supplier-enabled innovation series tools and process

INNOVATION COMPASS | 1

TOOLS AND PROCESS

SUPPLIER-ENABLED INNOVATION SERIES

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INTRODUCTION

EQUIPPING INNOVATORS IN THE SUPPLY CHAINUnless it has a process, it won’t happen. Innovation is no exception to this rule.

Many business mangers fall into the misconception that innovation is a natural occurring phenomena that bursts into all work areas. “If category managers are not doing innovation,” a CPO once said, “they aren’t doing their job right.” So there is often a hazy assumption that buyers will respond by meeting each business problem with an intensity of entrepreneurial attention that will meet each and every need.

This research debunks this claim. Having a robust innovation process is essential to squeezing the most amount of value out of new ideas. The ability to convert brainstorming sessions to impactful projects is the key differentiator between those companies who are leading the way and those who are trailing behind.

Moreover, sending buyers without the tools necessary to create effective innovation will weaken their efforts. Mobilising technology, suppliers and contracts is essential in generating more business value, but this requires investment and buy-in from the business.

David RaeContent & Community DirectorProcurement Leaders

THE ABILITY TO CONVERT BRAINSTORMING SESSIONS TO IMPACTFUL PROJECTS IS THE KEY DIFFERENTIATOR OF TRAIL-BLAZERS LAGGARDS.

8 | INNOVATION COMPASS INNOVATION COMPASS | 9

Regional breakdown

Job description

Industry breakdown

RESEARCH METHODOLOGY AND APPROACHINNOVATION is seen by many in procurement as the key to the function’s future as a value-adding, trusted advisor to the business. But many are confused as to the meaning of the word and the ways in which innovation is manifested.

When should a buyer look to innovate? What is the best source of ideas? With which suppliers should we innovate? What governance structures should be in place?

To answer these questions, we surveyed the Procurement Leaders community, a network of hundreds of leading companies and over 21,000 individual purchasing executives. Further to this, we held dozens of interviews to take an in-depth look into the practices of Supplier-Enabled Innovation (SEI).

Prior to this, Procurement Leaders developed a theoretical framework for SEI. This was co-created with the Procurement Leaders Advisory Board, as well as involving the input from the wider membership.

The framework has two central purposes.

First, to understand the levers CPOs are pulling to deliver innovation and gauge how proactive procurement is in company innovation. Second, to measure the output of the work being done by the function in this area.

Aside from these key aims, the research explores the changing environment in which procurement operates. Here we looked at expectations for innovation from customers and competitors as well as the perceived capabilities of suppliers.

As a more qualitative and focused project, we attempted to identify key companies within the Procurement Leaders community. In total, 58 companies took part in the project, and we conducted over 20 interviews with CPOs and other senior procurement executives focused on innovation.

These organisations came from a wide range of sectors and geographies. The responses came from the highest level of the function, with a large portion having the status of CPO. l

Fig 1: Supplier-Enabled Innovation study focus areas

Environmental pressures Supply and demand

Company innovation demand

Customer demand

Competitive landscape

Procurement capabilities

People

Procurement headcount

Talent investment

Staff

Training

Tools

Technology

Talent investment

Crowd sourcing

Contracting

Knowledge management

SRM / supplier development

Innovation centres

Components of sourcing plans

Process

Innovation management

Idea generation

Screening

Implementation

Procurement's role Procurement connectivity

Culture

Suppliers

Company stakeholders

Customer

Wider environment

Supplier capabilities Supplier capabilitiesSuppliers

Business plans

Innovation outputMeasured benefits

Operational efficiency

Risk reduction

Savings

Revenue

Idea generationNumber of total generated ideas

Number of new projects

USA

Telecoms & Tech

0

0

5

5

10

10

%

%

15

15

20

20

UK

Consumer goods

Switzerland

Manufacturing

Netherlands

Financial services

Germany

Pharma & healthcare

Finland

Primary and extractive

Australia

Energy & utilities

Construction

Sweden

Travel & logistics

Singapore

Public services

Denmark

Media & Entertainment

Canada

Business services

ABOUT THE STUDY

Head/regional head/VP

Global category manager

Regional category manager

Buyer

CPO/globalhead/SVP

40%

42%

5%5% 7%


THE RIGHTTOOLS FOR THE JOB

TO ACHIEVE innovation, CPOs must have the right tools in place. This doesn’t necessarily mean investing in elaborate IT packages, but rather equipping buyers with the right array of tools to meet a number of scenarios. These range from sourcing tools, to supplier-management techniques to technology. However, it is important to underline that innovation can emerge in many scenarios and must be encouraged as a part of normal day-to-day working.

