In the face of mounting challenges to their operations, more and more businesses are turning to their suppliers to accelerate their innovation efforts. Here, we look at what supplier innovation is, why it’s becoming so critical to enterprise business, its benefits and use cases, and how organisations can overcome common barriers to more effectively unlock the innovation potential in their supply base.
Supplier innovation, also known as supplier-sourced innovation, refers to the process of a business leveraging the innovation potential within its supply base to increase its own innovation speed, capacity, and performance.
By tapping into existing expertise in the supply chain, or forging partnerships centred around joint innovation, businesses can more effectively address their own business challenges.
Businesses are being faced with challenges from all angles. The imperative to make savings and generate increased revenue and profit year on year remains ever present, while customer, regulator, and investor stakeholders are also demanding that businesses make changes to their ways of working – and sometimes even their entire business models – in order to operate more sustainably.
These increased demands have reached fever pitch at the same time as widespread disruption to the corporate landscape. As new start-up business models become the norm, technological progress advances at a rapid rate, global supply chains face crisis, and businesses fall foul of disruption from climate change and sociopolitical events, many are suffering under the weight of omnipresent instability. It comes as little surprise, therefore, that the longevity of top enterprise organisations is dwindling fast.
New demands and new problems require novel solutions. Innovation is key to surviving rampant disruption and competition; it promises fresh methods, ideas, products, and solutions to address these challenges.
Enterprise organisations have been engaging in home-grown innovation efforts for some years, with many notable successes in providing new and/or improved products, processes, and services to their customers. Yet this in-house innovation comes with some risks, including a short-sighted understanding of wider market capabilities, high R&D costs, and a long go to market period which can leave organisations behind the curve.
Here, supplier innovation offers a solution. Supplier stakeholders are subject matter experts with extensive knowledge not just of one customer’s business, but also of their competitors, and of whole verticals. Localised suppliers come with intimate understanding of local markets, and in an age where many large organisations have derived significant ‘efficiencies’ from minimising spend on full time employees, the supply base provides a large pool of talented minds to draw from. Many heads are better than one.
This combination of a wider talent pool and extensive subject matter expertise leads to considerable benefits.
As external ideas have already been partially validated and tested by the supplier themselves, supplier innovation provides a faster route to new solutions. Indeed, McKinsey has found that externally-sourced innovation is typically commercialised 40% faster than internal ideas.
Speed in and of itself can frequently lead to reduced costs and/or higher margins, but where real efficiencies can be found is in the total lifecycle costs. Frequently the majority of total lifecycle costs are incurred during the design phase of developing a new product or service, with the ability to reduce these costs becoming more limited as development progresses. Involving suppliers earlier on in the process has the potential to drive down spend on an innovation even as it increases its speed to realisation.
Faster, cheaper innovation allows organisations to more quickly manoeuvre in response to the rapidly changing demands of today’s business landscape. The ability to efficiently find brand new products, solutions, or even logistics allows organisations to refresh or pivot strategy more quickly when faced with challenge or uncertainty.
Innovations needn’t be world-changing to be worthwhile, though some certainly can be.
Supplier innovation, and innovation more generally, can involve anything from finding a small improvement to an existing process, to more groundbreaking inventions that transform a category.
Small changes to the way a routine operation is done can have a huge impact when this improved operation is conducted at scale. As a general example, automating a single task that takes one FTE 4 hours to accomplish per week would add up to 192 hours, or 24 working days a year saved. When working with a supplier, one Vizibl customer discovered that their product specification when buying meant they were paying 30% more for a key product than their closest competitor. A tweak to their specification process magnified across the huge spend on that particular item allowed them to find huge cost efficiencies from one small change.
Perhaps the most obvious use case for supplier innovation comes in the form of new product or service introduction. With already partially-validated ideas coming from the supply base, businesses can outmanoeuvre the competition by bringing exciting new features or functionality to market faster. As the supplier then becomes the source for that new, innovative product or service, they receive high demand for their supply in return, supporting the development of a mutually beneficial relationship.
As large organisations begin to weigh their true effect on the planet and its people, many will realise that most of their emissions and their impact on land, water, biodiversity, and natural resources sit outside their own organisation. Addressing the true sustainability cost of our value chains cannot be done without engaging productively with the supply base, and the sustainability challenge cannot be solved without new innovation. Supplier innovation provides the perfect opportunity to address supply chain emissions and the impact of the supply chain more broadly in the absence of ready-baked solutions to meet ambitious corporate promises. Supporting suppliers to improve their own sustainability credentials whilst also developing innovations the business itself can use provides a rare win-win opportunity.
While supplier innovation boasts many benefits for organisations who can harness it, tapping into the value of the supply base is not easy to achieve.
