Business leadership hungry for supplier innovation

Sir John Hood was the first vice-chancellor of Oxford University to be elected from outside the academic body in 900 years, but he also has vast experience in industry. As a director of several global companies, he says business leaders are keen to see suppliers create more value.

You hear a lot of management talk about how to persuade the board of this or that. Senior managers seem to be looking for a secret recipe to ensure C-level executives invest in their pet projects. But my experience of modern CEOs is they don’t need persuading about supplier innovation.

Anyone running a business of any scale knows that they have to see procurement as a channel for creating value and enhancing the cost side of the organisation. For this reason, the procurement team should now be deeply integrated with all the functions of the business, from operations to marketing to finance. I’m surprised people ask the question about influencing the board. Instead, procurement teams should be asking how to streamline their function. Digital automation offers the opportunity to eliminate many administrative tasks in procurement, while data analytics and machine learning can help with many of the judgement calls. These efficiencies can then create more time and resource to spend on innovation and customer value.

Reasons for supplier innovation

As the global economic landscape changes rapidly, organisations need innovation from suppliers now more than ever. It is expected that half of the globe’s top 500 companies will come from emerging regions by 2025. The global supply chains of companies from western economies that have been created in developing regions simply to find cheaper goods and services will become less competitive. An ongoing tariff war is also likely to have a distorting effect. While businesses are still looking for new low-cost regions from which to source, they are also looking to suppliers to create new value, rather than simply to help reduce costs.

Secondly, the choice of suppliers is becoming more important because of pressure from consumers and ethical groups for companies to be more transparent and responsible for their supply chains. The environmental, social and economic impact of supply is becoming all the more apparent to consumers, and they understand and care about the ethical credentials of the goods and services they receive. But they still expect competitive prices. Building more ethical and sustainable supply chains while keeping costs down requires innovation.

Thirdly, artificial intelligence, automation, and cloud computing create a manifest change in the way suppliers and the companies they supply can be integrated to create value. While these systems have been available for some time, this extraordinary set of tools has become cheaper, more accessible and easier to use in recent years. They are already having a profound effect on the way relationships develop and suppliers can integrate their data into the buyer’s systems.

Consumer Goods Forum, which represents FMCG suppliers and global retailers, has been promoting technology-led innovation and collaboration. In one of its recent papers, Julie Hamilton, global chief customer and commercial leadership officer of The Coca-Cola Company, says: “Technology will… have millions of trickledown effects that we must understand. But we can’t do it alone. Successful evolution of this industry will only come through collaboration with our supply chain partners and retail customers.”

For these three reasons, we are long past the time when procurement created functional relationships that simply drove down the cost for ontime delivery. Most CEOs now think relationships between companies and their most important suppliers should be focused on how they can create value for each other.

Barriers to innovations

Businesses know they should rid themselves of the tendency to neglect ideas that were ‘not invented here’. Business leaders are aware that if their organisation is not taking the best ideas from suppliers, then their competition probably will. No one can tolerate ‘not invented here’ for long. On the supply side, suppliers are hungry for change. They understand that to sustain market share and increase revenue with their current customers, they must show how they are creating value. With the connected technologies I’ve already mentioned, suppliers can be linked
directly into their customers’ systems, and everything managed and tracked. The automation of certain aspects of work from supplier to buyer inevitably intensifies as they work together to create value for final customers.

Avoiding complacency

Suppliers who have failed to see these opportunities need to get up to speed or buyers will transition away from them. There are many hooks in the supplier-buyer relationship in working in this way and buyers do not want to end up tied to the wrong vendors. It is a risk they will want to address through deeper understandings of, and partnership, with their suppliers.

While those at the forefront of SRM might have some advantages as they try to harvest supplier innovation, they cannot rest on their laurels. Organisations can be fragile. You cannot make too many assumptions about the future based on the past. You have to be current and on your toes. As a company director, I keep abreast of what is happening in the supply market, geopolitics and technology. The trick is not to be complacent based on past success.

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