Former General Motors (GM) CIO Tony Scott was once quoted as saying, “GM is a very collaborative organization; We rely on a whole range of suppliers for everything we do.” They rely on collaborative innovation.
Our organization’s products, customers and profits are ultimately a by-product of the global supply chain networks that work every day to create value through collaboration. The complexity of global supply chains – especially in organizations like GM, often the elephant in the room – requires practical supplier relationship management to ensure that supplier collaboration leads to added value and innovation.
It’s nice to see that their former Chief Information Officer had enough perspective to see the importance of their suppliers.
Traditional notions of innovation are often that innovation should be driven by the internal structure of an organization (Olsson 2017). The resources/profits spent on the path to innovation are therefore borne exclusively by the internal unit. But in today’s globalized business climate, companies are increasingly dependent on external actors to jointly create innovation opportunities.
Supplier bases are a great source of potential innovation. However, to unleash collaborative supplier innovation, there needs to be clearly defined strategies and operations by a sourcing, procurement and/or purchasing team to ensure supplier competencies are at their full potential.
This article is intended to serve as a starting point for creating and/or enhancing collaborative supplier innovation. But first, let’s give the name a meaning!
What is collaborative innovation?
My favorite definition of collaborative innovation that I could find is as follows:
“Knowledge or products are created cooperatively by members of a virtual team that brings together diverse individuals and companies 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 sourcing and sourcing teams remember that the supplier is an equal party/partner in the collaboration. Without such treatment of a supplier entity, there will be no true collaborative innovation.
I want to offer four things a procurement team needs to know when innovating with suppliers.
So… are you ready to innovate?
1. Have an innovation strategy and stay focused
Establishing a clear understanding of strategy and goals for a collaborative innovation project will create a visualization of the finish line from the start. A focused innovation strategy keeps the processes between procurement and the supplier unit on course.
One of the most important parts of developing an innovation strategy, especially a collaborative supplier innovation strategy, is the segmentation of innovation priorities and parameters.
“To keep the company focused, leaders need to establish innovation priorities and goals for each of their product categories. For example, they could be segmented by product into the following categories: (1) Transformative, World First (2) Significantly New in the Innovation Category (3) Close-In-Line Extension Innovations (4) Productivity-Driven Innovation (5) Sustainability-Driven Innovation. Using more than two strategies for a product category leads to an unfocused approach” (Spend Matters 2013).
By mapping your innovation priorities, you can best allocate resource spend within your procurement team. Additionally, you will be able to categorize suppliers by product and capability into specific innovation segmentations and begin to locate/leverage the key supplier relationships to drive focused results.
2. Define goals and values
Your sourcing organization should strive to innovate together with suppliers who share similar business goals and values.
As mentioned above, setting innovation priorities can be a great way to segment your supply base into areas where collaborative innovation is most likely. And during the same segmentation, you should focus on finding key supplier relationships.
You need to establish a line of communication with these “more important” suppliers to build trust and communicate shared values. Working with suppliers who do not align with core company values can prove challenging or detrimental to brand equity.
End users love to see innovative products, but when you break a social contract with your customers by working with unethical or corrupt suppliers, you miss the point of collaborative supplier innovation.
3. Practice compliance, governance and performance evaluation
In order to build a solid relationship of trust with suppliers, you need to establish a give-and-take relationship. You must ensure that your suppliers are willing to share information upon initial requests, undergo assessments, welcome audits, and are open to assessment against predefined performance metrics (should include both hard and soft metrics).
Technological solutions have made supplier evaluation, governance and performance evaluation a leaner/simpler process. There are several supplier relationship management solutions on the market that make these processes more effective, allowing procurement teams to collect supplier data and engage suppliers in conversations they have traditionally been excluded from.
Suppliers should definitely be subject to RFIs, self-assessments, intermittent audits (to confirm responses to self-assessments) and evaluation of quality and performance. But during these compliance, governance, and assessment activities, your procurement team must remember that these suppliers are potential lifelong partners.
You deserve your procurement team’s commitment in the form of responsiveness, on-site visits, open lines of communication and trust. Designating specific managers for specific suppliers can increase the chances that an innovation project will be sustainable or long-term. When all is said and done, these are relationships, treat them as such.
4. Putting trust in the competencies of the suppliers
Your suppliers are experts in their field and you are most likely not their only customer. Communicate with your key suppliers and encourage them to create supplier-led innovations.
If your supplier is doing a production run and sees an opportunity to reduce costs, innovate materials, develop a complementary/new product, or similar, encourage them to explore the innovation. This is the true essence of collaborative innovation with suppliers; Creating opportunities for mutual gain and added value.
Close relationships with key suppliers enable your company to be a co-innovator instead of the supplier choosing another partner company.
If you decide to invest resources (time or money) in a supplier-led innovation project, just make sure there is a proper understanding of ownership. You should ensure that you create legally binding joint development agreements.
Ensure that “…a process is in place to protect intellectual property and build trust that successful innovation will result in equitable and timely benefits. Preferred customer status can be achieved through balanced and equitable approaches to intellectual property ownership” (Monczka et al. 2010)
Your innovation is only as powerful as the network of people who make it happen.
If you forgot everything else you read in this article, remember these 4 must-knows for creating collaborative innovation with suppliers:
1. Have a clearly defined innovation strategy
2. Define the goals of your innovation strategy towards your supplier. Make sure you work with suppliers who share your company values.
3. Ensure your suppliers comply with industry/organizational/international standards, are willing to be regulated and open to ongoing assessment.
4. Make supplier-led innovation a focus of your collaborative supplier innovation.
I ask again… Are you ready to innovate?