Encouraging supplier innovation

Milan Panchmatia Blog, SRM 0 Comments

In a world dominated by increasingly tight margins and cost pressure, companies are struggling to deliver savings via some of the more traditional methods. Whereas in the past businesses could demand that their suppliers cut costs by a certain percentage on a yearly basis, in many mature sectors this is no longer a sustainable option.

In this context, a number of procurement departments have focussed on developing innovative new practices as a means of delivering growth. Implementing new methodologies and refining others has delivered a wide range of benefits, including better quality products, cheaper manufacturing, lower production times and many more. However, to examine the full extent of potential benefits, businesses need to turn to their suppliers.

Multiple benefits

Properly implemented initiatives aimed at sourcing innovation from suppliers have already given rise to many great success stories. Applying best practice, sharing tools, techniques and technologies, are just some of the ways businesses can improve the workings of their supply base. The process is not just one way, as suppliers are often able to contribute their own innovations. Unilever, for example, estimates that 70% of their innovations are directly linked to their work with strategic suppliers.

Ford also reaped the benefits of supplier innovation in 2012, when BASF developed a new resin which halved the cost of window trim for one of the company’s car models. The invention not only saved Ford significant costs, but also eliminated the need to transport parts between factories and reduced diesel fuel consumption by 2,700 gallons.

In some cases, businesses also benefit from their suppliers’ cross sector knowledge, or bring in third party consultancies to ensure a broader perspective. Insight gained in one sector can often be applied in another with significant results. A thorough understanding of suppliers’ cost drivers can also play a key role in unlocking mutual savings.

BT and the Better Future Supplier Forum

Amongst the companies leading the line in terms of supplier innovation is BT. The telecoms company launched its Better Future Supplier Forum (BFSF) initiative in 2012, with the objective of working with suppliers to deliver profitable, sustainable and mutually beneficial innovations.

The BFSF is divided into two parts. The first focuses on implementing best practice across BT’s supply base and the second looks to source innovations from participating suppliers.

When a supplier first signs up to the BFSF, BT will carry out an in-depth examination of the supplier and identify any areas of strength and weakness, as well as opportunities for improvement. The process is accompanied by training sessions focussed on tools and techniques which the supplier can use to improve performance. BT then helps suppliers implement changes, make savings and measure the benefits.

It is these benefits which encourage suppliers to invest in coming up with their own innovative solutions. BT also encourages innovation by getting suppliers to compete for its support. Suppliers can pitch to BT, where senior staff decides which projects to invest in. In addition, suppliers are awarded “BT sustainable supplier” status, depending on their performance.  This award can then be used by suppliers to promote their services.

The initiative is part of BT’s pledge to reduce carbon emissions. As its 17,400 suppliers account for 64% of BT’s carbon footprint, the telecoms giant is starting the process with them. To date, BFSF has resulted in BT reducing its carbon impact by 250,000 tonnes compared to 2011.

An array of potential benefits

The number of businesses encouraging supplier innovation in one form or another is growing and encompasses a wide range of organisations. GSK, for example runs the Supplier Innovation Exchange, a forum for suppliers to share ideas and best practice. The NHS also has a supplier innovation programme, which it uses to fast-track ground-breaking products to market. Two very different, but potentially very successful approaches.

When it comes to supplier innovation the fact is that if well implemented it represents one of the cheapest and quickest ways to impact a business’ bottom line. For that reason alone, companies need to begin working more closely with their suppliers and sharing the benefits.  In an economic landscape characterised by low growth, innovation often represents the best option for businesses looking to lead.

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