Supply Chain

How Procurement can help to drive Supplier-led innovation

Alex Saric, Chief Marketing Officer, Ivalua

In today’s competitive business landscape, consumers demand a continuous cycle of new products and services, and the gap between each launch is shrinking. This means companies are under more pressure than ever to innovate at pace. A business’s ability to develop and launch new products that meet customer expectations quickly and profitably is critical to overall success.

In parallel, companies have outsourced an ever-greater share of their business. As a result, the role of the supplier has grown in importance – for example, much of the innovation in the aerospace market comes from suppliers rather than traditional aerospace firms. Suppliers offer an excellent source of knowledge to help businesses rapidly innovate. This is shifting the balance of power in the business-supplier relationship, with the most innovative suppliers able to pick and choose who they work with.

Cost-focused approaches block innovation

However, all too often supplier relationships become transactional, where the primary focus is to cut supplier prices. This simply isn’t sustainable; as the collapse of Carillion last year showed, a relationship where suppliers are pitted against each other to reduce margins and lower their bids for unprofitable projects can have dire consequences. 

What’s more, these poor relationships limit the effectiveness of innovation, preventing organisations from keeping pace with end-user demands. As the reliance on suppliers and the pace of innovation rises, businesses need to prioritise supplier collaboration to build strong relationships and help fuel innovation, or they risk falling behind and losing out to competitors.

Our latest survey of UK businesses, conducted by Vanson Bourne, emphasizes these issues. The survey found that more than half of UK businesses (51%) say the number of products or services launched has increased over the last 12 months. Despite this, almost two-thirds (64%) of organisations still see supplier relationships as transactional, while 67% agree that the focus on cost reduction is blocking innovation.

Additionally, significant challenges remain for businesses who do want to collaborate more with suppliers; a lack of understanding around supplier capabilities (35%), security risks (30%), and poor data quality (28%) are cited as the biggest barriers to supplier collaboration.

Procurement is essential for organisations looking to build relationships

To overcome these challenges, organisations need to invest in supplier collaboration and take a smarter approach to procurement so they can better-identify opportunities to collaborate. Smart procurement software gives businesses a 360-degree view of suppliers, providing a deeper understanding of who they work with and which suppliers could help on each project. Moreover, it connects organisations to their vast supplier ecosystem – allowing them to collaborate in real-time without incurring any supplier fees and unlocking maximum innovation from their supply base.

As the demand for new products continues to increase, organisations need to be able to collaborate with suppliers and build long-lasting relationships. Procurement must refocus to foster, rather than block innovation. Not only will this allow businesses, in the UK and globally, to innovate at pace, but it also creates collaborative partnerships that generate more sustainable cost savings, rather than pressuring suppliers to cut prices. 

If you would like to read the latest report “It’s not all about the money – Why moving beyond cost can help UK organisations unleash supplier-led innovation”, please click here to visit the landing-page.

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