3 Steps To Unlocking Innovation – Why Closer Supplier Relationships Should Top the List 

John Nodding, Director of European Operations, APS Group gives three core principles when it comes to bulding long-term supplier relationships.

As companies seek to embrace new ways of working made possible by digital transformation, procurement professionals have become a crucial enabler within many organisations.

With two-thirds of an organisation’s revenue being spent with third party suppliers on average, many companies are turning to their suppliers as they search for innovative solutions that could provide long-term efficiencies. Suppliers, after all, are specialists in their field and can help identify the fresh opportunities being created by new digital tools.

Research, conducted at ProcureCon Europe by APS, found that 35% of procurement professionals are turning to their existing suppliers first when researching the latest industry developments – existing suppliers are second only to their peers as a source of knowledge.

There has seldom been a time when it has been more important for procurement to build strong cooperative relationships with suppliers. Nurturing closer working partnerships is not just about squeezing greater value out of contracts. By involving suppliers early in the development of any new product or service, companies can discover new ways to improve the design or functionality. In an age of digital transformation, suppliers can also help to find faster, more efficient methods of operating.

Supplier relationship management

Supplier relationship management has not always been the focus within the procurement department – a business function which is primarily responsible for keeping spending under control. The pressure to bring costs down has often outweighed all other factors and has often led to more adversarial relationships with suppliers than those built around collaboration.

It begs the question whether procurement departments now need to review the skillsets to ensure they are well positioned to make the most of their supplier relationships. There are, of course, digital products that can help procurement professionals manage suppliers but these tools are more about handling large numbers of suppliers – not the more hands-on relationships that will help organisations develop innovative solutions.

One of the companies doing this successfully, is multinational technology firm Philips. Often highlighted as an exemplar in regard to supplier relationships, Philips believes that, “long-term strategic supplier relationships are key to bringing our innovations to market faster and better than the competition.” So here is a look at:

The Philips approach

How Philips achieves this is outlined in APS’s whitepaper Putting a price on innovation: The procurement puzzle. This highlights the company’s core principles when it comes to supplier relationships, but there are three fundamental elements within this that struck a chord: trust, aligned goals and long-term efficiencies

  1. Trust

Philips sees supplier relationship as a two-way street. It is fully prepared to commit its time and resources to help suppliers improve areas of their business. This might involve sharing advice on how to improve softer skills, such as marketing communications. They see the benefit in helping their suppliers become stronger and more efficient. In return they gain a trusting partner that can help take the Philips project forward and offering consultative advice.

  1. Aligned goals

The other key factor is that Philips shares its goals with its suppliers. The direction of travel is clearly laid out before all stakeholders so they can successfully work together towards on the long-term objectives. This increases scope for innovation and the ability to build a business case that can surpass any savings achievable in the short term.

  1. Long-term efficiencies

It is important to realise that Philips’ procurement team is not preoccupied with finding innovation simply from an organisational performance perspective. Instead they see it as the best way to deliver long-term efficiencies.

This is particularly significant when you take a look at Professor John Henke’s Working Relationships Index. A study based on 25 years of data within the automobile industry, it has found that, “51% of the automakers’ profit per vehicle can be accounted for by the relations the OEM (Original equipment manufacturer) has with its suppliers.”

This research demonstrates the potential of better supplier relations. With organisations currently facing so many opportunities to improve performance and gain those long-term efficiencies, those relationships have never been more significant.

In the future, procurement departments will perhaps need to decide whether they are equipped to manage the close collaboration required to help gain competitive advantages in the digital age.

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