Supplier-Enabled Innovation: A definition

By Tom Nagle

By Tom Nagle

23 March 2016

Supplier-Enabled Innovation (SEI) has the potential to revolutionize what chief procurement officers and their functions do, while, at the same time, provide a significant competitive boost to the organizations they serve.

The concept, at least, is simple. By tapping into the capabilities and innovations of suppliers, procurement is able to dramatically increase the volume of research and development work being done on behalf of their organizations.

Equally, for those industries and organizations that operate without formal research and development, it can bring new capability and solutions and innovative processes, approaches and methodologies that can have significant impact on the financial success of the company.

Internal stakeholders who are looking for solutions to relevant problems, or who are busy trying to gain market share, should be tapping into this asset regularly and systemically.

They rarely do, and if they do it’s far more likely to be ad-hoc, one-off engagements which are embarked upon to solve a particular issue at a particular point in time.

Procurement, however, has a significant opportunity to become the orchestrator of this activity, putting in place the required processes and tools that allow their organizations to remain permanently plugged in to innovations that emerge from the supply base.

Supplier-Enabled Innovation is the process by which procurement functions can systemize how they tap into this resource. It comprises of a combination of processes, tools and governance frameworks that when combined can take procurement functions to an entirely different level of value creation.

Procurement occupies a privileged position in that it can understand the needs of business stakeholders, has visibility of corporate strategy and, at the same time, has access to the capabilities and knowledge of suppliers.

Tapping into those suppliers is perhaps the single largest opportunity procurement has, especially when we consider that cost savings can’t be pursued year after year after year, and that advances in technology are meaning many of the more transactional elements of procurement are being automated and commoditzsed.

The reality, however, is that most procurement functions continue to be prescriptive with with the needs to the extent that they inhibit any opportunity for suppliers to be creative on their behalf.

Moving to the next level isn’t necessarily easy and there will be challenges. Internal clients may not be initially supportive; ownership issues surrounding intellectual property can arise and procurement functions may not yet have the right skills in the function to recognize, let alone promote, supplier innovation.

SEI provides a framework by which all of these challenges can be addressed.

Our 2015 Innovation Compass study revealed that about two-thirds of procurement executives believe supplier innovation is weaved into all parts of their work, and is an expected part of the output of all procurement staff. It was not, by itself, anything special, but rather a normal part of the procurement process.

“On the direct side our suppliers have extensive R&D organizations that work with our own to develop state of the art components, software and hardware,” said one head of procurement from the technology & telecoms sector. “Most of the time, the development is jointly funded and the technology rights remain with us. On the indirect side, we hold strategic business reviews with our tier-1 suppliers a few times a year. We ask the suppliers to bring innovation ideas to the table.”

An alternative view sees SEI as a specific program, a set of dedicated workstreams, where the business invests resources, monitors progress and builds the innovation output into organizational priorities. What’s interesting is that while two-thirds of procurement executives see SEI as a set of opportunistic activities; it’s the organizations for which those remaining third of procurement executives who see SEI as a systemic and formal approach that have the greater success.

In other words, SEI is a process, and not a mindset.

In short, SEI is the connecting, facilitation and galvanization of new approaches, processes and products within the business ecosystem through the formal mobilization of supplier capabilities and resources.

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