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Developing and implementing true collaboration in customer/supplier relationships. This article is part of a special section on sourcing and corporate social responsibility.
This article is part of a special section on pharmaceutical sourcing, procurement, and corporate social responsibility. See the full roundup of articles here.
As pharmaceutical companies face ongoing cost pressures, all functions of an organization are tasked with the challenge of how to extract more value, including ways to innovate. Innovation is a well-established part of new product development, but it also can play an important role in sourcing and procurement. Gregg Brandyberry, CEO of Wildfire Commerce, senior advisor of AT Kearney procurement and analytic solutions, and former vice-president of procurement of global systems and operations for GlaxoSmithKline (London), recently addressed how collaborative innovation can be applied in customer–supplier relationships. Brandyberry spoke at the DCAT/ISM Sourcing Summit 2010: Forward Thinking Sourcing, an educational program presented by the Drug, Chemical, and Associated Technologies Association (DCAT), along with its partner, the Pharma Forum and Chemical Group of the Institute of Supply Management (ISM). The program was held Nov. 3 and 4, 2010, in New Brunswick, New Jersey.
“CEO expectations and market forces are creating new challenges for supply management,” said Brandyberry. “The question facing companies is how to deliver more value from supply categories that are too sensitive, too strategic for traditional sourcing.” The answer, he explained is to “combine the capabilities of a company and its suppliers to deliver more value for it and its customers. A company should use the supply base and information as resources to both supplement and complement its own resources and to then use this combined capability to improve overall competitiveness by creating additional value for both customers and shareholders.”
One way to derive this value is through collaborative innovation in customer–supplier relations. “Collaborative innovation is a new style of working,” said Brandyberry. “It removes many traditional boundaries that prevent ideation. Individuals, functions, geographies, companies, and even competitors work toward a goal. Information, ideas, and work are shared freely among participants. Little formal governance is required as participants are committed to acting in an open, honest, and ethical manner.”
To execute collaborative innovation, removing barriers to innovation is crucial. This process may involve organizational and governance changes, altering the system for performance evaluation and incentives, and developing new skill sets. By its very nature, a “forward” innovation approach encourages the synthesis of new ideas rather than just an analysis of existing approaches as is the case in more “traditional” innovation approaches, said Brandyberry. A forward approach is more holistic and focuses on the whole, encompasses a cyclical consideration of cause and effect, and promotes unconstrained ideation, he said. In contrast, traditional innovation approaches tend not to be holistic but rather focus on specific parts of a process, consider cause and effect linearly, and control the design of new ideas. “In short, it is a difference between incremental improvements under a traditional approach to achieving true innovation under a forward approach,” said Brandyberry.
Idealized design is at the core of this forward approach in innovation, said Brandyberry. Idealized design can be realized by using expertise-shared ideation rather than expert-led ideation and by eliminating constraints. “How often have you gone to a meeting and have offered suggestions and the experts have immediately silenced that idea,” asked Brandyberry. Idealized design focuses on “starting from scratch” whereas continuous improvement typically “tinkers” with what exists today, he said.
Brandyberry recognized the reluctance to integrate idealized design in a customer–supplier relationship. “True collaborative innovation requires a step-change in thinking,” he said. “The idea of working openly and sharing information in a highly transparent environment with little traditional governance just doesn’t fit very well in most of today’s corporate environments.”
Moreover, cost improvements, although important, are not the single measure of success between a procurement organization and its suppliers. “Each supplier engagement has to be considered,” said Brandyberry. “Using a strategy for securing price concessions when purchasing indirect materials such as office supplies may be appropriate, but it may not be the same approach that should be used used when sourcing active ingredients or other raw materials critical to the supply of a particular product.” Both buyers and suppliers need to recognize those differences, apply different skill sets as dictated by a specific supplier arrangement, and develop the relationships accordingly. “Most companies are not willing to make the investment necessary to support real innovation processes,” said Brandyberry. “Instead, they assign people with inadequate skill sets to match up with equally unskilled collaborators on the supplier side of the equation. Great technical people may not be great collaborators,” he said.
Idealized design sessions
To address these problems, Brandyberry offered ways to organize an idealized design session. The session scope, facility requirements, session facilitation, screening and recruitment of attendees at the session, and the number of participants and observers all are elements that need to be considered when putting together an idealized design session.
Brandyberry recommended that the session’s scope be short. Following an initial identification session, the scope of a session may be further narrowed. He suggested using a room that can fit approximately 15 participants and several observers, have the participants close together to encourage dialogue, and have the observers in the back or side of the room. He added that it is good to have a projector and flip charts available during the exchange of ideas.
Another key choice is to “pick a facilitator who is a good listener, able to capture the statements of participants quickly, and is not biased or judgmental,” said Brandyberry. As for as the participants, “find participants who are users of the product, process, or service of interest,” he said. A total of 12–15 participants per facilitator is ideal. The observers are the providers of the product, process, or service, who learn by listening until the end of the session. “Having the users’ ideas will broaden the observers’ consideration of opportunities and perception of priorities,” said Brandyberry.
Brandyberry offered further advice. He provided six guidelines for a facilitator to encourage the ideation process:
• Consider that the current process or system was destroyed last night as way to not let current systems or process by a barrier to idea creation
• Focus on what is desired by staying in design-from-scratch mode
• Don’t focus on what is not wanted
• Don’t worry about whether resources are available to implement an idea
• If a participant disagrees with someone else’s specification, the participant should simply state an alternative specification
• Providers must agree to remain in listen-only mode.
Participants perform two major functions: generate specifications and develop a design. A specification is a statement of a desired property or characteristic of a function, a process, or input. A design is a structure and a process that will bring about one or more desired specifications. “Specification statements should begin with phrases such as ‘there ought to be’ or ‘I would like,’” said Brandyberry. He said specifications should be recorded in real time and participants should stay in “design-from scratch” mode. Facilitators should encourage this process by allowing participants to amplify and explain their ideas.
In the design phase, participants create or draw structures and processes to bring about a specification. Design choices should be made by consensus, and all design ideas should be documented so that all design ideas are captured, said Brandyberry. “The design phase is the most difficult part of the process. Some teams will struggle, but it is important that the process go forward from here.”
Using idealized design facilitates the implementation of collaborative innovation and ultimately optimizes that collaboration. Brandyberry also discussed a leading edge methodology that he has participated in through his work as senior advisor with A.T. Kearney Procurement & Analytic Solutions. “Collaborative Optimization is used to optimize the supply base and even parts of the supply chain when complex arrays between suppliers, capabilities, specifications, and geographies exist,” says Brandyberry. “Instead of pitting ‘supplier versus supplier’ for the best price or total cost, a company uses tools such as more detailed purchase price and cost analyses, expressive bidding, and combinatorial optimization as a way to determine the best scenario where everyone can win,” he said.
These new value strategies, concluded Brandyberry, require more than traditional purchasing approaches, greater levels of trust with suppliers, internal commitment, and continual collaboration throughout the supply chain. “It is important to consider where your company stands,” he said, pointing to the financial benefits that can be realized through these procurement gains.