CPO Strategy

How better supplier management can help drive innovation

By Alex Saric, smart procurement expert at Ivalua

Organisations are under more pressure than ever before to innovate at speed, ensuring they remain relevant in an increasingly competitive business environment. However, one of the barriers to achieving this is the constant drive to cut costs.

In today’s procurement landscape, cost reduction and innovation can no longer be viewed as mutually exclusive. Instead of focusing solely on remaining profitable, organisations need to view cost reduction as a sustainable practice that doesn’t block innovation. This misalignment between objectives means organisations must take more consideration when it comes to supplier management and adopt a more collaborative approach, investing in the right tools to help ensure innovation isn’t stifled by an overarching focus on cost reduction.

Innovation has become a top priority for organisations, but in order to deliver ground-breaking new developments, they must take steps to ensure they have effective supplier management that encourages and enables innovation.

Tapping into supply chain innovation

Suppliers should be a key resource for organisations looking to develop innovative ideas. According to the Institute for Supply Management (ISM), up to 65% of organisational innovation is sourced externally through various partners and suppliers. This means, in order to increase innovation, organisations need to better understand their supplier capabilities by tapping into the skills and knowledge base which will help to drive the business forward.

Despite organisations having access to this supplier information, many don’t use it. In fact, most organisations typically don’t get out enough to explore new ideas from their suppliers. They would much rather keep the innovation and creative thinking in-house with the marketing or planning department. Capgemini research on Supply Relationship Management reveals 60% of procurement departments do not interact with their suppliers through any source of social medium. This signifies a considerable amount of potential for growth and shows that resource is going to waste.

The report also found a severe lack of supplier relationships within organisations, with only 16% of Capgemini’s respondents having a corporate strategy and process in place to manage supplier relations. These organisations are failing to utilise the knowledge of their suppliers, resulting in missed opportunities to discuss new strategies or possible product ideas.

Lack of scalability limiting collaboration

The barrier to working alongside suppliers and putting processes in place is often due to a lack of scalability, with too many organisations collaborating via email or verbally with a handful of existing, strategic suppliers. By digitising supplier engagement, collaboration can scale across more suppliers and products for greater overall benefit. Poor technology adoption is a common barrier. Forrester research previously found that over three-quarters (82%) of organisations switched or are considering switching technology providers due to poor level of supplier onboarding (30%) and poor user adoption (27%). This has prevented suppliers from easily communicating with procurement teams or even bidding for contracts.

It is impossible to unlock innovation if the means are not provided to help suppliers get involved with innovation initiatives or suggest ways to sustainably cut costs or improve designs.

Currently, there are organisations that use recognition and collaboration to develop highly effective supplier relation programmes. General Motors (GM) are known forfrequently praising suppliers who have excelled or have a successful collaboration with GM to produce innovative technologies through their supplier programme. This system has helped GM to promote innovation and incentivise suppliers so they can feel rewarded and motivated to share their latest ideas and breakthrough technologies. Organisations that have a supplier relationship management programme in place are able to efficiently measure target outcomes, which promotes continuous improvement in collaboration with their suppliers.

Building a supplier ecosystem to foster innovation

In order to strike a fair balance between cost savings and other objectives such as sustainability and new product development, organisations need to move away from their cost-focused approaches and must instead adopt an entirely new way of managing their suppliers. It’s time for a more measured approach to supplier management, one that will help enterprises focus on diversity and innovation, and which will ultimately encourage sustainable cost savings driven by the supplier rather than the buyer.

However, this will be impossible to achieve without a reliable data foundation, to help organisations make accurate and informed decisions and weigh up their options effectively and accurately. By implementing smart procurement technology to clean up supplier data from multiple sources, organisations can gain 360-degree visibility across the entire supplier base. This will help to unlock a wealth of insights into contracts, orders, and invoices, as well as detailed information on suppliers such as risk factors, relationships and performance evaluation.

Organisations under pressure to innovate at speed can utilise this visibility to build deeper, more meaningful relationships with suppliers, allowing them to collaborate to create sustainable cost savings while also creating new products and services to satiate demand. As the speed of innovation increases in the future, savvy organisations must ensure that conversations about cost don’t become a barrier; otherwise, they risk more savvy rivals utilising their supply chain to rapidly deliver new products to market, leaving those that don’t in their wake.

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