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Supply Chain News: Procurement Organizations Value Supplier Innovation, but Few Structured to Consistently Benefit

 

Innovation Much Harder to Measure than Cost and Quality

 

July 17, 2017
SCDigest Editorial Staff

Research from a couple of supply chain academics finds that while nearly all procurement organizations see a lot of value in innovation by suppliers, not many of them have really put processes and structure in place to drive that innovation on a consistent basis.

Supply Chain Digest Says...

Having innovative suppliers is of no value if the organization can't identify or assimilate their innovations.

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Recently, CAPS Research, a program jointly sponsored by Arizona State University and Institute for Supply Management (ISM), funded research to understand how buying organizations could better assess and manage supplier innovation. That research was led by Dr. Tingting Yan, associate professor of supply chain management at Wayne State University in Detroit, and Dr. Kevin Dooley, professor of supply chain management at Arizona State University

Of course, the very subject begs the question of what supplier innovation really is. Yan and Dooley, writing in a recent issue of ISM's Inside Supply Management magazine, offer the following definition: "Supplier innovation is a process where drivers (supplier pushes and buyer pulls) lead to outcomes. In the case of supplier push, a supplier innovates and attempts to sell that innovation to a buyer. In the case of buyer pull, a buyer requests a supplier to solve a problem, and the solution requires an innovation."

We'll note that the innovation could be to the physical product itself, or a process innovation, such as a buyer requesting a supplier find some way to reduce its cycle times.

The research was small scale - a survey completed by 21 companies, and more in-depth interviews with 11 of those firms. Still a full% of the respondents felt that it is important to assess supplier innovation for potential new suppliers, and 90% felt it important to do so for current suppliers. On a seven-point scale ranging from "not at all important" (1) to "extremely important" (7), the average score was 5.5 for current suppliers and 5.8 for new suppliers.

No surprise there of course - today, what companies are not interested in supplier innovation, especially as the old vertically integrated company structure has almost completely disappeared, and firms continue to outsource a growing number of processes, from manufacturing to logistics?

What may be surprising is that companies are not backing up that interest with processes to make supplier innovation work.

Yan and Dooley found only 25% of procurement executives agreed that their organization had a system that actively evaluates supplier innovation performance, and only 33% of them indicated that their organization had a system that actively puts innovative ideas from suppliers into practice.

That survey data was supported in the in-depth interviews. Only four of the 11 organizations Yan and Dooley spoke with had formal supplier evaluation systems, and in two of those cases, supplier innovation was included as a criterion, and in two cases it was not.


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In the former two cases, superior suppliers were recognized in a formal award program, and in one case, the organization had an annual supplier innovation award.

In total, "The data indicates that many organizations do not have formal systems and processes in place to find, assimilate and use innovation from a supplier," Yan and Dooley note.

The reality is that unlike common metrics around cost and quality, innovation is more difficult to quantify and measure. In the interviews, one purchasing executive described innovation as a "moving target" that calls for "free thinking," illustrating the size of the challenge.

Yan and Dooley also note that the assessment of innovations can easily be influenced by subjective opinions or personal preferences, and that there were substantial differences across the procurement executives they interviewed in terms of how supplier innovation was defined.

They also note that buying organizations rarely have full visibility into what suppliers are doing internally in terms of innovation.

The article closes with two interesting observations: (1) a supplier's historical innovation performance does not necessarily predict its future innovation potential; and (2) having innovative suppliers is of no value if the organization can't identify or assimilate their innovations.

In the end, Yan and Dooley recommend doing assessments of current and potential suppliers' history of innovation as well as views on their future innovation potential. Those two efforts should be combined with an honest assessment of a procurement organization's own ability to identify and capture value from your supplier innovations.

"By understanding the current state and future of supplier innovation assessment and management, supply management executives should play critical roles to prepare their organizations for the ever-changing future in assessing and managing supplier innovations," Yan and Dooley conclude.


Are you surprised by this data on supplier innovation? What are the keys to driving supplier innovation? Let us know your thoughts at the Feedback section below.

 

Your Comments/Feedback

Aaron Z

Director of Marketing, Pak-Sher
Posted on: Jul, 19 2017

Great article! The data presented here isn't surprising to me at all. As the director of marketing for a plastics manufacturer, I can tell you that innovation and our ability to find unique solutions to our customers' problems is front and center in our marketing communications. That's not just because it's a key differentiator for us (we really are good at it) but because we know it's what prospective customers are looking for - someone to solve problems on-demand. Someone to help them navigate the volatility, uncertainty, complexity, and ambiguity of their operating environment.

 

That said, I don't believe supplier innovation is something supply management executives can drive. An organization can have the most brilliant systems and processes in place to lead a horse (a supplier) to water, but ultimately it's up to the supplier to drink and actually find innovative solutions. 

 

The problem for most suppliers is that they couldn't be innovative even if they wanted to be - even if they had brilliant and creative people. Supplier organizations have spent decades building efficiencies and economies of scale, but now the competitive landscape has changed. Innovation is a result of continuous improvement, and continuous improvement requires flexibility, agility, and communication. Most suppliers and manufacturers simply aren't capable of being agile enough to realize true innovation. They're too heavy, too efficient, and too rigid. Even worse, most suppliers and manufacturers are stuck in the false notion that real innovation is "pushed" out to the market. They just keep making "innovative" products that nobody in the market wants - products that might solve a problem, but fail to solve the market's most important problem.

 

I would posit that trying to evaluate suppliers on something as subjective as "innovation" is utterly impractical. That's probably why only 25% of procurement executives have a system in place to evaluate supplier innovation performance! Instead, a supply management executive should evaluate suppliers based on their agility, their degree of communication, and ability to listen to and understand a customer's biggest challenges. Don't look for supplier innovation. Look for suppliers that have the structure and culture necessary to foster it. That list of criteria is much more practical and quantifiable than something as subjective as innovation. When a supplier has all of the necessary conditions to nurture innovation, then it becomes a simple matter of communication and collaboration between a supplier's team and a procurement executive's team to extract iterative innovation from a strong relationship.

EUCHARIA UDEH

PRINCIPAL PARTNER, AMANDARIggg SOLUTIONS
Posted on: Jul, 24 2017
The keys are mutual benefits, partnership, NO Blame game, Commonality of culture, Information sharing etc.
 
 

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