TechnologyInvesting in technologies that can deliver innovation for procurement is one of the key enablers for the organisation’s Supplier-Enabled Innovation (SEI) potential (figure 1). In fact, it was the third most impactful lever in this study.

The types of technology tool implemented differ significantly between organisations. First, there are those that use off-the-shelf ERP products – such as Ariba or SAP solutions. The use of other standardised packages (such as Salesforce, Yammer or State of Flux) was also common. However, the most frequently used technology solution were those developed internally, including liberal use of spreadsheets and Microsoft Sharepoint. For the most part, these technologies were used to improve communication and project transparency.

Another strong connection between input and output lay in embedding innovation within supplier contracts (figure 3), to achieve enhanced cost savings, operational efficiency and revenue generation. The only area in which it was deficient was risk reduction.

In all other areas, including a stipulation that suppliers must provide a certain level of innovation, or a specified percentage of contract value in innovative activities can yield benefits to the wider organisation.

There was only a weak correlation between companies that include innovation components in their sourcing plans (figure 4) , although this did prove effective in delivering reduced risk.

Currently, the effectiveness of knowledge management systems doesn’t show a statistically significant impact on innovation output measured

in this study, although it seems likely that companies’ ability to effectively mobilise knowledge across teams is important (figure 5, page 30).

As people begin to use more flexible working hours and take advantage of remote-working opportunities, the ability to manage knowledge more effectively will become increasingly

TOOLS

Fig. 3: Inclusion of innovation in supplier contracts

Innovation requirements are stipulated in all supplier contracts

Innovation requirements are stipulated in some supplier contracts

Innovation requirements are stipulated in most supplier contracts

Innovation requirements are stipulated in a few key supplier contracts

Innovation requirements are not included in supplier contracts

14%

40%

30%

0%

16%

Fig 4: Inclusion of innovation in sourcing plans

All sourcing and category plans include a mandatory component on innovation

Innovation components are occasionally included in sourcing plans

Innovation components are frequently included in sourcing plans

Innovation components are seldom included in sourcing plans

Innovation components are not included in sourcing plans

20%

45%

20%

8%

6%

0%

Stronglydisagree

Disagree Neither agree nor disagree

Agree Stronglyagree

Fig. 2: Suppliers are very innovative

21%

8%

40%

31%

Stronglydisagree

Disagree Neither agree nor disagree

Agree Stronglyagree

Fig. 1: Large investment in technology

24%

14%10%

20%

32%


crucial for an organisation’s competitive advantage. This trend is compounded by globalisation, where many companies are now using technology to collaborate with colleagues across geographies.

Knowledge managementAnother area of increasing importance in the future, will be procurement’s ability to manage knowledge across the supply chain. Improving on- and off-boarding processes not only lowers switching costs, but ensures that any last drop of innovation potential can be squeezed from every supplier relationship.

One influential knowledge management tool is the SECI model (figure 6). This device explores the different dimensions of social interaction through which knowledge is passed. This starts with tacit-to-tacit interactions (the ‘socialisation’ phase); the type of knowledge which is passed via the shared experience

of social interaction. Second, is tacit-to-explicit (externalisation), where knowledge is developed through more formal channels, such as documents and publications. Third, is the explicit-to-explicit phase (combination) where knowledge is disseminated through formal channels, such as technical networks. Finally, we see the explicit-to-tacit phase (internationalisation) which is where individuals apply explicit knowledge to their own work, and, as such, it becomes part of their own individual knowledge.

