Manufacturing
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
Supplier Innovation: The Way Ahead
6
Key Drivers of Supplier Innovation
6
Enabling the Supplier Innovation Model
8
Expanding the Impact of Supplier Innovation
14
Supplier Innovation: The Way Ahead
The operational landscape in the manufacturing industry comprises three broad activities – sourcing, making, and
delivering (including sales and marketing). These three activities are represented by the stakeholders – suppliers,
manufacturers, and customers – who ensure that the manufacturing value chain thrives and evolves continuously.
With ever-increasing customer expectations and the evolution of disruptive supply chains, the role of the supplier
has rapidly evolved from being just a provider of goods and services. Suppliers today are increasingly playing
critical roles in product innovation and the development of new supply channels such as multi-channel commerce.
'Supplier innovation' refers to a company-supplier relationship focused on fostering innovation through joint
product development and exploring new ideas for optimized supply chain networks. The subsequent sections in
this paper outline a framework based approach that highlights the key ingredients needed to devise robust,
futuristic, and innovation based supplier collaboration.
Key Drivers of Supplier Innovation
Prior to understanding the need for a supplier innovation framework, it is important to identify the key drivers
of supplier innovation. For instance, the need to lower costs and launch products quickly provide the impetus
to achieve an effective manufacturing process. These operational requirements along with other factors such as
changing customer preferences, drive product innovation in general and supplier innovation in particular.
Figure 1 illustrates the factors that provide an impetus to supplier innovation. Supplier innovation also depends
on the robustness of mechanisms that help in ideating and communicating with suppliers.
n
Supply
chain
cost
n
n
n
Market
Agility
n
n
n
Cost pressures across the supply chain, not limited to product
Demand for high quality at lower cost, triggering the need to curtail costs across the supply chain
Faster New Product Introduction (NPI)
Agility to introduce products and reduce the time taken to realize profits
Introduction of new supply channels, collaboration with suppliers to serve customers better
Technology revamp of supply chains demand heightened supplier engagement
Better technology enables greater supplier engagement, offers opportunities to innovate
Technology
n
n
IP
Protection
n
Intellectual property threatened in modern day competition
Enhance trust with supplier to preserve IP
Innovate with suppliers to file new IPs
Figure 1: Key factors that drive supplier innovation
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.
n
n
n
Innovative
Value
Creation
n
n
n
Collaborative
n
Value
Enhancement
n
n
Co-optive
n
n
n
Value
Erosion
n
Co-operative
n
n
n
Coercive
n
n
Risk
Management
Value
Management
Strategic
Advantage
Innovation focused partnership
Joint investments, shareholding, stakes
Centralized office – defined roles, supplier as new
idea incubation hub
Discretionary efforts and investments in
manufacturer success
Integrated with business strategy
Real time data sharing (through collaboration portal)
Discretionary efforts and investments in
manufacturer success
Optimal value, shared business objectives
Competition and co-operation
Periodic reporting and dialogue
Full lifecycle – NPI to delivery
Maximize profits through waste elimination
Focus on operational costs (supply chain,
quality, warranty)
Measure performance
Price based negotiation, maintaining margins
No incentive to increase value or control cost
No segmentation, formal structure
No risk management in place
Innovation
Advantage
Figure 2: Phases in the supplier collaboration maturity matrix
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.
n
n
n
n
Supplier Council
Executive Relationship Management
Alliances
n
n
n
n
People
Collaborative Product Development
Product Innovation
Big Data and Analytics
Cost and Life Cycle Management
Strategic Sourcing
Product
Supplier
Innovation
Communication
n
n
n
n
n
n
Communication Strategy
Supplier Summits
Cultural Integration
Performance Feedback Meetings
Cloud and Social Media
Mobility and Pervasive Computing
Continuous
Improvements
n
n
n
n
n
Supplier Development
Balanced Scorecard
Quality Certification
Collaborative Product Launches
Collaborative Promotions
Figure 3: Framework for Supplier Innovations: P2C2
Let's take a look at each of these components in detail.
People
The most critical aspect of any innovation program is the 'people' involved in it. In every supplier innovation
program, key stakeholders from the enterprise as well as from the supplier's side need to align with the
larger aspects of innovation. The first step is to create a platform for the people involved to collaborate with
each other. This is achieved by establishing:
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
Innovation
Metrics
Collaborative
Product
Innovation
CrossEnterprise
Innovation
Workshops
;
Co-location;
Shared
Technology
and
Resources
Figure 4: 360 degree view of collaborative product innovation
10
n
n
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.
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.
