My assumption for those interested in this topic is that you have the basics of supplier management covered and are looking to move up the value creation curve.
Nevertheless, if you do not have those foundations in place, read on. Supplier innovation is not the exclusive domain of the mature, well-funded, large organisations. It is something most organisations can do from day one with the right innovation model in place.
So without any further ado, here are three models for achieving supplier innovation.
Model 1 – Closed innovation model
The method here is similar to the RFI/RFP route where buying organisations put a challenge to the market and suppliers respond with their best solution.
There is little or no transparency between the organisations and consequently the innovation achieved here will be incremental improvements on that which is commonly available.
Model 2 – Semi-Open innovation model
This uses the innovation day method. Buying organisations again prepare their list of requirements and challenges but this time invite suppliers on-site in a controlled environment to see some of the behind-the-scenes.
The increase in transparency enables suppliers to suggest innovative changes to create new value. While the alignment is more co-dependent, the relationship remains one of win/loss with each party seeking to gain advantage.
Model 3 – Open innovation model
A fully open model is one where buyer and supplier work hand in hand the mutual advantage. This is a win/win relationship, the competition no longer being with one another but with the market.
The method deployed here is innovation centres in which both parties invest personnel and time to seek break-through innovations that change their market landscape.
Comparing the models
As openness (trust) increases, so too does the innovation premium attainable. Trust can be perceived as a ‘soft’ and imprecise relational transaction but it can be facilitated by correct legal structures offering appropriate protection to both parties.
Once the legal instruments are in place, the working mechanisms can be established. Each mechanism corresponding to the level of openness that is desired.
This may be a brief synopsis of the supplier innovation topic. Even so, the intention is to offer food for thought in application. Where first forays are considered, the closed model gives practitioners the opportunity to gauge supplier appetite.
Next steps would be to progress towards a semi-open methodology using specific challenges and objectives as the subject matter upon which to engage selected suppliers. Of course, the invitation might be open to all and that in itself offers a platform for identifying new approaches to old problems.
As the buying organisation matures towards being open to supplier innovation, so too can the model mature to one of closer engagement with key suppliers, and the ability to enact structures that facilitate an open innovation environment in which to pursue break-through moments.
Supplier innovation is being used as a strategic advantage by the world’s leading organisations in every sector. Whether it is possible or adds value is no longer the question. The question is whether your organisation will be at the front or the back of the line with your supply base.
Grant Watling is a Principal Consultant at HICX Solutions advising fortune 500 companies how to optimise their supplier management from master data vision, strategy, governance, policy, process, organisation and systems, through to relationship, development and innovation.