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Procurement Should Become a Hub for Supplier Innovation

“Innovation will happen, and it will happen somewhere else.” – Bill Joy, co-Founder, Sun Microsystems

Companies in all regions and of all sizes are increasingly global and the need to support business relationships with global trading partners has become a priority of the first order. And, while globalization, innovation, and the resulting increase in competition have helped to streamline and improve business performance, they have also served to increase business volatility and supply management complexity. Against the backdrop of rapidly evolving supply chains (and customer bases), how organizations communicate, collaborate, and transact with their trading partners and the enabling platforms that they utilize will take on increasing importance to business operations. When it comes to managing supplier relationships, procurement professionals are on the front lines and how well they perform their duties can have a huge and lasting impact on the overall success of the business.

No enterprise has cornered the market on innovation. Skeptics need only look at the consumer electronics market where many of today’s market leaders were relative unknowns in the category less than five years ago and many of the market leaders then are marginal players today. Company and product lifecycles are shrinking dramatically. It would be naive to think that the same is not happening to some degree in most other supply markets. The supply base of the average enterprise five years ago will look very different from that same enterprise’s supply base five years from today – at least it should, if the sourcing team is doing its work. If enterprises believe that innovation can occur beyond their four walls, suppliers should be viewed as a source of knowledge and expertise that can be leveraged to competitive advantage and mutual gain. But the typical buyer-supplier relationship paradigm must evolve if innovation is to have a chance of developing. It will take deliberate steps for procurement to become a true hub of supplier innovation… but, as shown below, it is possible. Soon it will be required.

Case Study: How One CPG Company Became a Hub for Supplier Innovation

When the executive leadership of one global CPG company identified “Open Innovation” as a top company-wide initiative, the Chief Procurement Officer and the senior procurement team initiated a supplier relationship management (SRM)-based supplier innovation program and immediately began to survey different business stakeholders and a few strategic suppliers to understand the “current state” environment for innovation. What they quickly determined was that “traditional” buyer-supplier attitudes and perceptions were in place like limited information sharing, a lack of understanding of partner needs and capabilities, and a general lack of trust. Things would have to change for innovation to thrive in the existing supply base. One cause for optimism was the belief shared by both the procurement team and its strategic suppliers that the potential for innovation was huge.

The CPO worked with a third-party expert to develop a plan to build more collaborative relationships with key suppliers and find more improvement and innovation opportunities, encourage investment, and improve execution and success rates. This included creating cross-functional innovation teams within the company that served to nurture and advance ideas and ran in parallel to the progressive procurement organization. According to the CPO, “[We found that] it is important that suppliers put relationship managers on this team instead of account executives who are focused almost solely on increasing volumes.” The team was able to successfully segment innovation opportunities into two tracks: revenue and cost savings with separate processes to initiate innovation ideas for the different tracks (one-on-one meetings for revenue; supplier portal for cost savings).

Final Thoughts

For many, competitive advantage is built upon a foundation of enterprise partnerships with customers and suppliers that are innovative and difficult to copy. This advantage is more likely to become sustainable if its costs remain competitive with the market. Procurement is in a unique position to serve as a collaboration/innovation hub for both internal and external stakeholders in support of any enterprise-level “innovation” initiative. But, it will not happen organically – it will require a plan, focus, resources, skills, and above all else, a CPO with a vision and an ability to execute.

Interested in topics like this that matter to the CPO? Consider attending our CPO Rising 2016 event in Boston on March 29 & 30, 2016 where “getting the most from suppliers” and “driving supplier innovation” will be major themes. Registration is now open.

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