Supplier Innovation Can Help You Grow and Profit

June 2, 2022

Survival in a competitive environment requires innovation. Many businesses are constantly looking for new products, processes, and services to offer their clients, as well as improving the ones they already have. 

Even if R&D is a sound strategy, it is not without risks and difficulties. Internal projects, for example, can be more expensive to sponsor, and extended time to market for internal development can lead to missed chances. 

So, how can you save R&D spending while still achieving innovative success? Identifying external sources of innovation to supplement, expedite, and/or lower the expenses of internal R&D is one realistic alternative.

What advantages does Supplier-Enabled Innovation provide?

Working with suppliers to drive profitable growth is what supplier-enabled innovation is all about. Customers can profit from supplier-enabled innovation by leveraging the important knowledge and capabilities of suppliers who may have a stronger understanding of the market in their own areas of specialty while also being familiar with their customers’ businesses and strengths. 

Supplier-enabled innovation has the following advantages:

  • Developing new and improved items in a shorter period of time
  • Internal product development expenditures are reduced.
  • Profits are higher, and time to market is shorter.
  • Use Intellectual Property to accelerate market momentum by co-developing and co-owning it.

Suppliers can work with clients on innovations in a variety of ways, providing benefits that are often faster, better, and less expensive than domestically created innovation. The capacity to successfully collaborate on innovation with suppliers can be a competitive differentiator and crucial success factor.

Best Practices and Challenges

Successful supplier-driven innovation is difficult. Supplier-enabled innovation necessitates a cultural transformation for many businesses. Some of the adjustments required for supplier-enabled innovation success in procurement go against the cost-out philosophy of everyday purchasing. 

The customary cost pressures that occur during negotiations and ordinary day-to-day talks must be mitigated to encourage suppliers to collaborate on innovation. Cost reduction pressure and procurement efficiency should be prioritized over creating value and profit for both the client and the supplier. 

If cost is the only consideration, the supplier may never feel comfortable partnering, and the process may be delayed or fail altogether.

Procurement must also help suppliers realize how investing time, money, and effort in co-innovation can benefit them. Suppliers’ primary motivation is frequently to gain a larger share of existing business, which Procurement can influence, particularly if rates are lower than market rates and supplier consolidation potential exists. 

However, before a customer jumps into supplier-enabled innovation, it must first get its own house in order.

Here are some best practices that a customer should implement before moving forward:

  • Companies must create or promote a culture that encourages innovation and supplier collaboration in general.
  • Customer-friendly methods are required.
  • Customers must make the benefits of engaging in pilots and innovation evident to suppliers.
  • Before beginning collaborative product development with suppliers, design and implement innovation procedures.
  • Suppliers who participate in innovation should face reasonable risks and benefits.
  • Procurement and R&D may require training and education to better understand their roles in the collaborative process with suppliers.

Customer-Supplier Relationship Development:

Firms must identify and select promising cooperation suppliers with capabilities that match their customers’ innovation requirements. Many companies employ supply base segmentation to find suitable supplier innovation partners, taking into account information from supply management, R&D, and other departments. 

After discovering and approaching suitable partners, a corporation can begin to deepen connections and capabilities:

  • Develop suppliers with the ability to collaborate.
  • Increase your openness and responsiveness to potential mates.
  • With potential supplier partners, use a cooperative rather than a hostile attitude.

Tools to Aid Supplier Enablement

When it comes to supporting supplier-enabled innovation processes, supplier enablement technologies are also highly effective. 

For example, the capacity to electronically search through the supplier base to identify collaboration candidates helps improve supply base segmentation, and electronic tools can help manage both the relationship and the product development process.