Procurement teams seeking to deliver enhanced business value have the opportunity to leverage a wide pool of potential resources through their supply chain relationships. Supplier-enabled innovation (SEI) is a significant channel for driving many impactful benefits across a business. Below, a best-practice checklist for companies looking to undertake SEI.
The benefits of supplier-enabled innovation
Financial growth: With 25% to 45% of revenues coming from product innovation and up to 65% of innovations sourced externally through partners and suppliers, SEI is of increasing importance for financial growth. Working with suppliers allows cost optimization driven by continuous improvement in the value chain and reduction of product-launch costs.
Faster route to market: There is a 40% faster route to commercialization for externally sourced innovations, helping companies stay ahead of the competition in ways that would be more difficult to deliver from a purely internal approach. SEI also helps companies gain entry into new markets and get into them rapidly by leveraging expertise and IP from partners.
Become a customer of choice: Collaborating with suppliers sends out a positive message in the vendor community, positioning you as a desirable company to work with — the partner/customer of choice. Having that status means suppliers are more likely to push for perfection and bring out their critical resources (human and technology) for you.
Long-term influence: Ongoing collaboration with suppliers helps foster strong long-term partnerships, encouraging the supply base to align to your custom needs related to sourcing, selling and producing differently. This leads to benefits and results beyond the short term, and enables organizations to become more forward looking.
Expand organizational capabilities: By tapping into the supplier community, procurement can leverage the skills and knowledge of third parties who are experts in their specific fields and dramatically increase the nature and volume of R&D work being done for their organizations.
Greater cross-organizational collaboration: Supplier-enabled innovation, by necessity, involves multiple business functions — including procurement, R&D and product development — encouraging corporate collaboration. This can drive internal efficiencies such as alignment around core goals and more effective transfer of knowledge, which accelerates the innovation pipeline and reduces risk in the process.
How do you choose the right SEI partners?
Your best SEI partners may not come only from within your current supplier base. Getting the right insight and intelligence is key. Here is a checklist of questions for you to draw from to help you determine the best fit suppliers for SEI.
- What is happening in your market, as well as those near to you?
- What are your competitors doing?
- What are the challenges you should be wary of?
- What do your customers seek?
Research- and analytics-driven market or competitive intelligence, such as best practices assessment, innovation trend analyses, customer purchase behavior and life-time value analytics will help you find answers to these questions.
Corporate and cultural fit
- What kind of company are you, and what kind of company from a cultural and management perspective would be the best fit?
Make sure innovation goals align for both parties right from the start and that you can understand and speak each other’s corporate language. In addition, ensure the companies share the same values, an important corporate cultural factor.
- Do potential suppliers have buy-in from management at the very top?
It’s a cliché but it’s true: executive-level sponsorship is critical for this initiative to succeed.
Supplier health and capabilities
- Do they have sound financial health?
Ensuring the long-term viability of your innovation partners is critical: their short and long term financial health and risk should be assessed.
- Do they have value creation potential?
- Do you have evidence that your suppliers are innovative?
Another consideration is choosing a partner with high value creation potential, whether in the form of a unique manufacturing procedure, process efficiency, strong innovation pipeline or rich innovation history.
- What skills sets do you need from your suppliers?
- Are they flexible enough to change if you change your strategy?
It is important to choose suppliers who complement, not replicate, your in-house skill set. Innovative suppliers in the technology space, for example, can help with co-development or building solutions to support specific business or customer needs. Markets move fast, so look for evidence of agile working processes to confirm they have the right mentality.
Use of technology
- What technologies exist and how can you take advantage of those to help the SEI process?
Online innovation platforms can facilitate knowledge exchange across the supply chain and businesses to partner more closely with innovators — from start-ups to established companies — as adopted by companies like Unilever, P&G and BT.
Finally, bear in mind that the right choice of supplier partner is not necessarily dependent on size or breadth of offering. It is worthwhile considering specialist niche players who will work more closely, more collaboratively and put more at risk for a share of the long-term spoils.
Building the right combination to kickstart the process
Getting the answers to these questions could seem an insurmountable challenge. Identifying the right tools, such as research, market intelligence and data analytics, to drive visibility into your supply chain and the wider environment, is critical to gaining appropriate insight.
One underused source of information for identifying innovative suppliers is patent research. This can identify and benchmark companies who are innovating in strategic areas of interest for a business — be that finished products, packaging components, unique ingredients or manufacturing processes. Semantic analytics is useful for distilling data, and locating the most relevant patent research and filings faster from extensive databases.
Human intelligence also plays a key role in deploying research and data-driven tools. Data collection, aggregation and enrichment need human intervention to ensure that these tools are fed with accurate information to deliver actionable insights.
Finally, the right internal structure can make or break new initiatives: companies often create dedicated innovation teams or establish new job functions with the specific remit of driving innovation collaboration with key suppliers. This happens across many verticals such as automotive (e.g. Toyota and Brose), aerospace (e.g. Paul Fabrications), consumer goods (e.g. P&G) and pharma (e.g. J&J and Roche).
With the right combination of tools, human intelligence and organizational structure, focused on the right areas, you can bring your SEI program to life.
Swarna Rao is Vice President, Client Solutions at The Smart Cube, with responsibility for client solutions, relationship management, and practice development for North America. She leads several Fortune 500 accounts, providing intelligence and insights to enhance procurement and supply chain operations. Swarna has worked at The Smart Cube for over 14 years, developing extensive experience and knowledge of the procurement research and analytics industry.