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
Council
Send E-mail Notification
1
2
Internal
R&D
Supplier
Buyer/Data
Steward Team
Login
Login
Supplier Portal
Buyer / Steward Team UI
Choose Appropriate Responsibility
Security Framework
Roles
3
Responsibility
12
Show Report Card
Reference Document
User Setup
Supplier Document Repository
Execute SLM Processes
Supplier Lifecycle Management
Registration
/ Maintenance
9
4
Initiative/
Innovation
Non
Development
Conformance
Audit
Validate
5
Supplier Data
Notify Stakeholders
7
Business Rule
Notification
8
Administrator
Team
Supplier
R&D
Eligible
Stakeholder
IR Users
& Location
Standard Model
n Supplier General
Information
n Supplier Site &
Location Details
n Supplier Financial Details
Committing
RFI Templates
NCR
Audit RFI
Template
Other
Template
Apply Appropriate Template
10
Advance Reports
Report Card
11
Supplier Data
Store NCR,
Audit Data
6
Supplier
Relationship
Performance
Repository
Additional Attributes
NCR Information
n DMR Information
n Other System Attributes
n Geography Specific Attributes
Score Card
Audit Report
Buyer/Business
user
n
Supplier Hub Repository
Export Events
Generate Supplier Data Export
13
Figure 5: Innovation focused B2B supplier communication
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.
erformance Mana
er P
ge
i
l
s
m
sight
pp
e
cial In
Su
Finan
Cost cial Health
Finan Rating
Audit ariations
V
Price
n
n
n
n
Quality
Service
Responsiveness
Delivery
Attribute
n
n
Cost
Incoming inspection level
n
Percent rejection
n
Audit
n
Quality system
n
Warranty
Performance
Reliability
Attribute
Service
h
ig hts
ns ig
l I ns
ia y I al
nc Part hic ntal
p e
na
Fi ird ra m
Th eog ron
G nvi
E
n
y
n
ess
roc
lP
Continuous
Improvement
Score Card
Attribute
20%
Weightage*
10%
Attribute
Delivery
Weightage*
25%
Weightage*
5%
n
n
n
Price level
Negotiation power
Price pattern
n
n
On-time delivery
Delivery flexibility
Performance
Attribute
Finance
Performance
Attribute
Attribute
Weightage*
Attribute
Innovation
30%
Risk
Responsiveness
Weightage*
10%
n
n
n
ts
Lea
rn
i
n
g&
Go
r
wth
Ado
o
Tec ption
hno to n
log
y
ova
ti
Inn
Customer Insights
a
c
ng
ern ati cien
Int dit R Effi
Au cess active
Pro st Pr
Be
n
n
Weightage*
n
nt
n
Attribute
Quality
n
n
n
n
Overall responsiveness
After sales service
Quality system
Warranty
Performance
Attribute
Reliability
n
n
n
n
Agility
Best practices
Capacity flexibility
Engineering and NPI
Performance
Attribute
Responsiveness
n
n
n
Responsiveness
Auditable transaction
Adoption of technology
Performance
Attribute
Responsiveness
Dimensions: regions, organizations, time, suppliers, %age change attribute wise
Perfect Purchase Order Index
Continuous Improvement Index
* Illustrative Weightages
Agility
n
n
n
Best Practices
Time taken to realize profits
Time taken for NPI
New ideas submitted
n
n
n
n
Capacity Flexibility
n
n
n
n
n
Number of best practice templates
Number of trained R&D resources on
company specific product line, supply channel
Audit score NPI
Availability of third party certifications
Best Practices
Availability of R&D resources
Availability of R&D lab,
infrastructure, equipment
Number of new ideas submitted
vs. executed
Capacity available for expansion
Budget availability for NPI
n
n
n
n
Increase in new idea incubation
Increase in quality prototypes
Adherence to NPI checklists
Increase in technology based innovations
13
Figure 6: Continuous improvement scorecard framework
The attribute-wise weights of various individual attributes are shown in the table in Figure 6. The weights
are assigned based on the focus areas of business at a given point in time. For instance, innovation is the
focus area in this case. The relative importance of each attribute can be changed with time and the maturity
of the business.
To arrive at a score for these attributes, individual key performance indicators have to be designed for each
of the attributes. These metrics are built to ensure adherence to standard as well as custom built functions.
The metrics are calculated to arrive at the health of each of the attribute. Based on the weight of the
attribute (see Table 1), a combined score is calculated for each dimension by region, supplier, and so on.
Excellent
Very Good
Good
Average
Poor
85%
80-85%
75-80%
70-75%
<70%
Table 1: Supplier scoring table (Illustrative)
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.
Expanding the Impact of Supplier Innovation
The supplier innovation program can help organizations move from siloed R&D efforts to a joint
innovation path.
The P2C2 based supplier innovation framework proposed in this paper is a generic framework applicable to
all types of manufacturing organizations. However, it can be customized for specific operations in
manufacturing. For instance, in the automotive, aircraft, and other engineering industries, given the large
number of supplier components and the nature of purchases, the robustness of Supplier Innovation can
make or mar the very launch of new products. Due to repetitive and assembly line manufacturing in the
automotive industry, lean and Kaizen based continuous improvement techniques should become an integral
part of the innovation programs. In the heavy engineering and construction industries, many components
require customization and hence offer significant opportunities for co-innovation and supplier involvement.
A P2C2 based supplier innovation enablement model built on a robust ERP solution can be customized to
suit the needs of different industries. This, in turn, can enable suppliers to drive innovation in conjunction
with the organization for better business outcomes.
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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About Tata Consultancy Services (TCS)
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TCS offers a consulting-led, integrated portfolio of IT and IT-enabled infrastructure, engineering and
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