Previous CIO of General Motors (GM), Tony Scott, was once quoted saying,
“GM is a highly collaborative organization; we rely on a whole tier of suppliers for everything that we do.”
Our organization’s products, customers, and profit, are ultimately a byproduct of the global supply chain networks that operate on a daily basis to add value through collaboration. The complexity of global supply chains – especially in organizations like GM – require hands-on relationship management of suppliers to ensure that supplier collaboration will lead to added value, and innovation. It’s nice to see that their previous Chief Information Officer had enough perspective to recognize their suppliers’ importance.
Traditional notions of innovation are often that innovation is to be driven forward by the internal structure of an organization (Olsson 2017). Resources spent/gains made on the road to innovation are, therefore, sustained exclusively by the internal entity. But, with the current globalized climate of the business world, companies are becoming increasingly reliant upon external actors to create opportunities for innovation, collaboratively.
Supplier bases are a great source of potential innovation. But, unlocking collaborative supplier innovation requires clearly defined strategies and operations by a sourcing, procurement and/or purchasing team to ensure that suppliers’ competencies are being leveraged to their fullest potential.
This article should serve as a starting point for creating and/or enhancing collaborative supplier innovation. But, first let’s put a meaning to the name!
My favorite definition I could find of Collaborative Innovation is as follows:
“Knowledge or products are created cooperatively by members of a virtual team, bringing together various individuals and enterprises with complementary ideas, knowledge and skills” (Encyclopedia of E-Commerce Development, Implementation, and Management 2016).
According to this definition of collaborative innovation, it requires a team aspect and a knowledge sharing aspect.
In relation to collaborative supplier innovation, it is important that procurement and sourcing teams remember that the supplier is an equal party/partner in the collaboration. Without a supplier entity being treated so, true collaborative innovation won’t occur. Read more on Why Supplier Collaboration is Important and Which Tools To Use.
Building a clear understanding of strategy and goals for a collaborative innovation project will create a visualization of a finish line from the start. Keeping an innovation strategy focused will keep the operations between procurement and supplier entity on target.
One of the most instrumental parts of developing an innovation strategy, especially a collaborative supplier innovation strategy, is to segment the innovation priorities and parameters.
“To keep the organization focused, executives must identify innovation priorities and objectives for each of their product categories. For example, [innovation priorities] could be segmented by product into the following categories: (1) Transformative, New to the World Innovation (2) Substantial New to the Category Innovation (3) Close-In Line Extension Innovations (4) Productivity Driven Innovation (5) Sustainability Driven Innovation. Deploying more than two strategies to a product category will drive an unfocused approach” (Spend Matters 2013).
By completing a mapping of your innovation priorities, you’ll be able to best allocate resource spending within your procurement team. Furthermore, you’ll be able to categorize suppliers by products and skill-set into specific innovation segmentations, and begin to locate/leverage the key supplier relationships to create focused results.
Your procurement organization should seek to create collaborative innovation with suppliers that share similar corporate goals and values.
As stated above, mapping out innovation priorities can be a good way to segment your supplier base into areas where collaborative innovation is most likely to occur. And, during this same segmentation, you should be focused on locating key supplier relationships. With these ‘more pivotal’ suppliers you need to initiate a line of communication to build trust and communicate shared values. Collaborations with suppliers that don’t see eye-to-eye with core corporate values may prove to be challenging, or damaging to brand value.
End consumers love to see innovative products, but if you’re breaking a social contract to your customers by collaborating with unmoral or corrupt suppliers, you’re missing the point of collaborative supplier innovation.
Read more about Goals & Procurement Strategy Management here.
In order to build a solid line of trust with suppliers, you need to create a relationship of give and take. You need to ensure your suppliers are willing to share upon initial requests for information, undergo assessments, welcome audits and are open to evaluation on predefined performance metrics (should be compiled of both hard and soft metrics).
Technological solutions have made supplier assessment, governance and performance evaluation a more streamlined/simple process. There are various supplier relationship management solutions on the market that make these processes more effective, and allow procurement teams to gather supplier data and involve suppliers in conversations that they were traditionally left out of.
Suppliers should be subject certainly to RFI’s, self-assessments, sporadic audits (to confirm answers on self assessments), and evaluation of quality and performance. But, during these compliance, governance and evaluation activities, your procurement team can’t forget that these suppliers are potential life-long partners. They deserve your procurement team’s engagement in the form of responsiveness, on-site visits, open lines of communication, and trust.
Designating specific managers to specific suppliers can increase the chances that an innovation project will be sustainable or long-term. When it’s all said and done, these are relationships, treat them like it. Read more on 5 Ways To Spark Supplier Engagement: Making Vendors Into Partners.
Your suppliers are experts in their fields, and you’re most likely not their only client. Communicate with your key suppliers, and encourage them to create supplier-enabled innovation.
If your supplier is running a production run, and see an opportunity to cut costs, innovate within materials, create a complimentary/new product, or something similar, encourage their exploration of the innovation. This is the true essence of collaborative innovation with suppliers; creating opportunities for mutual gain and added top-line value. Having close relationships with key suppliers will put your organization in line to be co-innovators, rather than the supplier choosing another partner company.
If you choose to invest resources (time or money) in a supplier-led innovation project, just make sure that there is a proper understanding of ownership. You should ensure to create legally binding joint development agreements.
Make sure, “[…]an IP protection process is in place and that trust is established that a successful innovation will result in equitable and timely benefits. Preferred customer status may be accomplished through balanced and equitable approaches to intellectual property ownership […]” (Monczka et al. 2010)
Your innovation is only as capable as the network of collaborators that make it happen.
If you forget everything else you’ve read in this article, remember these 4 Must-Knows for creating collaborative innovation with suppliers:
Are you ready to innovate?
Read more about How To Increase Supplier Engagement & What Procurement Can Learn From Marketing Automation.