Widespread inventory glut has left many businesses drowning in outdated products, pushing many to refocus their efforts on innovation to keep their portfolios fresh.
As companies jockey for market share amid dwindling consumer demand, a new product can be a huge differentiator from the competition. McKinsey found that more than 25% revenue and profits across industries comes from the new product launches.
But innovation is not a solo activity, and requires the cooperation of your entire supply chain. Your suppliers in particular have exceptional resources — they are experts in their market domains and keyed into the latest trends.
Here are four reasons why you should team up with your suppliers on innovation efforts.
1. Enhance cost optimization
Material costs have skyrocketed in the last few years on higher demand and tighter supply. Higher costs have the potential to derail product development efforts before they even begin.
Loop in suppliers to your plans as early as possible. They can help cut costs by suggesting alternative materials or different designs to help keep prices down.
Construction contractor PCL, for example, worked to help a client slash construction costs by suggesting alternative designs. The money saved can go back into funding overall business growth.
2. Speed the time to market
Suppliers can help accelerate research efforts, which in turn can often help bring new and innovative products to market faster.
IBM partnered with Germany-based chemical company Evonik in 2021 to use the tech giant’s AI algorithms to discover new materials for products. The company will use the tech giant’s AI algorithms to refine formulas and shorten the research process from years to months.
External innovation from suppliers also helps companies better manage time and resources, allowing businesses to focus on other core areas.
3. Become a customer of choice
Businesses may be hesitant to join forces with their suppliers, since it often involves sharing proprietary or highly sensitive information with vendors. However, taking the leap of faith can result in a lifelong relationship with your supplier that could be beneficial in other ways down the line.
Strong supplier partnerships help support brand building and bring in new customers. More importantly, you gain a trusted partner that may prioritize your orders or provide other benefits in times of disruption.
Virtually all major companies have publicly pledged to pursue more sustainable sourcing options and cut greenhouse gas emissions by eliminating plastic or finding more renewable materials. However, many large corporations are struggling to meet these ambitious targets, showing a dire need for product innovation and collaboration.
Working with suppliers can help companies unlock new innovations that advance sustainability goals.
Unilever, for example, teamed up with carbon recycling company LanzaTech and manufacturer India Glycols in 2021 to create a laundry capsule using recycled emissions. The CPG giant has a partner ecosystem of more than 56,000, which has helped advance goals around sustainability.
To bring a partnership to life, procurement teams should create a cross functional department, define the focus areas and decide on the right combination of tools. The investment could help your business stay ahead of the competition.
Praveen Kumar Soni is a procurement manager at Colgate-Palmolive.
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