Supplier Innovation: Fact or Fiction?

 

chair photo

This week, I am inspired by an article in the McKinsey Quarterly, Google at Work’s Atmosphere webinar and a chart tweeted by HBR. All focus on innovation and I highly recommend that you read and view them (after you read my blog, of course). Innovation is exciting and we’ve all heard and read about innovation from suppliers, but here’s a sad fact: While almost any CPO will commit to capture supplier innovation, very few have the process and capability to do so. So what are the essential elements that drive supplier innovation?

Many of the companies I have studied still place procurement’s priority as driving prices down, extending terms and managing a series of tactical relationships. None of these practices are a recipe for creating more strategic relationships that provide innovation, investment, mutual benefit and interdependency to excel in the supply chain. Effective supplier relationships are founded on a sound strategy, planning, commitment, trust, joint effort, investment and significant rewards for everyone involved in driving innovation. You’re probably thinking, “Sure, Bill, I’ll start doing that today.”

Innovation is a company-wide, complex endeavor requiring cross-cutting practices and processes to structure, organize and encourage it. The same could be said for supplier innovation; it’s hard and few supply organizations have developed the capability to capture innovation. There’s no magic formula and definitely no prescriptive flowchart that works for every company. There are great examples of success that we can learn from. One great, successful process to capture innovation is Roche/Genentech’s Supplier Relationship Center where suppliers and researchers reside to develop breakthrough projects leading to new products, processes, cost and value enhancement from which both parties benefit.

While it’s difficult for many companies to develop innovation centers, it is feasible to develop a supplier innovation fair. I had to do this in my career when my company built a product without supplier input. When the product failed, we realized that there was an opportunity to learn and get help from suppliers. The product had hundreds of components, so we created a display of all sub-assembles and parts for the entire product and invited suppliers to review the product. For any supplier identifying innovative ways to redesign, cost reduce or improve the product, we agreed to give them business for several years. The result was about 250 ideas of which 62 were implemented, driving a better product, more efficient manufacturing, lower cost, improved warranty issues and new suppliers. A supplier innovation fair is a simple process that requires top management commitment, technical expertise, manufacturing knowhow and open mindsets. There must be a dedicated cross-functional team to review the ideas. One key to success is quickly reviewing the ideas with feedback to the suppliers, who need to dedicate expense, resources and effort for your company’s process. Companies fail at innovation if they never acknowledge the supplier’s effort, ideas and provide quick feedback. Suppliers will make investments if they are rewarded and treated with respect.

Supplier innovation is real if you get a management mandate, create a process, involve a cross-functional team to commit to the process, provide suppliers with incentives to support the program AND learn how to ask questions. Like Tim Brown, co CEO of IDEO said in the Google at Work webinar, start with a question, not an idea. Ask the question, then explore the idea. Frame the question in the right way; to steal Tim’s example, don’t ask “how can we change this chair”, ask “how can we sit differently to make our conversation better.”

Supplier innovation is possible. To achieve it:

“the funny thing is we actually banned the word “supplier” from being used at the center. We are partners, working together, trying to bring success to both our organizations.”Clive Heal, Roche GPP Innovation Center of Excellence Team Leader

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