And while some procurement functions excel with individual suppliers or drive pockets of excellence in their organisation, common barriers are magnified when trying to achieve supplier innovation at the scale required to make a truly transformative difference to the business and its goals. Though all can be avoided with a combination of people, process, and technology, there are some pitfalls to be aware of:
Without the validation of the leadership team, a supplier innovation programme frequently stalls or fails to get off the ground at all, deprived of the resource, and infrastructure commitments it needs to flourish. Leadership buy-in is especially important when it comes to scaling the programme and committing further resource. Scaling is only possible if the procurement function is able to quantify and prove the value of supplier innovation to the executive team.
Failure to align the aims of the supplier innovation strategy to the overall goals of the business undermines the achievements with suppliers. Innovation is not valuable in and of itself, but instead should serve an organisational purpose. Centring the procurement function around reaching key business objectives outside of pure cost and quality improvements can help to focus the aims of the innovation programme.
Though procurement lives and breathes process, adjusting to the new demands of supplier innovation can be tricky. In order for supplier innovation to flourish and to ensure the maximum conversion rate of good ideas through to proofs of concept and eventually flourishing new projects, methods, or solutions, robust process governance must be baked into every stage of the supplier innovation programme. This includes but is by no means limited to: ensuring named and dated accountability for required actions; clear criteria around when an idea progresses or is discarded, and regular project check ins.
To support effective triaging of ideas and to prove the value of supplier innovation efforts, procurement must be able to measure and assess the performance of both individual projects and the entire supplier innovation portfolio according to the KPIs outlined in the initial strategy, and to the wider goals of the business. Instead, initial efforts at supplier innovation are usually characterised by ad hoc efforts with poor measurement criteria and methodology, and little standardisation in measurement between suppliers or across different projects. These failures in measurement make it difficult to ascertain where suppliers are driving the most success, leading to significant value leakage in the innovation process.
To support continued leadership buy-in and translate measurement into insights, robust reporting of supplier innovation performance in relation to key business goals is necessary. This process of aggregating, normalising, and making sense of complex data is both time, effort, and resource intensive, making it very difficult to achieve beyond a handful of supplier projects.
Aligning on goals, triaging ideas, managing proofs of concept, running successful projects, quantitatively measuring success, and deriving decisive insights are all time and resource intensive. Together they require robust process governance, complete and easily accessible data, and centralisation of all activity. Without technology to enable supplier innovation efforts, potential value realisation frequently falls foul of fragmented data sets and inconsistent, siloed, offline ways of working. Though individual projects can be accomplished without enabling technology, the manual resource input required makes even enormous successes impossible to scale.
Even with leadership buy-in, strategy alignment, and the right infrastructure in place to permit robust management, measurement, and reporting, supplier innovation can struggle to deliver its promised benefits. A programme is only as strong as the supplier relationships that support the innovation effort. Innovation is impossible without active, deeply collaborative relationships.
Procurement functions have a long reputation as successful negotiators, and for good reason. Yet in order to tap the value of the supply base beyond cost and quality improvements, an adversarial approach with suppliers is not an option.
For innovation to flourish, collaboration becomes the defining characteristic of a successful relationship.
Procurement should be seeking ‘customer of choice’ relationships with strategic innovative suppliers. Customer of choice status, founded on visibility and mutual benefit, grants the buyer priority access to existing IP, ideation, and future innovation potential. Without establishing strong, collaborative partnerships with suppliers and clearly articulating what they stand to gain from co-innovation, the benefits of supplier innovation are undermined.
To accomplish supplier innovation successfully at scale, procurement needs infrastructure that:
While many supplier relationship management solutions exist on the market, these are primarily focused on operational performance and do not allow for systematic management and measurement of supplier collaboration or supplier innovation. Many procurement functions support small scale innovation projects using project management and productivity tools, encountering many of the common barriers mentioned above around lack of visibility, access, centralisation, and accountability.
These challenges together are why we built Vizibl. Our Supplier Collaboration and Innovation solution is a best-of-breed procurement platform which allows for robust supplier relationship, collaboration, and innovation management, enabling enterprise organisations to tap the true value of their supplier relationships.
Vizibl’s Innovation Hub allows procurement and its colleague functions to source ideas and opportunities from existing suppliers and as-yet-undiscovered partners, convert these ideas into POCs or collaborative projects in its Collaboration Workspace, and prove the value of their work with robust value tracking, dashboards, and reporting capabilities. Supported by centralised real-time data, Vizibl enables the systematic end-to-end management and measurement of supplier innovation projects, allowing you to prove the transformative power of your supply base.
To learn more about how to tap into the value of your suppliers, visit Vizibl Supplier Innovation Hub