Leveraging supplier innovation can deliver earnings growth of 10%

Leveraging supplier innovation can deliver earnings growth of 10%

A recent survey by McKinsey has revealed that organisations able to tap into supplier innovation can boost earnings growth by as much as 10%.  


The key is collaboration. The study of over 100 large companies found that companies that regularly collaborated with suppliers demonstrated greater profitability, higher growth and lower operating costs.  


Appreciating the value of supplier innovation  


Thinking of your supply chain as a ‘value chain’ is a great starting point for making the most of your supplier relationships.  


Speaking to SupplyChain Digital, The Hackett Group’s senior procurement director Nicholas Walden explained the benefits for companies of leveraging supplier innovation. He said: 


“Statistics show that high innovation companies offer earnings (EBIT) growth at two to three times the levels of other more average companies. Other benefits include incremental revenue, profitability, lower costs, and other advantages in terms of service, quality, and features and functionality.” 


Meanwhile, Brandon Rael of Capgemini Invent believes that simplifying the collaboration model with suppliers can kickstart the innovation process. This can help organisations mitigate operating costs while driving growth that is both profitable and sustainable. He says: 


“One of the most significant advantages of leaning on supplier innovation is shifting the procurement mindset from cost optimisation to profit improvements. Collaborating with suppliers early in the innovation process provides capabilities that are not internally available, improves the speed to market, and drives product differentiation.” 


Rael also offers useful real-world examples of supplier innovation in action. These include beauty brand L'Oréal, which holds an annual ‘Cherry Pack’ exhibition to provide suppliers with new consumer trends as part of its collaboration process. P&G also splits its research and development processes 50/50 between in-house teams and suppliers.  


The first steps to kickstart innovation 


First and foremost, businesses need to identify their goals for innovation. For example, market innovation, continuous improvement or company innovation. A crucial question to answer at this point is how ready the organisation and its culture is for collaboration.  


The next stage is to identify opportunities to achieve these goals, and the supplier relationships which could prove most fruitful.  


The organisation can then build an integrated collaboration model which works well for both the company and their suppliers. Co-creation programmes need to be organised, governed and mutually beneficial.   


In time though, these programmes could turn into mini collaboration ecosystems involving academic/educational partners, startups and other partners far beyond first and second tier vendors.  


At every stage, tech can make a shift to a more innovative and collaborative approach much easier, as Brandon Rael explains: 


“Technology is a significant enabler and vehicle for innovation to drive the company and supplier collaboration model. Co-creation and product development cycles have become more accelerated and cost-effective by leveraging technologies such as AR, VR, and AI to reduce the traditional innovation timelines.  


“In addition, pilot programmes and the innovation cycles are further reduced to weeks/months vs. what used to take years of planning and execution.” 


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