SRM Series: #5 Capturing Supplier Innovation

Retaining your company’s competitive advantage in the face of the global financial meltdown is becoming increasingly challenging – and the pressure is not about to relent any time soon. If businesses are to survive this latest wave of competition, then they have to put continuous improvement and innovation at the core of its relationship management practices.

Customers’ value expectations have been raised and will continue to rise at a pace that is often faster than suppliers’ ability to respond to those but, a positive take on this is that such pressure is providing a visible spur to many companies as they strive to improve all aspects of their operations.

It may be a cliché to suggest that the UK is renowned for its record of technological breakthroughs and its famous innovators and, although all clichés have a grain of truth underpinning them, the notion of a lone individual – the great inventor with a pioneering spirit – is receding into history.  Today’s innovators are each and every leader and employee in all the companies established and being conceived of, right here and now.

This innovation goes beyond the boundaries of the organisation.  Today the idea that companies can work together in an integrated way to manage their whole supply chain has become firmly established, with the long-standing exemplar being the Japanese automotive model.   Supply chains or networks of companies compete with each other, rather than individual companies fighting over a fixed pie. Indeed, we continue to see calls for greater collaboration between companies as a means of improving competitiveness and shared business success.  This has spawned an increasing interest in supplier (relationship) management (SRM) as the means in which business critical suppliers are targeted for intensive value improvement effort, but in a spirit of trust and collaboration.

Focusing on improving functionality, utility and value of products and services to end-customers is becoming a shared responsibility of all participants in the supply chain as businesses attempt to tap into the knowledge, skills, ideas and energy of every employee.  Whilst it takes a special kind of leadership to create an inspiring working environment full of passionate team players, generating the same enthusiasm and commitment outside the boundary of the organisation (i.e. amongst suppliers) requires the specialist skills of the SRM professional.  Convincing suppliers that the zero-sum paradigm (that may have existed for decades between the firms) is capable of being replaced by a more collaborative model, requires great skills in relationship management, selling, project management and leadership, all with more than a slice of persistence, passion and integrity.

Greater collaboration between companies operating in a given supply network typically manifests itself in several ways; technology sharing, suggestion schemes designed to stimulate the creation of ideas, some outsourcing programmes and, perhaps the most significant, involving suppliers at the earliest stages of the design process.  Whereas once it was the norm to find the buying company’s designers creating final specifications before circulating them to potential suppliers via a much-maligned Procurement department, the supply chain practices of supplier assessment and relationship management are now bringing pre-selected suppliers into the company to work with those designers from the get-go.  In forming multi-functional/multi-company teams, designers are optimising the design process and removing cost before it is built into the final specification.  In sectors such as pharmaceutical, where the time-to-market of a new drug is a vital component of success, having suppliers collaborating closely and early on with the buyer’s designers in R&D has become a necessity.

External suppliers are usually experts in their field, having access to knowledge and well-conceived ideas borne of operating with a variety of customers, often in differing sectors. Companies such as Tesco recognise routinely benchmark their activities against a wide range of organisations.  Research in the USA over recent years has brought understanding to the differentiated supplier management practices of competing auto assemblers, showing strong correlation between SRM approaches and corporate success.

Creating relationship governance structures that proactivity and systematically tap into that supplier expertise will help buying companies institutionalise the innovative and shared destiny thinking needed in the increasingly competitive and uncertain business environment.

Suppliers’ own technology investments are usually particularly focused and targeted, designed to give them a competitive advantage in their own field and, for the proactive SRM professional, these offer opportunities for the buying firm to outsource non-core activities to those better equipped to provide them.  These more capable, specialist service providers, have become an essential component for any organisation aiming to provide its end-customers with services and products that satisfy and provide sustainable revenues.

Working closely with suppliers is not without its challenges however.  Overcoming years of mistrust and frequent opportunistic and adversarial behaviour requires a passionate focus on the needs of those end customers. By demonstrating commitment to those customers and tackling the hard issues associated with providing them with greater value, gradually relationships can improve and the pace and depth of collaboration between customer and supplier can result in a genuine partnership.  Recognising that suppliers are a genuine source of innovation and competitive advantage for the buying firm, and not simply servant to the buying firm’s ‘master’ role, is a real paradigm shift enjoyed by the world’s most successful organisations.

A recent survey concluded that up to 46% of the value available from suppliers remains untapped as most buyers lose interest in the relationship once the contract is signed.  Capturing that value in a proactive way is now a hot agenda item for many buying organisations and, in troubling economic times, this is even more an imperative for businesses looking to prosper.  There are some buyers out there already doing this well.  Nevertheless there will be many others reverting to competitive tendering to secure short-term savings.  The most visionary will be secure in the knowledge that they have identified the critical few suppliers and will be committed to continuing their value-capture work and ride out the economic storm with the relationship intact.

What is certain is that proactive and expert leadership, underpinned by top class interpersonal and technical competencies in supplier relationship management, is becoming one of the core business skills required for a successful business career.

By David Atkinson

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About David Atkinson

David has almost 30 years procurement experience in senior line management and consulting roles with a range of global organisations including Black & Decker, Lucas and Rolls-Royce. He has an MBA in Strategy and Procurement Management from the University of Birmingham where he is now a visiting lecturer. David trained in Mutual Gains Approach at Harvard Business School and holds other qualifications from Cranfield School of Management and London Business School. He a Fellow of the Chartered Institute of Purchasing and Supply (FCIPS) and holds the Diploma in Marketing from the Chartered Institute of Marketing (CIM).
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One comment on “SRM Series: #5 Capturing Supplier Innovation

  1. David, a great blog post.

    Here is my blog post on the ways to stifle supplier innovation http://blog.oldstlabs.com/nine-rules-for-stifling-supplier-innovation/

    Unfortunately I still hear and see too many of these stifling behaviours, rather the guidance you have outlined above.

    I wonder how many CEO see their suppliers ability to help their business innovate as a competitive advantage. With out executive support it must be hard to realise the true potential of supplier innovation can provide to a business.

    There is great video of Shell’s video talking about their approach to innovation partnering with their suppliers which posted on our blog. Surely it will be companies like Shell who will become a customer of choice and be in the best position to access and implement supplier innovation ahead of their competition.

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