By: Omer Abdullah
Today, a lot of the low hanging fruit for CPOs and their teams has been picked. One area where there is significant scope for procurement to deliver value is supplier-enabled innovation (SEI). With 25-45% of revenues coming from product innovation and up to 65% of innovations sourced externally through external partners and suppliers, SEI represents a treasure trove of opportunity.
Why is it important?
Expand organizational capabilities: By tapping into the capabilities and innovations of the supplier community, procurement can dramatically increase the nature and volume of research and development work being done on behalf of their organizations. In the process, the organization can tap into the skills and knowledge base of other parties who are experts in their specific fields, leveraging their learnings to drive the business forward.
Greater cross-organizational collaboration: Supplier-enabled innovation, by necessity, involves multiple functions within a business, such as procurement, R&D and product development. It, therefore, encourages stronger cross-functional collaboration across business groups, driving internal efficiencies such as alignment around core goals, integration towards common results, and more effective transfer of knowledge. This both accelerates the overall innovation pipeline and reduces risk in the process.
Staying ahead of the competition: Picking supply partners that support finding new ways of doing things and doing them faster can help companies stay ahead of the competition, as one study shows there is a 40% faster route to commercialization for externally sourced innovations. An effective, well-considered approach to SEI enables organizations to push beyond their competition, in ways that couldn’t be delivered from a purely internal approach without considerable time and expense.
Choosing the best SEI partners
As organizations look to their suppliers to collaborate and jumpstart product and process innovation, insight and intelligence is key, for understanding unmet customer needs, emerging technologies and capabilities that fill these gaps, and evolving market trends (within both the direct marketplace and tangential spaces).
Diving into your existing supply base to identify the right partners is a tempting place to go to next, and often this yields value. But the right suppliers are not always in your existing pool.
As such, a structured process of identifying the right supplier partners is essential, with assessment for:
Collaboration ability, conveyed by strategic alignment around product/service goals, and agreement on the key values of collaboration and governance pertaining to innovation projects, and
Conformity, both the commitment of top management and the cultural compatibility of supplier and client corporate cultures.
Demonstrated results is another selection criteria, but answers aren’t always in plain sight, via the finished product. In fact, one very effective, yet under-used source of information for identifying innovative suppliers is patent research. This can identify and benchmark companies who are innovating in strategic areas of interest for a business – from finished product to packaging components to unique ingredients to manufacturing process innovations – either for sourcing alternative suppliers or for co-development opportunities. Equally, the performance of existing suppliers can be assessed – are they investing and innovating as one would expect?
Finally, it’s worth noting that the right choice of supplier partner is not necessarily dependent on size or breadth of offering. Often, working with a specialist player, who will work more collaboratively and put more at risk for a share of the long-term spoils, is worthwhile.
Ironing out bumps in the road
For successful SEI, several factors need consideration during the due diligence process, when selecting suppliers:
Start at the top. Invite the executive leadership to get their buy in and interest and ensure this is agreed with the top management in the supplier base as well. It’s a cliché but it’s true: Executive level sponsorship is critical for this initiative to succeed.
As an example, Johnson & Johnson has a supplier-enabled innovation (SEI) team of 12 people who are tasked with sourcing cross-function innovations. All roles within the team are high-level (VP and above), which fosters a culture emphasizing innovation, tied directly to outcomes.
Sort out the intellectual property rights ownership up front. When jointly generating ideas it is important to decide in advance on a dedicated contract that sets the collaboration rules, primarily in terms of intellectual property and risk sharing; many innovation attempts fail or are problematic due to unclear terms of collaboration contracts.
Articulate your innovation goals. Innovation workshops are processes that require planning, cautious selection of ideas, intellectual property management, and decisions concerning resource allocation. Make sure the goals align for both parties right from the start and that innovation workshops are treated as such, rather than as a sales channel.
Build resources internally to support SEI. Companies typically create dedicated innovation teams or establish new roles and job functions specifically dedicated to driving innovation collaboration. In addition, developing online innovation platforms that facilitate knowledge exchange across the supply chain, from start-ups to large companies, helps businesses to partner more closely.
Reap the rewards of looking out and bringing innovation in
There is a growing recognition of the value of broader partnerships, of hybrid models that integrate insource with outsource, especially in areas as important as innovation. Indeed, in today’s complex, global ecosystem, choosing the right, innovative partnerships is becoming ever more critical for success. And procurement sits at the perfect point – right at the confluence and in a position to drive transformative value for the corporation.
About the Author
Omer Abdullah is Co-Founder and Managing Director of The Smart Cube, a global provider of procurement intelligence and analytics solutions, including category excellence, commodity volatility management, supply chain analytics and supplier engagement, for Life Sciences, CPG and Industrial companies. Omer leads the business in The Americas. He has more than 25 years of management consulting, global corporate and industry experience across North America, Europe and Asia. Prior to founding The Smart Cube, he held senior roles at A.T. Kearney (North America), Warner Lambert (USA) and The Perrier Group (Asia-Pacific).