It is by understanding and capturing all these phases of knowledge that companies can channel the innovation potential of their workforce and supplier base. This study, for example, yielded several instances where supplier summits were used, providing a forum for knowledge to be shared. But this is only the first stage of the process (tacit-

At URENCO, group head of procurement Alan Hartley has recently signed off on a platform he believes will help elevate the position of SEI within his company.

The cloud-technology tool illustrates, he says, that procurement is taking strategic supplier relationship management (SRM)

“very seriously” – something which he launched with substantial training on the academic side of SRM. “Now we’ve put the platform in as an enabler,” he says.

“A key component of that is the innovation module within it,” he explains. “You can create a project or activity around innovation,

and then have a mutually accessible portal which allows you to track the innovation in both organisations. It means a supplier can log an innovation and we can start to track it through if it’s something we want to take forward. And it means that even from a remote perspective, I can look at what’s going on within the supply chain.”

TECHNOLOGY: NUCLEAR CLOUD

apply these lessons to their network of strategic suppliers.

Utilising supplier capabilitiesAnother strong connection was found in the relationship between SRM/supplier development and innovation output

to-tacit). Providing an arena (perhaps on a technical platform) where explicit knowledge can be debated and analysed will be just as important. Creative CPOs will not only look to unlock the potential of the knowledge lying in the minds of their procurement team, but will also

TOOLS

THE SECRET TO GETTING MORE INNOVATION OUT OF SUPPLIERS IS EASY – JUST LISTEN

Socialisation Externalisation

Combination

TACI

T

TACITEXPLICIT

EXPLICIT

Internalisation

Fig. 6: The SECI knowledge-management model

Fig. 5: Use of knowledge management

Knowledge management is commonly used in a range of procurement activities

Knowledge management is occasionally used for a few procurement activities

Knowledge management is frequently used for key procurement activities

Knowledge management is seldom used for procurement activities

My organisation is not engaged in knowledge management

12%

29%

31%

27%

0%

Fig. 7: The use of SRM / supplier development

SRM is commonly used in a range of procurement activities

SRM is occasionally used for a few procurement activities

SRM is frequently used for key procurement activities

SRM is seldom used

No SRM is used in my organisation 2%

27%

37%

27%

8%


(figure 7). The stronger the connection procurement has with suppliers, the bigger the impact on innovation output.

Most respondents believed that suppliers have the potential to bring innovation to the table (figure 2, page 29). Yet suppliers were the least connected of all of procurements’ partners. There is a missed opportunity between supplier potential and procurement capability. What explains this weakness? For one CPO in manufacturing, the answer is simple: “The secret to getting more innovation out of suppliers is easy: just listen.”

Essentially, procurement must provide an environment by which suppliers feel confident and empowered to volunteer answers to problems and develop a lasting partnership. Innovation does not necessarily need to emerge in formal meetings, but procurement must develop a wider range of channels (including technical means) to facilitate

the intra-organisational flow of ideas.

To deliver this, there needs to be a level of trust. We heard from many CPOs who said that some suppliers feel reticent to advance their ideas, fearing that buyers will not respect their intellectual property (IP). As such, for any sort of innovation exchange, there needs to be a high level of trust. A key means to develop this trust is to commit to a long-lasting relationship and give the supplier visibility of product pipelines and strategic plans.

Supplier summitsWithin many organisations, the practice of bringing a group of suppliers into a single session is seen as an effective means to deliver innovation. The shared capabilities of many suppliers around the table can provide novel solutions to long-standing problems faced within the company. It can also be an excellent means to engage with stakeholders

One of the most important findings to come out of the research is that the role of procurement must change. CPOs must see themselves as enablers rather than gatekeepers and as facilitators of discussion between the supply base and internal business functions. In short, procurement has the ability to match capabilities in the supply base with needs in the business. But, this is no easy task – not least because of the sprawling nature of most global businesses.

To help keep track of supplier ideas and suggestions, and to ensure they are logged rather than lost, some organisations resort to Excel, some to Sharepoint and others to a combination of both. But at Johnson & Johnson Consumer, Karina Larsen O’Halloran, executive director, head of global innovation sourcing, has moved beyond Sharepoint to a cloud-based platform.

