Until very recently, the supplier that delivered on time, on or under budget, and stuck to the letter of the contract was the golden standard by which all others were judged. Whether or not a supplier of such infallibility truly exists - or can be expected to - is still up for debate, but these were the qualities procurement leaders meticulously sought out. There are, after all, a great deal of efficiencies and savings to be found in stringent adherence to rules and guidelines.
If cost is the measure, however, even this conventional wisdom is being tested. In a survey conducted by McKinsey, Reimagining Procurement for the Next Normal, the organisations that regularly innovated in partnership with their suppliers were the ones that saw the biggest earnings growth - achieving up to 10% more. Procurement leaders already know this; 88% of the survey’s respondents said they were already engaged, or were planning to start, joint-innovation initiatives with their suppliers.
The simple fact is that there is more value in the chain. If organisations are to overcome today’s challenges, greater reliance and support for innovation at all points in the supply chain will be necessary. Optimisation is no longer enough; supply chains must be agile and resilient in their elasticity.
Ask any supply chain or procurement executive what their biggest challenge is and you’ll get roughly the same answer: everything. Each issue will impact organisations by varying degrees, but there are dozens that are common to all. Take the climate crisis. While organisations have taken great strides in addressing their own carbon emissions, pledged trillions in investment towards renewable energy and sustainable sourcing initiatives, the ultimate goal of keeping global warming below 1.5c is an impossible task to tackle alone. Scope 3 emissions, the greenhouse gases pumped into the atmosphere by each member of the value chain, requires collaboration and, ultimately, innovation.
Unlocking Supplier Innovation
To unlock the value of that innovation, procurement organisations will need to adapt. The traditional dynamic of forcing an extra percentage point in savings or cutting a cost for the next quarterly report will need to change. Relationship management must evolve from a “battleground for power”, says Mark Perera, CEO at Vizibl. “For supplier innovation to flourish, and for organisations to begin reaping its benefits, this state of play needs to transform from combative to collaborative.”
If procurement leaders did not realise this at the begin of 2020, the pandemic has taught them a harsh lesson over they past 18 months that they won’t soon forget. “As businesses attempt to tackle these ever-mounting threats to their operations, profitability, and in some cases even their continued existence, embracing a supplier innovation model becomes crucial,” Perera says.
Becoming a customer of choice has become crucial not just for growth, but for survival. In an environment where shortages persist at every level of the supply chain, the buyer-vendor dynamic has shifted from rigid and transactional to collaborative. The value of a supplier now goes far beyond its ability to deliver a product or service. Businesses need solutions to pressing issues, they need them now, and they can’t create them alone.
“The ultimate goal should be to become the customer of choice with strategic suppliers – a status which grants you privileged access to supplier ideation, existing IP, and future innovation,” says Perera. “In highly competitive markets and verticals where even small innovations make the difference between leader and laggard, this status confers considerable competitive advantage.”
It’s true that partnering on supplier innovation is not a new concept in 2021, but is still difficult. Oil and gas giants are quickly rallying their suppliers to provide groundbreaking green energy solutions. Car and consumer electronics brands are pressuring their suppliers to develop new avenues to manufacturing and source semiconductors, sidestepping the biggest foundries that have failed to keep up with demand.
Time and again, Perera says, organisations routinely fall short on collaborating in a fashion that is “agile, efficient, transparent” and able to innovate at scale. “Many organisations consider themselves leaders in collaboration, but frequently use siloed, offline ways of working that lack systematic people and process governance,” says Perera. But technology has caught up with the ambition.
Technology is Paving the way for Supplier Innovation
Digital transformation has broken down the barriers between organisations and their suppliers. Centralising communication, accountability and transparency through next-generation collaboration platform such as Vizibl, which Perera co-founded, has revolutionised the way organisations interact. As well as building trust, Perera says the platforms provide a unified and consistent governance process to bring structure to an array of simultaneous projects. These aren’t just contractual obligations, but about defining the quality and mitigating the costs and other ramifications associated with delivering past deadline.
“Through adopting Vizibl’s collaborative platform and approach to supplier relationships, a large Telco customer achieved a faster and more effective proof of concept process that not only increased ideas capture, but also increased the conversion of PoCs into fully realised innovation projects, delivering supplier-led innovation back to the business in a much shorter time frame,” Perera says. “They can now track and forecast value generation from supplier-sourced innovation through real-time reporting dashboards in Vizibl, enabling the procurement team to refine and grow its supplier-led innovation strategy.”
“The power of technology to expand your efforts is also a vital consideration; it powers supplier collaboration at scale, and fosters innovation and success at speed,” Perera adds. But technology alone is not enough. Procurement leader are rapidly transforming their organisations towards new, more strategic processes such as outcome-based buying, which involves “carefully detailing the problem you’re looking to solve, rather than the solution you think you need to buy”. This mindset moves the dynamic beyond transactional product purchase, Perera says, and towards the types of collaboration that strikes at the heart of the issue at hand.
Not all supplier innovation is linked to solving problems, however. Organisations already adept at working collaboratively with suppliers are focusing on the long-term goals: better customer experience, greater representation for minority-owned business, and new avenues for revenue beyond their core capabilities. All organisations around the world have been forced to restructure around the impact of COVID-19, but it will be the organisations that fully embrace the innovation of their suppliers that thrive in the unsteady years to come.