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The widespread inventory glut has left many companies drowning in obsolete products, prompting many to refocus their efforts on innovation to keep their portfolios fresh.
As companies struggle for market share in the face of dwindling consumer demand, a new product can be a great differentiator from the competition. McKinsey found that across all industries, more than 25% of revenue and profits come from new product launches.
However, innovation is not a single activity and requires collaboration across your supply chain. Your suppliers in particular have exceptional resources – they are experts in their market areas and know the latest trends.
Here are four reasons why you should partner with your suppliers in your innovation efforts.
1. Improve cost optimization
Material costs have skyrocketed in recent years due to higher demand and tighter supply. Higher costs can derail product development efforts before they even begin.
Include suppliers in your plans as early as possible. They can help reduce costs by suggesting alternative materials or different designs to keep prices down.
For example, contractor PCL worked to help a client reduce construction costs by proposing alternative designs. The money saved can flow back into the financing of the entire company growth.
2. Reduce time to market
Suppliers can help expedite research efforts, which in turn can often help bring new and innovative products to market faster.
IBM partnered with Germany-based chemicals company Evonik in 2021 to use the tech giant’s AI algorithms to discover new materials for products. The company will use the tech giant’s AI algorithms to refine formulas and cut the research process from years to months.
External innovation from suppliers also helps companies better manage time and resources, allowing companies to focus on other core areas.
3. Become a desired customer
Businesses may be reluctant to partner with their suppliers as this often involves sharing proprietary or highly sensitive information with suppliers. However, the leap of faith can lead to a lifelong relationship with your supplier that could be beneficial in other ways later.
Strong supplier partnerships support brand building and win new customers. More importantly, you gain a trusted partner who can prioritize your orders or provide other benefits in times of disruption.
Nearly all major companies have publicly committed to pursuing more sustainable sourcing options and reducing greenhouse gas emissions by eliminating plastic or finding more renewable materials. However, many large companies are struggling to meet these ambitious goals, demonstrating an urgent need for product innovation and collaboration.
Partnering with suppliers can help companies unlock new innovations that advance sustainability goals.
Unilever, for example, partnered with carbon recycling company LanzaTech and manufacturer India Glycols in 2021 to produce a recycled emissions washing capsule. The CPG giant has a partner ecosystem of more than 56,000 that has helped advance goals related to sustainability.
To bring a partnership to life, procurement teams should form a cross-functional department defining priorities and deciding on the right combination of tools. The investment could help your business stay ahead of the competition.
Praveen Kumar Soni is Procurement Manager at Colgate-Palmolive.
This story was first published in our Procurement Weekly newsletter. Sign up here.