Building A Culture To Support Supplier-Leveraged Innovation

First published in the Sustainable Supply Views blog from EcoVadis

Procurement can be a key driver if the right resources, processes, incentives and metrics are established. Are you ready to engage your suppliers to unlock the value from them?

Closer Relationship With Suppliers
Increased competition, higher consumer expectations and shifting attitudes towards the environmental and social impact of products and services means that today, the development time is compressed, and the expected lifetime of a product is becoming ever shorter. This places heavy demands on the ability of your organization and suppliers to develop new products that are sustainable from the outset. That is why industry leaders are thinking about innovation as an integral and inseparable part of their supply chain and Sustainable Procurement approach.

Build Your Own Best Practice
As your company looks to boost it’s supplier innovation capacity, you should not just try to implement another company’s best practices. Each company has it’s own unique challenges. A critical success factor for engaging the suppliers in the innovation agenda is incentivizing and empowering suppliers to share innovative value creation approaches with their clients. To do that you will need a structured approach to supplier innovation. You will need to create a culture of innovation. The structures must be closely linked to the Supplier Relationship Management (SRM) approach and initiatives. Many companies struggle to find this balance in their supplier relationships and hence are not able to leverage the untapped value of their suppliers.

Ongoing Commitment
Supplier innovation should never be a temporary one-off action. It should never be something you initiate in reaction to an external factor, such as losing your market position to a competitor. Supplier innovation is a discipline that requires ongoing commitment. If supplier innovation is perceived as a project, then you will not be able to build skills.

To establish a good culture of innovation within the organization, it is important to have everyone’s participation. If your employees get into the habit of thinking that innovation is what others do, there is a risk that you will be missing out on a wealth of interesting ideas. So it's time to get everyone within your organization engaged in innovation - and for that matter your suppliers.
Companies that invest the time and trust in developing such strategic relationships with their suppliers realize long-term sustainable business benefits.

Survival Of The Adaptable  -- And The Most Innovative
Alan Day, who is the chairman of State of Flux technologies, have defined the following key questions on supplier innovation which you can use to check your own status:

• Have we defined what our organization regards as innovation? Is innovation limited to big ‘game changing’ ideas or does it include incremental improvements? There isn’t a right or wrong answer, only the answer that’s right for you.
• Are you happy and willing to receive innovations from your suppliers? Do you have the infrastructure in place to handle (evaluate, select and implement?) them effectively and efficiently?
• Do your suppliers understand your innovation process and have you educated them not to regard it as and expansion/deepening of your relationship, beyond just another sales channel?
• Have you defined a template that requires the supplier to complete a mini business case for the innovation? This will ensure it is focused on adding value to your organization and will aid the evaluation of these good ideas to see if you want to pursue them.
• Are you mature enough as an organization to admit you don’t have all the answers and are therefore prepared to receive innovation from your suppliers? This is a great way of expanding the collective ‘brain power’ on problem solving by using current and even prospective suppliers.
• Are you giving suppliers constructive and regular feedback? Completing the feedback loop from the customer, through your support/product org, and back to the supplier is vital to keeping the pipeline of good ideas flowing. Once this pipeline is blocked it will be extremely difficult to get it moving again.
• Are you able to share the benefits of innovation with your suppliers? While we appreciate that in practice this may be difficult, especially as it is often hard to calculate the exact impact of innovation, we believe you need to firstly accept the concept and then build practical mechanisms. Remember, sharing the benefit does not always need to be a 100% financial arrangement.
• Is your contract conducive to innovation? Look carefully at your IP clause and rather than claim ownership of all ideas / innovations, look at time bound exclusivity as an alternative.

Darwin’s words "It is not the strongest species that survive, nor the most intelligent, but the ones most responsive to change" have never been truer than in today’s business environment. The changing business environment demands such adaptation and innovation. Using the right tools to select and engage your top suppliers in a much closer relationship can lead to collaborative innovations that drive your next chapter of growth, sustainably.

Author: Alis Sindbjerg Hemmingsen
First published in the Sustainable Supply Views blog from EcoVadis

EcoVadis is the CSR rating platform for supply chains spanning 150 sectors and 99 countries of Global-500 enterprises like Verizon, Coca Cola Enterprises, Johnson & Johnson and 100 others. EcoVadis Scorecards make it easy to understand, track and improve suppliers’ environmental, social and ethical performance. www.ecovadis.com