Procurement professionals like to refer to themselves as the “gatekeepers” of supplier innovation, but I’ve always thought this was a bit of a strange word choice. For me, a gatekeeper does two things: they let people in but they also keep people out, a bit like a bouncer at the door of an exclusive nightclub. Yet telling people, “I’m an innovation bouncer.” doesn’t have the same ring to it.
Although there genuinely are moments when procurement has to say “no” to supplier innovation (no budget, not the right time, etc.), it’s our job to coax innovative ideas from suppliers, convince internal stakeholders of their worth and begin the long task of nurturing those ideas through implementation.
Traditionally, innovation was thought to come predominantly from a company’s R&D team. The organization pumped money into research, the team came up with a prototype which was eventually commercialized into a viable product. But this approach seems to assume the organization exists in a vacuum and is not part of a wider ecosystem of interconnected companies.
Research from OECD found that firms “get their most significant ideas for innovative products, services, and processes from outside the business”; with one of the most important outside sources being your supply base. John Steen commented on the Discipline of Innovation blog:
“Instead of thinking about innovation as a chain where an idea gets developed from inside the firm and commercialized, the modern reality of innovation is that it is a knowledge ecosystem where innovations come about through new connections within and between organizations.”
Procurement is ideally positioned to create a valuable conduit of ideas that can flow from your suppliers straight into your business. But procurement also has the potential to be the department that, through mismanagement, reduces that flow to a trickle.
Let’s examine some of the ways procurement can be enablers of great ideas.
Four Ways to Drive Supplier Innovation
1. Recognize the value of suppliers beyond cost
Step one is to recognize and accept that your suppliers can offer value beyond price. This requires a shift away from short-term thinking to focus on long-term value creation. Supplier A may be the cheapest but Supplier B is known for being innovative. In the long run, Supplier B has the potential to drive a lot more profit for your organization through innovative products or cost-saving ideas.
2. Let suppliers know that you are interested in new ideas
Have you ever let suppliers know that you want them to bring new ideas to the table? This may come as a surprise to incumbent suppliers who have provided goods or services to your company for decades but would never consider that you might want something new. The key is communication. Raise the topic of innovation in your next supplier meeting and keep it on the agenda for all future meetings. Remember, innovation doesn’t always mean a shiny new technology; it may simply be a slightly better way of doing things.
3. Be receptive to new ideas
Supplier representatives are human, too. That means that if they’ve excitedly come to you with what they believe is a ground-breaking innovation but procurement shows disinterest or rejects the idea out of hand, they are very likely to be discouraged from presenting other new ideas down the track. Even if you aren’t able to implement a new idea from a supplier, it’s vital to be as receptive as possible. Ideally, you want the supplier to present new ideas to your organization first, before sharing it with their other customers, enabling you to seize commercial advantage.
4. Incentivize innovation
This is a tricky one. How can procurement incentivize supplier innovation? Essentially, this involves a focus on mutual value. Create a “win-win” environment for both your organization and the supplier if they bring forward an idea. Suppliers don’t want a situation in which they hand over an idea and the benefits flow in only one direction. For example, an incentive might be that the two organizations share the savings created through the implementation of the new idea.
So, whether you think of yourself as a gatekeeper or bouncer for supplier innovation, it’s clear that an important part of your role is to look for value beyond cost savings and help facilitate the flow of ideas into your organization.
Talk to Una about the game-changing power of group purchasing organizations.