Capturing supplier innovation

Four Pillars Supplier Management

Capturing Supplier Innovation

Retaining your company’s competitive advantage in the
face of global financial meltdown is becoming increasingly
challenging – and the pressure is not about to relent any
time soon. If businesses are to survive this latest wave of
competition, then they have to put continuous
improvement and innovation at the core of its relationship
management practices.

Customers’ value expectations have been raised and will
continue to rise at a pace that is often faster than
suppliers’ ability to respond to those but, a positive take
on this is that such pressure is providing a visible spur to
many companies as they strive to improve all aspects of
their operations.

It may be a cliché to suggest that the UK is renowned for
its record of technological breakthroughs and its famous
innovators and, although all clichés have a grain of truth
underpinning them, the notion of a lone individual – the
great inventor with a pioneering spirit – is receding into
history. Today’s innovators are each and every leader
and employee in all the companies established and being
conceived of, right here and now.
This innovation goes beyond the boundaries of the organisation. Today the idea that companies can work
together in an integrated way to manage their whole supply chain has become firmly established, with the
exemplar (despite Toyota’s recent difficulties) still being the Japanese automotive model. Supply chains
or networks of companies compete with each other, rather than individual companies fighting over a fixed
pie. Indeed, we continue to see calls for greater collaboration between companies as a means of improving
competitiveness and shared business success. This has spawned an increasing interest in supplier
(relationship) management (SRM) as the means in which business critical suppliers are targeted for
intensive value improvement effort, but in a spirit of trust and collaboration.

Focusing on improving functionality, utility and value of products and services to end-customers is
becoming a shared responsibility of all participants in the supply chain as businesses attempt to tap into
the knowledge, skills, ideas and energy of every employee. Whilst it takes a special kind of leadership to
create an inspiring working environment full of passionate team players, generating the same enthusiasm
and commitment outside the boundary of the organisation (i.e. amongst suppliers) requires the specialist
skills of the SRM professional. Convincing suppliers that the zero-sum paradigm (that may have existed
(c) Four Pillars Consulting Limited (2010)

for decades between the firms) is capable of being replaced by a more collaborative model, requires great
skills in relationship management, selling, project management and leadership, all with more than a slice of
persistence, passion and integrity.

w: www.fourpillarsconsulting.co.uk
t: +44 (0)121 3731797 Helping Companies Negotiate and Manage Critical Relationships
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Greater collaboration between companies operating in a given supply network typically manifests itself in
several ways; technology sharing, suggestion schemes designed to stimulate the creation of ideas,,
outsourcing programmes and, perhaps the most significant, involving suppliers at the earliest stages of the
design process. Whereas once it was the norm to find the buying company’s designers creating final
specifications before circulating them to potential suppliers via a much-maligned Procurement department,
the supply chain practices of supplier assessment and relationship management are bringing now pre-
selected suppliers into the company to work with those designers from the get-go. In forming multi-
functional/multi-company teams, designers are optimising the design process and removing cost before it
is built into the final specification. In sectors such as pharmaceutical, where the time-to-market of a new
drug is a vital component of success, having suppliers collaborating closely and early on with the buyer’s
designers in R&D has become a necessity.

External suppliers are usually experts in their field, having access to knowledge and well-conceived ideas
borne of operating with a variety of customers, often in differing sectors. Companies such as Tesco
recognise routinely benchmark their activities against a wide range of organisations. Research in the USA
over recent years has brought understanding to the differentiated supplier management practices of
competing auto assemblers, showing strong correlation between SRM approaches and corporate success.

Creating relationship governance structures that proactivity and systematically tap into that supplier
expertise will help buying companies institutionalise the innovative and shared destiny thinking needed in
the increasingly competitive and uncertain business environment.

Suppliers’ own technology investments are usually particularly focused and targeted, designed to give them
a competitive advantage in their own field and, for the proactive SRM professional, these offer opportunities
for the buying firm to outsource non-core activities to those better equipped to provide them. These more
capable, specialist service providers, have become an essential component for any organisation aiming to
provide its end-customers with services and products that satisfy and provide sustainable revenues.

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Working closely with suppliers is not without its challenges however. Overcoming years of mistrust and
frequent opportunistic and adversarial behaviour requires a passionate focus on the needs of those end
customers. By demonstrating commitment to those customers and tackling the hard issues associated with
providing them with greater value, gradually relationships can improve and the pace and depth of
collaboration between customer and supplier can result in a genuine partnership. Recognising that
suppliers are a genuine source of innovation and competitive advantage for the buying firm, and not simply
servant to the buying firm’s ‘master’ role, is a real paradigm shift enjoyed by the world’s most successful
organisations.
A recent survey concluded that up to
40% of the value available from suppliers
remains untapped as most buyers lose
interest in the relationship once the
contract is signed. Capturing that value
in a proactive way is now a hot agenda
item for many buying organisations and,
in troubling economic times, this is even
more an imperative for businesses
looking to prosper. There are some
buyers out there already doing this well.
Nevertheless there will be many others
reverting to competitive tendering to
secure short-term savings. The most
visionary will be secure in the knowledge
that they have identified the critical few
suppliers and will be committed to
continuing their value-capture work and
ride out the economic storm with the
relationship intact.

What is certain is that proactive and expert leadership, underpinned by top class interpersonal and
technical competencies in supplier relationship management, is becoming one of the core business skills
required for a successful business career..

This article is an edited version of that which appeared in the UK Design Council book ‘Innovate For
Growth’
Author; David Atkinson

For further information please contact Four Pillars at www.fourpillarsconsulting.co.uk

Office: +44 (0) 121 373 1797
Anytime: +44 (0) 7946 562 927

m:+44 (0)7946 562927

Capturing supplier innovation

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