“What we found is that suppliers don’t know who to go to – they bring their ideas and they get completely lost and also they’ll have 10 teams that will try different avenues and you’ll have 10 teams evaluating the same thing,” said Larsen O’Halloran. By using a cloud platform as a way to keep track of new supplier approaches and technologies, she is now able to commit to a response within two weeks, whether the company is interested in taking a project forward or not.

The other tool Johnson & Johnson has invested in is telepresence and video conferencing, to help facilitate more regular and meaningful catch ups with strategic suppliers. “When the teams work together, the scientists can have video meetings rather than sitting on a conference call,” she said. “It helps all of us.”

TRACKING INNOVATION IN THE CLOUD

Fig. 9: The use of crowd sourcing

Crowd-sourcing platforms are frequently used for key procurement activities

Crowd-sourcing platforms are commonly used in a range of procurement activities

Crowd sourcing platforms are seldom used

Crowd-sourcing platforms are occasionally used for a few procurement activities

No crowd sourcing platforms are used 57%

4%

23%

12%

2%

INSIGHT: TOOLS

Having the right tools is essential for an organisation looking to become more innovate. These range from supplier-management techniques to technical systems. In terms of managing suppliers, be more creative in the types of inter-actions you have with a wide range of suppliers. Not only strategic suppliers produce innovation. Be open to innova-tion from all sources – even non-critical suppliers can produce process innovation.

TOOLS

FOR ANY SORT OF INNOVATION

EXCHANGE, THERE NEEDS TO BE A HIGH LEVEL OF

TRUST

Few suppliers

● Define a specific and clear business problem

● Pay suppliers for their participation

● Clear ownership of IP for buying organisation

● Few dedicated suppliers to attend multiple sessions.

Problem-solving

Many suppliers

● Multiple suppliers to openly discuss issue

● Brainstorm issues

● No IP-sensitive discussions

● Workshop an industry-wide problem (e.g. new standards)

Brainstorming

Fig. 8: The different types of supplier summits

and allow internal customers to liaise directly with third-parties.

However, we encountered a lot of scepticism about the return on investment from these days. Many questioned suppliers’ openness in front of competitors, while others argued that the loss of IP in such sessions could threaten the competitive edge of their organisations. The answers to these issues depend partly on appetite for risk and partly on strategic plans. One consumer goods company, for instance, took the view that speed to market

trumped IP loss, and attempted to keep these sessions as free-flowing and open as possible to maximise the number of ideas produced.

Another of the organisations we spoke to had a dual approach (figure 8). In cases of industry-wide change (such as legislative, technological or other disruptive shocks) multiple suppliers are brought in to brainstorm ideas, resulting in a large number of third-parties tackling a shared issue with no overt IP loss.

Where a challenge is more defined,

the company brings in a small number of select, specialist suppliers to enter a re-iterative process to develop a solution over a longer-period of time. In such examples, suppliers are paid for their involvement, and IP is clearly under the ownership of the buying organisation, but it provides a more targeted solution to specific challenges. On top of this, such events don’t need to be entirely public.

In one electronics company, supplier days involved a mix of plenary sessions where all suppliers were invited to discuss an issue. But interspersed throughout the day, one-on-one meetings were organised to provide a channel for suppliers to express more sensitive issues directly to the buyer.

Crowd sourcingOf all the tools we explored, crowd sourcing (figure 9) had the weakest impact on innovation output – in fact, we even detected a weak negative relationship. It is tempting to become caught up in the fashions of contemporary management, and crowd sourcing is certainly a more recent development, but the same hard-nosed approach to solving business problems must be engendered here. l


WHEN PROCESSMEETSINNOVATION

There is little point in trying to boil the ocean when it comes to SEI, and it’s why one category head from the food & drinks sector has taken up the supply innovation charge on behalf of his company. Being a brand-driven company, marketing is a hugely powerful function and packaging is, along with raw materials, one of the most strategic categories of spend. As a result, all of the company’s efforts when it comes to SEI are being focused in this area.

