Nurturing supplier innovation can feel like panning for gold. Ensure your tenders, RFxs and contracts are set up for success by following these five tips.
With many organisations recognising that more innovation comes from the supply base than from their own R&D departments, procurement is increasingly seen as the gatekeeper for game-changing solutions. Here are five ways to open your organisation up to the full potential of supplier innovation.
1. Organisational readiness
What does innovation look like in the context of your organisation? Before investing time and energy into improving the flow of supplier innovation, ask yourself the following questions:
What would “better” look like? What are the market trends in a particular category?
Review the current contract of what you are buying and/or the current market. What does a basic service offering look like?
Who are the key internal players (stakeholders) in this contract? What is their understanding of innovation?
Make time to discover your stakeholders’ pain points and find ways to remedy them through the sourcing process.
2. Keep the doors open
Nurturing innovation in procurement requires a shift in the way we engage with suppliers. Common wisdom says we should be as detailed and prescriptive as possible, but this limits a supplier’s ability to come up with a creative solution. Instead, approach the market with the outcome you seek and let them take it from there.
In the same vein, look for ways to reach suppliers that may not already be on your radar. This can be challenging when you are not running a full tender process, but procurement software solutions can allow you to share lists with other divisions or business partners, or to access certified and public marketplaces to strengthen your supply chain.
The benefit of this is that a broad approach to the market and a non-prescriptive process can attract new suppliers and generate left-field ideas that may not have crossed your mind.
3. Co-create solutions
Adopting innovative tendering techniques can extract innovative ideas. Co-design workshops are an effective way to design solutions jointly with the supply market. All bidders are given the same information and each of them has the same opportunity to workshop with the buyer. Each supplier’s unique IP and perspective will lead to different solutions. Co-design workshops in a tender process enable the market to better understand the buyer, while talking through solutions with a supplier will also give buyers valuable insight into what it would be like to work with that supplier.
4. The basics count
Extracting innovation through the contract relies on basic contract management foundations being laid from the beginning. Contract kick-off meetings are a tool that can help to ensure that everyone’s understanding of the deliverables is the same. It offers a chance to set expectations on both sides; meetings are scheduled and agreed upon, reporting and dashboards are set, KPIs are explained and everyone is aware of their roles and responsibilities.
Suppliers will provide innovation through the contract if they have faith that their ideas and solutions will be given the chance to be aired and, where successful, implemented.
5. Enable innovation
Performance measures that focus only on penalties do not provide an incentive for a supplier to deliver over and above. Risk clauses that are unbalanced won’t breed trust through the relationship. Contracts should therefore be set up in a way that rewards creativity and value-adding innovation.
Keep in mind that after the honeymoon phase is over and the delivery phase is in motion, the desire to find efficiencies and innovations can wane. To keep the energy up during the life of a contract, deploy these tactics:
host hackathons with the business and suppliers
set aside innovation funds (unsolicited bids / contestable funds)
hold supplier open days or forums.
You can also look to modern procurement software, with its inbuilt supplier evaluation tools, to assist buyers in keeping suppliers’ focus on innovation as part of their delivery.
Over the next decade, the key focus of the procurement profession is expected to change from cost reduction to enabling supplier innovation. Learning how to nurture innovation from the very beginning of the sourcing process all the way through to the delivery phase will set procurement professionals up for success in this critical area.