Supply chain managers at Kraft Foods had identified a goal that they believed would lead to competitive advantage: actively involve customers as "value creation co-designers." They envisioned a new culture based on enhanced collaboration and innovation that would drive step changes in targeted supply chain processes.

The question was how to make this vision a reality. Ron Volpe, vice president-supply chain, and others on the Kraft supply chain team, decided to borrow from the world of product innovation. They reasoned that the models companies follow to innovate through product design also could be applied to process design.

To test that theory, Kraft in 2002 approached global design and innovation firm IDEO, Palo Alto, Calif. IDEO, a leader in design and product innovation, was ranked #15 in the Boston Consulting Group's 2006 list of the world's 25 most innovative companies.

The timing was fortunate because IDEO was in the early stages of its Transformation by Design practice, which it created specifically to help companies enhance innovation by re-inventing their cultures. Kraft became an early client of the IDEO transformation team. "Kraft Supply Chain specifically contracted IDEO to explore the concept of culture change driving enhanced collaboration (and, in turn) driving process improvement and innovation," says Volpe.

During the first year of the contract, Kraft Supply Chain immersed roughly 120 of its North American managers in a workshop entitled IDEO U. The workshop gave participants a short but intense "deep dive" into the concepts that IDEO uses to help companies change. "The primary deliverable of the first year of training was an enhanced use of some of the tools in the IDEO toolbox," says Volpe. "Specifically, the training led to a fairly robust explosion of the use of brainstorming and prototyping across a varied group of functions."

In one example, a project entitled LEAP (Leveraging Efficiency and People) was launched to make the order-to-cash cycle more efficient. A series of ideas were developed, piloted and implemented to achieve the goal.

Still missing, however, was customer involvement. So in 2003 Kraft brought this concept to one of its largest customers, Safeway Stores. Kraft and Safeway already had identified a number of opportunities to improve their end-to-end supply chain, but had not reached consensus on a solution. Volpe met with Linda Nordgren, Safeway's global vice president for the supply chain, and proposed the use of IDEO as a way of developing joint solutions. The Safeway team agreed and 15 of its team members joined 15 Kraft people at IDEO for a two-day workshop.

The result of this activity was creation of a cross-functional team to improve Safeway's retail stock position through better collaboration and alignment between the two companies. In one targeted category, Kraft experienced a 162 percent sales increase. "A true partnership with Safeway was created through the adoption of new tools for collaboration and innovation," says Volpe. Other significant achievements included development of a Balanced Scorecard and progress toward greater supply chain velocity and visibility.

"The cross-training that has occurred between companies has raised the level of awareness of the business implications of decisions," says Volpe. "What started as a way to approach supply chain issues has rapidly become a 'best practice' throughout and across both organizations."

In years 2005 and 2006, Kraft focused on internalizing the IDEO process and capabilities. With the full endorsement of IDEO, Kraft created a parallel process, labeled internally as Joint Value Creation (JVC) that replicates the IDEO model using Kraft resources. Through JVC, approximately 200 more supply chain and sales team members received training.

IDEO has not been supplanted, but the workshops at its headquarters are augmented by Kraft-run workshops in the field. Each workshop involves six steps: Understand, Align, Observe, Ideate, Prototype and Implement. During these steps, different brainstorming tactics generate hundreds of ideas that eventually devolve into five or six "burning platforms" on which the parties agree to focus. A key element of the workshops is use of an artist to graphically capture the process on huge posters, 20 to 30 feet in length.

Another important feature is an on-site visit to observe the supply chain at a company in a different industry. Companies that have been visited include blood banks, fresh-fruit distributors, newspapers and large industrial manufacturers. "The site visits are in part a team building exercise, but they also provide important insights," says Volpe.

Since the start of 2006, Kraft has been aggressively rolling out this program with additional customers. Ten new customers in North America, representing 30 percent of U.S. volume, went through this process with Kraft. Half of these were conducted by IDEO and half by Kraft JVC. Two customers were added in Europe via JVC. The rollout continued this year, with four more customers coming on board, including one in Canada and one in Australia. Additionally, internal training of Kraft Supply Chain teams was extended to Australia, the Nordic Region and Latin America.

"This process is driving step changes in the effectiveness of the end-to-end supply chain and has facilitated a change in perspective for both Kraft and its customers," says Volpe. "Instead of viewing the supply chain as two separate entities (Kraft's and the customer's), the process has served to encourage scope expansion by both parties. The process has resulted in a migration toward co-management of the end-to-end supply chain. This last point is what will lead us to supply chain optimization."