Harvesting Supplier Innovation (Part 1)

On Monday, I made the case that “targeted bets on some smaller suppliers can help enterprises find that next big (or key incremental) innovation.” Today we’ll look at how procurement departments can establish an environment that nurtures supplier innovation before presenting a case study. On Friday, we’ll look at a world-class approach to supplier innovation. Our final article will highlight some metrics and make a few recommendations.

Joy’s Law[i]: Innovation will happen, and it will happen somewhere else.

A few weeks ago, I filled in for supply management and negotiation guru and Vantage Partners Partner, Jon Hughes, at the invitation-only Procurement Leaders Forum in Chicago to co-deliver a presentation entitled, “Leveraging Supplier Collaboration to Drive Innovation,” that discussed strategies in developing innovation within a supply base and a case study review of the work that Vantage Partners had done with Kellogg’s in this area. My co-presenter was Cathy Kutch, Strategic Director of Supplier Relations and 22-year veteran at Kellogg’s; also a Coldplay fan.

Innovation is such a wonderfully powerful word and such a wonderfully broad concept. It is simple and complex. It is market-driven and engineering-led. It creates markets and dilemmas. It is important. It can be continuous or disruptive. It can be continuously disruptive. It was Monday’s topic, in part. It is today’s topic.

You can argue that there are three primary paths to fostering innovation:

1. Attract people and groups with innovative ideas – Offering engineers “20% time” has helped Google become a magnet for creative types (having a stock that’s up one million-percent also doesn’t hurt). Google credits many of their innovative products to this program.
2. Monitor markets where innovation is likely to occur; then source or buy it – Fellow IU alum, John Chambers has been a consistent acquirer of innovation (Cisco also shakes the trees internally looking for innovation).
3. Work to develop innovative solutions with trading partners – This “path” is today’s topic.

Innovation Farming

I contemplated several analogies for driving supplier innovation before settling in on farming for the Chicago presentation. In this analogy, procurement is the farmer, suppliers are the land, and innovations are the crop. Given constrained resources and a defined period of time, what does procurement need to do to have the biggest yield?

PHASE 1: Prepare the land, plant the seeds

What kind of environment does your procurement team have to initiate real discussions about innovation with suppliers? Intense negotiations can create disharmony and a level of mistrust that can be hard to usurp in a new buyer-supplier relationship. What can your SRM (supplier relationship management) team do to build a level of trust and understanding where suppliers’ ideas can grow? Do your strategic suppliers have a very clear understanding of your enterprise’s needs and priorities? Is it easy for them to share their ideas and are the benefits in doing so clear?

PHASE 2: Nurture the seedlings

Once you’ve tilled the land and planted the seeds of innovation, ideas should start sprouting. What does your organization need to do to nurture them? Do you have a deliberate process to evaluate ideas for feasibility and payoff, while also understanding potential risks and hurdles and how to mitigate them? How do you prioritize these ideas and allocate resources to realize them?

PHASE 3: Harvest the crops

How do you ensure that the best crops make it to market on time? What level of ongoing communication and collaboration do you have to have between project teams and internal and external stakeholders? Are the interests (i.e. compensation) of all project stakeholders aligned in success?

Kellogg’s Case Study

In recent years, Kellogg’s executive leadership identified “Open Innovation” as a top company-wide initiative. Kellogg’s Vice President of Global Procurement, Debbie Magers, decided to work with Vantage Partners (“Vantage”) in the development of an SRM-based supplier innovation program and placed Cathy Kutch, with help from Jeff Sargent, Principal Relationship Manager, Advanced Innovation Research, Quality, Technology (yep, real title 😉 ), in charge of the initiative.

Vantage kicked off the project and immediately began to survey Kellogg’s stakeholders and those at 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 with limited information sharing, lack of understanding of partner needs and capabilities, and a general lack of trust. One cause for optimism was the belief shared by both sides that a huge potential for innovation existed.

Vantage and Kellogg’s then set upon a plan to build more collaborative relationships with those key suppliers to find more improvement and innovation opportunities, encourage investment, and improve execution and success rates. This included creating cross-functional innovation teams that served to nurture and advance ideas and ran in parallel to Kellogg’s progressive SRM organization. As Cathy said, “It is important that suppliers put relationship managers on this team instead of account executives who are focused almost solely on increasing volumes.”

The Vantage/Kellogg’s project team also worked to establish a process to ensure that when suggested ideas became approved projects, dedicated cross-functional project teams manned by buyer and supplier resources were put in place.

According to Cathy, some of the key successes of their program to date are:

• They have successfully segmented innovation opportunities into two tracks – (1) revenue and (2) cost savings
• They have developed separate processes to initiate innovation ideas for the two tracks (one-on-one meetings for revenue; supplier portal for cost savings)
• They have a new organizational structure that has helped improve the evaluation process that identifies and prioritizes the best opportunities
• Their internal communication has improved significantly
• Their supplier communication is clear and consistent.

If you do believe that innovation can occur beyond the walls of your enterprise, suppliers should be viewed as a source of knowledge and expertise that can be leveraged to competitive advantage and mutual gain. Kellogg’s is a great example of getting a supplier innovation program to Snap, Crackle (and yes), Pop!

Postscript: Somehow it is becoming “Supplier Innovation” Week at CPO Rising. I started Monday’s article with the intention of focusing on the importance of supplier development, but as I started writing, I realized that the case study was about the opportunity to discover/foster innovation in smaller suppliers as much as anything else. Today’s article has been planned for a short while. And, late last week when catching up with an old friend on a different (but procurement-related) matter, he shared with me his new role at his company, which includes managing supplier innovation projects. You’ll see that story on Friday. I love it when a plan comes together!

---

[i] Bill Joy, Co-Founder, Sun Microsystems said something like this; I rephrased and called it “Joy’s Law” which sounds much cooler 🙂

RELATED TOPICS