the product lifecycle. Some critical
aspects of product innovation include collaborative product development, Big Data and analytics, cost and
life cycle management, and strategic sourcing.
n Collaborative product development and product innovation calls for joint programs and investments
all through the product life cycle, starting from the inception phase. Collaborative programs can help
mitigate the sense of distrust around information sharing. Collaborative development helps to elucidate
common objectives and goals, while allowing the sharing of common R&D facilities set up through joint
investments. Figure 4 provides a 360 degree view of such collaborative product innovation.
Early
Supplier
Engagement
Cross-
Collaborative
Innovation Enterprise
Metrics Product Innovation
Innovation Workshops
Co-location;
;
Shared
Technology
and
Resources
10
n Big Data analytics and technology enablers must be used to provide key inputs to suppliers for effective
parts or raw material development. For instance, carrying out analytics across first, second, and third-tier
suppliers and the complete list of parts or ingredients used across these levels can reveal new avenues of
product innovations. Effectively, technology interventions in the form of advanced analytics can provide
holistic insights into product and parts attributes and other tertiary factors.
n Cost and lifecycle management entails keeping a check on the cost of the innovation program and
minimizing cost overruns in joint product developments. Lifecycle management must account for
product lifecycle management (PLM) in conjunction with supplier lifecycle management (SLM) for the
participating suppliers.
n Strategic Sourcing should be deployed to achieve good headway in innovation cycle: suppliers should
be engaged early in an innovation cycle, during the procurement stage.
Some considerations in establishing the 'product' aspect of the supplier innovation enablement model include:
n Avoiding potential conflicts of interest among the internal R&D resources. These could arise if there is a
diversion of spend from company to the supplier R&D team or there are conflicting claims regarding
attributing credit for the innovations
n Defining new and more complex responsibilities for the company's procurement division
n Enforcing product confidentiality agreements and non-compete clauses
n Agreeing on and enforcing innovation metrics
n Basing all product sourcing decisions on a strategic sourcing framework
Communication
If the product and its innovation are regarded as the core of the innovation strategy in any organization, then
communication can be considered as the overarching protective layer. The key enablers of communication in
the context of supplier innovation include:
n A communication strategy
n Supplier summits
n Cultural integration to ensure faster communication
n Performance feedback meetings
n Cloud-based, mobile, and social media channels for effective communication
The implementation of an effective supplier collaboration program evolves from a robust information exchange
system and establishment of infrastructure. Figure 5 depicts ways of exchanging B2B information by using
advanced web based technology. It also shows various nodes and players for effective information exchange,
resulting in real-time supplier collaboration.
11
Supplier Internal Supplier
Council R&D R&D
Buyer/Data Supplier
1 Login Steward Team Login
It is important to have periodic supplier summits to review progress and ensure cultural integration of key
stakeholders among the organization's team and suppliers. Apart from the regular participants of the supplier
council, supplier summits focused on innovation should also include innovation stakeholders. These summits
enable SMEs to brainstorm new ideas and determine their feasibility. Supplier summits can also act as efficient
platforms for providing performance feedback.
Given the urgency of information exchange in an innovation program, social media coupled with mobility and
pervasive computing provide opportunities for easy and real-time sharing of relevant information.
For an effective communication strategy, it is advisable to create a unified innovation focused communication
policy based on the following guidelines:
n Acquire a 'lingo' or common parlance for all innovation related topics to ensure clarity in communication. Start
with defining 'supplier innovation' to all stakeholders, both internally and externally in supplier organizations.
n Establish unambiguous and well publicized rewards to incentivize vendors to innovate.
n Establish frequency and channels of communication with a clearly laid out framework to ensure
confidentiality.
12
n Create a buzz around new product launches while involving suppliers in the communication strategy.
n Establish a web assisted communication infrastructure with real-time data interchange. Ensure that
innovation is at the core of the communication strategy. Establish protocols for partners to communicate
during the innovation lifecycle, and improve time-to-market and time-to-profit metrics.
n Set up robust communications systems with advanced tools that incorporate cultural sensitivities and
ensure product confidentiality.
Continuous Improvement
Innovation focused supplier collaboration can take time to establish and evolve. Supplier development is a
ongoing process that goes through various toll gates such as supplier audit, quality certification, and score
card based performance evaluation. Score card based assessment of suppliers can help gauge suppliers at
various stages in the supplier lifecycle management.
To enable supplier innovation, a continuous improvement score card framework, focused on measuring
specific improvements in innovation related metrics, must be enforced. This framework should include key
metrics related to finance, reliability, and responsiveness. It should include improvement and innovation
metrics to measure agility, best practices, flexibility in capacity, and NPI.
n
Au cess active
n
V
Price
n
Pro st Pr
n Warranty
a
Be
n
lP
Responsiveness
roc
Finance
Attribute
Responsiveness
Attribute Attribute
ng
ess
Improvement
Service
Quality
Score Card n
Service 5% Innovation 30% Risk 10%
E
G nvi n
n
n
n
n
13
Based on the scores, a supplier focused improvement plan is executed. Pilot-based collaborative product
developments and promotions can help establish the credibility of a supplier. For recurring innovation
engagements, a supplier must consistently maintain an excellent score. If a supplier is still evolving, a
Corrective Action, Preventive Action (CAPA) must be undertaken to achieve desirable scores.
A supplier must evolve and score 'excellent' to be eligible for the advanced stage of supplier collaboration,
which is supplier innovation.
14
About TCS Manufacturing Business Unit
TCS helps global manufacturers reduce operational expenditure, utilize capacity optimally, and
increase efficiencies while meeting safety and regulatory norms. We are the preferred partner for a
third of the Fortune 500 manufacturers, and have a record of enabling business innovation that
helps them meet the objectives of global operations.
The core strength of our solutions lies in our rich experience across discrete (automotive, industrial
manufacturing, and aerospace) and process industries (chemicals, cement, glass, and paper). Our
vertical focused Centers of Excellence (CoE) leverage this rich database to cross-reference learning
and drive innovation in business solutions for standardized processes, assets and templates, ERP
implementation, and continued support services.
Our solutions and services portfolio spans IT-led business transformation; design, development,
and support for IT solutions; and value-added services such as infrastructure management
and consulting.
Contact
For more information about TCS Manufacturing Business Unit, visit:
http://www.tcs.com/industries/manufacturing/Pages/default.aspx
Email: manufacturing.solutions@tcs.com
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