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Understanding differences in nature of supplier collaboration
In this video, Dr Christos Tsinopoulos presents a matrix which can be used to position your organisation and inform your approach to open innovation.
So far, we have been talking about open innovation, integration, collaboration with suppliers, as if you want something that can happen across most organisations. And to a degree it can. However, integration, open innovation, engaging with suppliers would be different for large companies, for instance, the fast moving consumer goods sectors, such as organisations that make shampoos, soaps, and so on, which have millions of customers and a very large supplier base and they are based in many parts of the world. And the integration mechanisms, the techniques and processes, they would use would, of course, be different to organisations which are project-based.
And they use their skills and knowledge to develop a solution for their own customers or for one customer, so organisations that effectively are largely doing work by projects.
So in our work, we try to tackle this question and try to see whether there are any types of different, if you want configurations of integration between customers, suppliers, and supplier-suppliers. And we did that by analysing about 60 different organisations. And we looked at how they work with the customers, how they work with the suppliers, and what kind of information they share, how, and when. And what we identified is we identified the classification.
Now this classification is based on two different dimensions, first of all, the product newness– so the degree to which the product is new to both the customer and the supplier– and the process structure, where, for instance, an organisation is based on– the main process of organisation is based on developing a project or whether it’s based on managing a high volume set of processes. And based on these two types of dimensions, we then identified four different types or what we refer to as configurations of integration.
And we refer to those four different types or configuration of integration as recurring, customised, coordinated, and ramp up.
So customised integration is one which is largely based on if you want project-based organisations, where there is a relatively low volume of production, low volume of services offered, and of course, it’s highly customised. And the product is actually new to the customer. So in such configurations, the focus of the integration is more to understand the customer requirements and supply capabilities and try to match them. And suppliers and customers, in such cases, provide detailed capabilities and requirements. So effectively, it’s not just a matter of buying something of the shelf, but going to supplier and trying to explain exactly the needs and the supplier then developing a customised solution for that need.
The second one is something that we refer to as a recurring configuration of integration. In a situation where effectively the customer is integrated in a later stage of development, because, in this case, the product or the service for which the customer is interested is something that probably they have been used to before, they have bought before. So they have a view about it. They have a view of the solution that they would like to purchase. And in this case, the supplier provides ideas about how to improve something that the customer already knows enough about. The third configuration we refer to as ramp up.
It refers more to situations where an organisation or a fast moving consumer goods company, for instance, develops a relatively new product but aims at producing it at very high volumes. So in this case, we’re talking about as I said new to the firm products, which are ramped up for high volumes. So the focus there is not necessarily on product development as such, but is more finding solutions to how you can create or how you can produce the product in high volumes once you know it’s there. And the final and I have to say the most highly cited and assumed configuration of integration is what we refer to as coordinated.
So in such cases, integrations between customer suppliers aim at delivering high volumes of products that the manufacturers of both size, customers and suppliers are familiar with. So for instance, high-volume manufacturing of consumer goods, like shampoos, soaps, and so on. In that particular case, you’re, not looking for developing a product or finding a customised solution, but you’re looking for an optimised supply chain for an optimised production. So, a key conclusion from this is of engaging in measuring open innovation initiatives or integration initiatives will be different, depending on the configuration of integration. And it will be relatively simplistic to assume that open innovation and the integration with the customers and suppliers will be the same across different organisations and supply chains.
Integration may mean different things to different organisations. For instance large companies in the automotive sector have thousands of customers in many parts of the world. Clearly within this large pool of individuals there will be many with ideas for improvement, there will be others who can advise on the process of improving, and there will be many that simply want to use the product and are not interested in more involvement.
At the other end of the spectrum, there are project based companies, eg construction or software developers, who use their skills and knowledge to develop a solution to for one customer. In such cases the processes used to engage with open innovation are likely to be significantly more collaborative and supported by closer relationships.
As you go through this video, ask yourself:
- Which aspects of collaboration have you found yourself in (as a customer or as a supplier)?
- How do you think processes can be developed for benefiting from this integration?
- Are there any other types of collaboration?
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