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CPO Opportunity: Harvesting Supplier Innovation
Innovation is a process, not an idea. Peter Drucker, the prolific management theory expert, defined innovation as “change that creates a new dimension of performance;” a positive change, something that creates new value or increases current value. Drucker’s definition is useful in explaining the real truth about innovations – that most are incremental in nature and build upon earlier work – most do not happen overnight. For example, despite popular belief, Thomas Edison did not invent the first light bulb in 1879; he built upon the work of Humphry Davy, the English scientist who invented the first electric light seventy years earlier. This context is important when analyzing the most popular innovative ideas of Chief Procurement Officers. Procurement-led innovation generally starts at the edge of current operations and strategies and builds upon it.
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.
“For procurement, innovation will be getting beyond savings and taking part in revenue-generating deals and/or identifying partners for these deals.” – CPO, Hi-Tech Industry
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 five years ago 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.
“Our focus on innovation is longstanding. We approach it with strategic suppliers during our joint business planning sessions. With our largest supplier relationships, we expect them to bring us their innovations first and to offer exclusivity.” – CPO, CPG Industry
Innovation is such a wonderfully powerful word and such a wonderfully broad concept. Innovation can be complex; but, it can also be simple. Some innovations are market-driven while others are engineering-led. Innovation can create markets and innovation can create dilemmas. Whether innovation results in an industry “game-changer” or a simple, incremental improvement, innovation is generally in the eye of the beholder. Procurement-led innovation is no different.