“We now have joint procurement, technical and commercial engagements with [our two biggest packaging] suppliers,” he explains. “This involves getting them on board to help document what our three-year innovation

journey should look like.”

He wants to formalise the engagements in order to develop more rigorous ways of working between suppliers, the regions and central teams. “We’ve had some good wins,” he says. “To the extent that our head of marketing is having direct one-on-ones with these suppliers.”

He describes a very different relationship where the vendors now spend a significant amount of time working on future roadmaps and innovation pipelines on behalf of his company – with no actual guarantee of future business.

CATEGORY-LED APPROACH

PROCESS

FORMAL PROCESSES are important to successful Supplier-Enabled Innovation (SEI) and this study found that procurement’s involvement in almost all steps of the innovation process yields enhanced levels of output.

In this research we focus on four factors: idea generation (often called ‘ideation’), idea screening (or the ‘challenge phase’), idea implementation and, lastly, the management of the entire three-step process (figure 1).

This study found that early involvement in these processes can deliver enhanced output. By facilitating the entire process, from providing frameworks, to participating in idea generation and screening, procurement can add value. It is only in the latter phases of idea implementation does the return on investment of procurement’s involvement wane.

Innovation managementOverseeing and managing the entire SEI process is a critical way for procurement to add value, as well as ensuring that the potential for innovation is maximised from the supply chain.

In this study, we see clearly that the more procurement is involved in the management of the entire innovation process, the higher the impact of SEI efforts. In fact, of all of the ‘process’ levers we explored, this is the single most impactful factor.

It is important to recognise that this does not necessarily mean the direct management of and involvement in these interactions by procurement. Rather, procurement should strive to provide a clear, documented process that encourages all stakeholders in the business to maximise the value of supplier relationships.Key here, first, is to scope the business need. This involves a close working

Fig. 1: The innovation process

Idea implementation

The innovation process

Ideation phase

• Cross-functional brainstorming• Seek middle-level involvement• Open, embracing atmosphere

Execution phase

• Idea roll out• Seek middle-level buy-in and compliance• Monitor implementation • Monitor results

Challenge phase

• Examination of ideas• Seek executive support

• Conversion into business proposal and project• Define ‘success’

Idea generation

Idea screening


Fig. 2: Idea generation

Try-Hards

Trail-Blazers

Average

Laggards

Chancers

Fig. 4: Idea implementation

Procurement executives generally agree that it’s pointless to open the gate too wide to ideas from the supply base – too many ideas and it can be difficult to move forward with the necessary drive and conviction to make them successful.

So, choosing between which opportunities to go after is a key decision. Adrian Cook, group head of procurement at Babcock International, described a process he has put in place which replaced a more complex approach to project selection. “As a function, we have an ABC principle,” he said. “A, is it a good idea to look at; B, should we implement it; and, C, is it working? With

our key suppliers – their ideas are lined up in exactly the same way,” he explained.

In this way, he said, the team is able to decide where and when to spend time and resource. “Should we spend it on an innovation with a supplier or should we spend it on a sourcing project? Well, we’ve got an absolute ranked list of those initiatives, so we can work out how to prioritise our time,” he said. “The key thing about it is its simplicity.”

But while simple, it is cross functional, rolls up and down, and is integrated with the wider business.

There is one issue that will always be raised when it comes to collaborating closely with suppliers, especially when innovation and new capabilities are concerned – intellectual property. Who ultimately owns the rights to a particular technology can threaten to derail collaboration efforts, or prevent them getting off the ground in the first place. At Johnson & Johnson Consumer, however, the conversation has moved beyond who owns the IP to focus on how both parties can benefit from a relationship.

“We used to file for IP for everything,” said Karina Larsen O’Halloran, executive director, head of global innovation sourcing at Johnson & Johnson Consumer. “We used to always want to have control of

everything, everywhere. I think now what we’re saying is that we’ll talk with suppliers to build agreements that say, for example, if we fail to commercialise in a certain period or if we drop out of the project, even if we own IP then they will have access to it and can use it.”

