Supplier innovation puts the the 'value' into supply chains

According to a recent McKinsey survey, the organisations that leverage supplier know-how for innovation purposes enjoy up to 10% more earnings’ growth. And, given that ‘supply chain’ is also commonly referred to as the ‘value chain’, this makes perfect sense. 

You see, the truth is, there’s a great deal of value to be had from suppliers – especially in today’s uncertain, disruption-filled world, with its greater reliance on innovation to keep things on track.

Here, we speak to two supplier relations experts for their insight into how organisations can extract maximum value from their supplier base:

Brandon Rael (BR) is Strategy & Operations Leader at Capgemini Invent. Capgemini is a French multinational IT services and consulting company; Capgemini Invent is its innovation, design, and transformation arm, designed to generate scalable, real-world solutions to help its clients.

Nicolas Walden (NW) is Senior Director of Procurement Executive Advisory Membership Programmes for The Hackett Group – an advisory, benchmarking and transformation consulting specialist, whose Smart Automation Platform helps organisations plan, identify, design and monitor smart automation programmes.  

How can businesses leverage supplier innovation? 

BR: With the great digital acceleration and ongoing global supply chain disruptions, businesses are being challenged to drive profitable and sustainable growth while mitigating operating costs. This requires procurement teams to simplify the collaboration model with their suppliers along the innovation process and enhance the combined teams' capabilities. Several perquisites need to be in place to ensure sustainable innovation success:

• Validating the organisational and cultural readiness for collaboration 
• Shifting the procurement mindset from cost reductions to profit improvement
• Prioritising capability areas for supplier innovation 
• Identifying and attracting the best suppliers for capability growth

NW: Businesses need to start by identifying the type of innovation they are looking for, whether that’s continuous improvement, company innovation or market innovation.

They then need to develop a process to support and enable that innovation – this can be divided into four key stages:

• Search: How can we find opportunities for innovation through scanning or scouting?
• Select: What are we going to do and why? This could include developing relationships to access the necessary complementary capabilities, prototypes, minimum viable product, and incubators. It could also involve developing an ecosystem to support innovation that extends beyond Tier 1 vendors, to Tier 2/3 and other start-ups and academic sources.
• Implement: How are we going to make it happen? This means finding, selecting and helping transferring capabilities from external parties and managing external parties, as well as ensuring the right commercial structures are in place to motivate, reward and encourage innovation.
• Capture: How are we going to capture the benefits?

How does supplier innovation help at the design stage? 

BR: There are clear advantages for businesses to leverage supplier capabilities, particularly during the design and conceptual phase of the innovation cycle. Suppliers clearly understand their end customers and can provide innovative ideas about strategy, products, services, and business models.

NW: Some key examples include improving customer satisfaction or the user experience, improving goods or services available, and increasing the efficiency of product or service development.

Give a real world example of supplier innovation

BR: L'Oréal has established a collaboration process with its suppliers. For example, the company's annual ‘Cherry Pack’ exhibition provides suppliers with the new consumer trends that will be investing in developing packaging solutions harmoniously with these trends. Additionally, P&G shifted its R&D strategies from 100% internal to a 50/50 split, improved productivity by 60%, and contributed 50% of the new product innovations to the market. 

NW:Large infrastructure and engineering projects increasingly utilise consortium commercial relationships, where pain/gain sharing models reward innovation in design, planning, and delivery of the projects to deliver outcomes ahead of initial project budgets – including in terms of cost, time, quality, and service.

What are the barriers to leveraging supplier expertise?

BR: The lack of an integrated co-creation and collaboration model between companies and suppliers remains an obstacle to developing innovative ideas. Another obstacle remains the lack of the organisation and governance of supplier-collaboration programmes' formal structures and processes.

NW: The typical barriers are not having the right innovation-related roles to discover or scout for innovation, not working with the right suppliers aligned to your innovation goals, and not having the right buyer/supplier partnering relationships in place to enable innovation to happen.

What are the main benefits of supplier innovation? 

BR: One of the most significant advantages of leaning on supplier innovation is shifting the procurement mindset from cost optimisation to profit improvements. Collaborating with suppliers early in the innovation process provides capabilities that are not internally available, improves the speed to market, and drives product differentiation.

NW: Statistics show that high innovation companies offer earnings (EBIT) growth at two to three times the levels of other more average companies. Other benefits include incremental revenue, profitability, lower costs, and other advantages in terms of service, quality, and features and functionality.

Which sector is best at leveraging supplier expertise? 

BR: The consumer products sector has a strong record of leveraging supplier expertise within the product innovation cycle. Companies such as Unilever, P&G, and others are leveraging an increasingly collaborative approach with their suppliers to drive new product ideas, methods to overcome supply chain disruptions, or technical solutions for complex manufacturing challenges. 

NW: Product manufacturing, hi-tech, and engineering are examples of industries that are either systematically searching for innovation, conducting specific projects on innovation topics, or being strong in-house, in terms of innovation and bringing in specific external capabilities.

Does tech make supplier expertise easier to access?

BR: Technology is a significant enabler and vehicle for innovation to drive the company and supplier collaboration model. Co-creation and product development cycles have become more accelerated and cost-effective by leveraging technologies such as AR, VR, and AI to reduce the traditional innovation timelines. In addition, pilot programmes and the innovation cycles are further reduced to weeks/months vs. what used to take years of planning and execution.

NW: Technology allows buyers to better engage with suppliers or the broader market ecosystem to, for example, communicate the types or topics of innovation they are interested in, or to improve collaboration between buyers/suppliers in terms of the innovation process.