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You want supplier innovation? Then demonstrate it matters

June 7, 2019

“Innovation was for the first time cited as a top-3 driver for more strategic and collaborative supplier management”, according to research by SRM consultants State of Flux. That observation is borne out by other studies and by the anecdotal evidence from executive statements and annual reports.

In fact, such statements are far from new. So the interesting point here is not that innovation is being sought, but rather that it still isn’t being achieved. And among the key reasons for that is the failure of organizations to really define what they mean and behaviors by Procurement and Legal teams that disincent supplier innovation.

An IACCM study of almost 300 organizations (public and private sector) confirmed ‘we want suppliers to bring us innovation’. Some were even clear that they would punish suppliers that failed to innovate. But reward them? Partner with them? Share in investment or risk? Oh no, we don’t want to take serious steps to help, seems to be the attitude. At best, if you innovate, you may receive follow-on business.

The study is revealing, in many ways fascinating, and it highlights scattered success stories from which we can learn and replicate.

Understanding goals

A fundamental question which many buyers appear not to consider is whether they are looking for an innovative supplier, or a supplier that will specifically innovate for them. The two are not the same and pose very different questions of selection criteria, incentives, risk allocation and relationship management.

For example, a custom innovation demands much closer collaboration, a readiness to share risk and clear evidence of buyer commitment to the process, which may include financial investment.

Today, a high proportion of contracts have an embedded innovation clause. The evidence suggests these have little or no value. Similarly, more and more organizations are developing Supplier Relationship Management programs, but these too are mostly ineffective because they are too narrow in their remit and authority. In particular, they tend to operate as oversight for ‘the relationship’ and see ‘opportunity management’ (if it’s considered at all) from a perspective of self-interest.

The IACCM report on ‘innovation and continuous improvement through supply relationships’ will be issued at the end of June, with a focus on identifying practical solutions, rather than just confirming that there is a problem.

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