What’s interesting is that Johnson & Johnson is thinking about the supplier’s exposure and risk as much as its own. “It’s more a case of moving towards exclusivity,” she says. “And also allowing the supplier to use our IP with their own to go into non-competing territories, or other channels. The mindset within Johnson & Johnson at the moment, top down, is that we need to be more flexible.”

Managing internal behaviours is one of the most challenging areas of SEI, as stakeholders can have very different priorities.

There are various approaches to doing so, but URENCO, a provider of uranium enrichment services to the nuclear energy industry, developed an internal contract which clearly sets out roles and responsibilities of all stakeholders and how they work and behave towards each other.

Initially, the development was seen as an experiment, to determine whether such an approach could benefit from collaboration efforts, but with positive feedback it could now be rolled out more widely. “It might seem like quite an extreme approach,” said group head of procurement, Alan Hartley, “But it demonstrated that each individual function is committed to working very differently with each other and with the supplier community.

“It was a game changer for us.”

AGREEING TO AGREE

Try-Hards

Trail-Blazers

Average

Laggards

Chancers

Fig. 3: Idea screening

Try-Hards

Trail-Blazers

Average

Laggards

Chancers

PROCESS

INSIGHT: PROCESS

Procurement should get involved early, set the process and then step back. Designing the framework through which stakeholders interact with suppliers to create innovation is a highly productive area for procurement. Involvement in the early phases of innovation also delivers a strong output. However, following this, procurement must let go and allow others to implement the ideas and plans.

THE INTELLECTUAL CHALLENGE

SPEND IT WISELY

relationship with internal stakeholders, to understand their needs, problems and priorities and, as a result, the potential opportunities that might be available in the future. Bringing stakeholders into this process is essential to building trust and gaining insight across the business.

The second most valuable area of procurement activity is involvement in the early stages of the innovation process; the ideation phase, where a

range of solutions are brainstormed, discussed and brought to the surface, is a productive area of procurement work.

Idea generation Participation in idea generation is one of the key factors that distinguishes those companies that experience significant value from their innovation efforts and those that are lagging behind. The critical resource that procurement can bring to ideation are the thoughts and capabilities of suppliers, which, along

THE CRITICAL RESOURCE THAT PROCUREMENT CAN BRING TO

IDEATION ARE THE THOUGHTS AND CAPABILITIES OF

SUPPLIERS

with other third-party insight, can add significant value to the entire company.

Challenging ideas for feasibility and converting them into actionable business proposals is the most critical stage in the innovation process. Indeed, in this context, our study revealed another statistically significant relationship – procurement involvement in the screening of ideas does make an impact on an organisation’s ability to produce effective innovation.

At this phase, procurement’s value-add lies in its ability to bring business rigour and to challenge the ideas tabled for their commercial viability. Moreover, buyers can also bring their knowledge of suppliers and their capabilities, as well as wider intelligence from the market.

Interestingly, procurement being involved in the implementation of ideas is not rewarded with any additional levels of output. The key lesson here is for procurement to trust in their process then let go, allowing the business to take projects forward. Buyers do not necessarily need to be involved in all areas of innovation – rather, they must provide a process which the business can follow, while involving suppliers at the right point in that cycle. l

38 | INNOVATION COMPASS

ABOUT THE AUTHORJonathan WebbHead of Strategy Research

Jonathan Webb has worked in both the public and private sector, with a background in risk and economic research. He joined Procurement Leaders in May 2010, after working for the UK government, and oversees the output of strategy research.

Jonathan has worked for PricewaterhouseCoopers, international think-tank Transparency International, as well as other commercial and research ventures across Europe and Africa.

Jonathan is a PhD candidate at the University of London.

Contact the author and feedbackDon’t hesitate to send us an email on:[email protected]

GET IN TOUCH

To compare your company’s supplier-enabled innovation capabilities to those of your peers, please get in touch

with Procurement Leaders’ Content & Community Director, David Rae at [email protected].

supplier-enabled innovation series tools and process

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