5 August 2010 | Adviser Q&A
We would like to encourage innovation among our suppliers, developing new products and services together. What is the best way to achieve this and what are the potential pitfalls?
Senior buyer, Southampton
RONAN CARTER, sourcing director, Allergan
Encouraging the reduction of costs is relatively simple. You can ask suppliers to remove cost and complexity from their own supply chains, sharing some of the savings.
However, incentivising innovation is harder. Industry groups, learning from other sectors and soliciting ideas from your supplier base are key areas to innovate. To allow suppliers to do this, they need to be a business partner, understanding your strategic imperatives.
Invite them to strategy meetings, to meet your clients and to understand the competitive landscape. You need to incentivise idea generation. I have done this, particularly with marketing suppliers, by making idea generation a criteria within the payment by results remuneration. For a top score, suppliers are required to come up with three ideas per year, and have at least one of these implemented. Importantly, payment by results only works if there is a true gain share – the supplier gets an upside if they exceed expectations.
CHRIS GRAVES, head of procurement – services, Yorkshire Purchasing Organisation
No business has unlimited resources to innovate with suppliers. The key is to focus on those suppliers where the conditions are right for innovation – is the supplier capable, are they interested in you and do you trust each other?
Any prioritisation is best served through a structured supplier relationship management (SRM) programme. You may want to hold an “innovation day” where you solicit ideas for new products and services.
Once you have decided on the suppliers to partner with, a structured approach is needed to filter, focus and develop the ideas. Senior executive sponsorship is needed on both sides to ensure commitment, traction and early success to establish momentum.
Within the SRM framework, it may also be worth thinking about how to motivate the supplier, not only to come up with one killer idea but to deliver a continuous stream of innovative advantage to your business by putting in place financial incentives.
ASTRID BERKMAN, associate, EC Harris
There are three things to consider: commitment, collaboration and creativity.
You need commitment from your suppliers to dedicate people, ideas and time to innovate. In return they will expect your commitment that they will benefit – for example, profit share, public relations and references. Both parties’ commitments can formally be reflected in your contractual and commercial arrangements.
The joint development of new products and services requires collaboration between you and your suppliers as well as between your suppliers. Creating a common goal and an environment of openness will contribute to this.
Encourage creativity through innovation workshops using value engineering, benchmarking and looking what is done in other industries. Once ideas are generated and prioritised you can create virtual teams who will own an idea, design the solution, develop the product or service and test it.
Key points
• To be innovative suppliers need to understand your business
• Create incentives by offering financial reward for ideas
• Get senior-level buy-in from both your own organisation and the supplier
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✹ Please note: responses can only be given on this page, represent writers’ personal views and should be regarded as general guidance only. The adviser panel includes experts from a range of disciplines
