The only way continuous innovation is achieved in corporations today is by partnering with diverse suppliers who bring new technologies and new ways of approaching solutions.
By Wilfred Smith
Technology is almost synonymous with innovation today, though innovation can be triggered through other channels. For example, suppliers can collaborate with their customers to develop new sourcing options, but it is technology that is usually at the heart of innovation today.
Suppliers can develop new technologies as products and services; embrace advanced technologies to improve existing offerings or internal efficiencies; use technologies to develop solutions to customer problems; or collaborate with customers to accelerate the customer's R&D work.
In the last category falls supplier-enabled innovation (SEI) in which a business collaborates with a supplier to leverage the supplier's expertise and knowledge to achieve faster financial growth, faster route to market, more productive R&D, improved products and services, and a host of other potential benefits. SEI is a refinement of the supplier relationship management (SRM) principle in that it is primarily focused on producing innovation through external partnerships with suppliers. SEI gives suppliers a path to differentiating themselves among competitors.
Reaching into the Marketplace for Innovative Suppliers
Competition is intense. Products and services must get to market quickly and efficiently, and customers expect innovation.
Innovation has relied heavily on internal R&D processes, but companies are quickly coming to the realization they are missing out on new innovations generated by young entrepreneurs and small-to-medium sized suppliers that are agile and bring new perspectives that are more market relevant. Taking 10-15 years to get a new product or service to market is unacceptable. For diverse suppliers, this is a set of opportunities created by technology significantly shortening the time from idea to market.
According to the Institute for Supply Management (ISM), 55 to 65 percent of innovations are sourced externally, and they are mostly driven by business partners. Companies with advanced supplier collaboration capabilities show a higher percentage growth in EBIT over five years compared to peers when innovating regularly and systematically. Diverse suppliers can be partners who bring innovation to new or existing products, internal processes, and improved customer services, all of which are achieved through technologies.
Some large companies have already been using the diverse supplier partnership formula as a strategy to staying ahead of the innovation curve. Companies like Apple, Exelon and Merck & Co. rely on diverse suppliers to help them develop new products and bring state-of-the-art technical acumen. As the ISM points out, it has taken time for corporate clients to move to a new model in which external networks of partners, like diverse suppliers, are the main continuous source of competitive advantage.
Companies are now recognizing that innovation stagnation comes from using the same suppliers over and over again and not collaborating with new, smaller, and agile suppliers.
Technology is constantly changing, and it is important for corporate clients to find suppliers that can agilely adapt to corporate customers' technology changes and/or can demonstrate ways clients can utilize the technology to make the company more competitive.
Offering Gap Filling Innovation
Technologies are core to most business activities today, so corporations are particularly interested in strategic alliances and collaborations with diverse suppliers that bring new perspectives and either new technologies or enhanced utilization of technologies. Google, always the tech leader, launched a small business supplier diversity program in 2014 that approaches supplier diversity differently, and the goal is simple: access the innovation that small suppliers offer.
At Google, the procurement team does not make buying decisions. Instead, all Googlers are allowed to make purchasing decisions, so that innovations being developed outside of Google are noticed and included in the value proposition – integrating technology while also providing state-of-the-art digital services. The program has a number of features, including a collaboration with the Tuck School of Business, and it enables small diverse suppliers to compete with large suppliers.
Diverse suppliers that are tech savvy and adaptable have two important qualities that create opportunities. Technology is constantly changing, and it is important for corporate clients to find suppliers that can agilely adapt to corporate customers' technology changes and/or can demonstrate ways clients can utilize the technology to make the company more competitive.
This requires suppliers to always remain up-to-date on technologies used in the relevant industry – apps, software, mobile devices, and developing technologies like machine learning. A major opportunity for diverse suppliers is to find where suppliers are falling short in meeting customer or industry needs, and offer gap-filling ideas, services, and/or products.
It would be nice if all companies followed Google's lead and established supply chain processes that focused on embracing small and diverse suppliers. However, many supply chains are locked up with large suppliers that have held contracts for years. How does a diverse supplier get the attention of the right people? Signing up on portals is important as a first step, of course, but it is easy to become one of many. SMEs are now coming unto their own as suppliers that deliver innovation.
Following Bold Strategies
A good example is the semiconductor industry. Once an industry dominated by several large players, it is now much more competitive as smaller companies deliver the innovation and agility needed.
Suppliers once competed on offering the lowest price and high performance, but today it is more about developing chips for specific purposes, the data that chips can capture, and the ability to collaborate across the Internet of Things (IoT) value chain. Semiconductor companies must be able to partner with downstream companies, work flexibly with customers, and develop business models based on the value of the chips software and IoT services built into chips. While some companies are playing it cautious, there are others that have developed bold strategies for creating value for their customers and are developing the IoT capabilities and other features needed to succeed.
This is what it takes today to become an innovative supplier. Diverse suppliers must follow that same kind of strategy, but they have an advantage. Their ability to innovate by using technology can strengthen the ability to compete. There is no magic strategy and largely due to the fact that technology advances so quickly. However, know that diverse suppliers are increasingly in demand because they offer the insights into markets their customers need. Technology can drive those insights, product redesigns, process improvements, and more. Supplier-enabled innovation represents a set of opportunities for diverse suppliers as large corporations continue their struggles to generate continuous innovation that drives business in a global market.