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Focus: Sourcing/Procurement: Feature Article from Our Sourcing and Procurement Subject Area - See All

From SCDigest's On-Target e-Magazine

- July 21, 2015 -

Supply Chain News: Keys to Successful Supplier-Enabled Innovation

Focused Teams Deliver Better Results than Broad "Innovation Culture" Approach Report Finds


SDigest Editorial Staff 


Most but not all companies would like to drive their own innovation in part through contributions coming from their supply base, but clearly some companies are doing that much more effectively than others.

That’s the obvious conclusion from a new report on the topic from the analysts at Procurement Leaders.

SCDigest Says:


Trying to drive SEI from diffusing the procurement culture with a supplier-innovation focus is not nearly as effective as having a smaller group specifically targeted on such strategies.

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The concept is a simple one. By tapping into the capabilities and innovations of the supplier community, procurement is able to dramatically increase the volume of research and development being done on behalf of their companies.

Seems obvious that companies should be tapping into that kind of resource systematically and consistently, but the report says that few companies are able to so that despite the clear benefits.

The report is based on a global survey of 58 procurement executives, and one on one interviews with about 20 members of that group.

Moving to the next level of Supplier-Enabled Innovation (SEI) is not easy, the reports warns, noting that "internal clients may not be initially supportive, ownership issues around intellectual property can arise, and you may not have yet the right skills in the function to recognize, let alone promote, supplier innovation."

One key issue, the report finds, is that there is hardly a widely accepted definition of what Supplier-Enabled Innovation really means. That said, about two-thirds of respondents said that SEI should not be viewed as something special, but rather it should be intertwined with all the other tasks that procurement managers perform as a matter of course. However, an important block instead sees SEI as a "specific program, a set of dedicated workstreams, where the business invests resources, monitors progress, and builds the innovation output into organizational priorities."

Surprising or not, the latter group - those that view SEI as a separate program - in fact drive more value from their efforts.

"The more proactive and targeted the procurement function is in enabling the innovation, the greater the impact," the report notes.

The challenge, of course, is for procurement to find a way to connect the innovation needs of internal managers in product development, supply chain, etc. with outside suppliers in a way that fosters joint innovation.

"The main value-add of procurement comes from linking the capabilities that suppliers possess with internal stakeholder needs," the report notes. And only procurement can really drive these innovation-driven relationships, through stronger connections with suppliers at multiple levels. Indeed, it is the strength of the connections with suppliers that is the top factor in innovation output.

(Sourcing and Procurement Article Continues Below)


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Interestingly, the research did not necessarily find the best results from companies that believe they have developed an "innovation culture."

In fact, the research found that "it appears the most effective ways to create new ideas within procurement is not by developing a culture where all participate, but rather to look at a more streamlined, systematic approach where innovation is the responsibility of a few."

Another key factor is ensuring the procurement has good connections to what the needs of the end customer really are. Too often, procurement is largely disconnected from customers and their needs, naturally making it hard to drive and find supplier innovation that can have maximum impact on a company’s product-markets. In other words, procurement needs to be not only supply savvy but demand-aware as well.

Metrics Drive Output

Consistent with findings summarized above, the report found a strong correlation between companies that have strong supplier innovation metrics in place and the savings and other results that are achieved versus those companies that don’t have strong metrics in place.

Similarly, there is not surprisingly also a strong correction between how "proactive" a company is in pursuing SEI and the results that are realized.

Which Quandrant is Your Company In for Supplier-Enabled Innovation?



Bottom Line
: The report finds big differences in the level of supplier-led innovation between the top performers and the rest of the pack.

Perhaps surprisingly, trying to drive SEI by diffusing the procurement culture with a supplier-innovation focus is not nearly as effective as having a smaller group specifically targeted on such strategies - with the right metrics in place to measure the results.

The level of "connectivity" with suppliers, internal stakeholders, and even third parties such as universities is a huge driver of results versus less connected supply management organizations.

A key opportunity missed by most companies is to better connect procurement managers with end customer requirements.

Is this research on supplier-enabled innovation consistent with your experience? Let us know your thoughts at the Feedback button (email) or section (web form) below.

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