Driving Innovation in Customer-Supplier Relationships: Reflections on Research and Best Practices

Spend Matters would like to welcome a guest post from Vantage Partners.

Over the course of the past several years, business leaders have increasingly reported that driving joint innovation with suppliers is critical to achieving their long-term goals and, in many cases, essential for remaining competitive in their industries. Recent data suggests the trend continues -- with 62% of CEOs reporting that their business will look more to suppliers for product innovation in 2012.

Vantage Partners recently undertook a study (involving an even mix of approximately 500 buy-side and sell-side respondents) to understand their practices and experiences related to joint innovation. Not surprisingly, 75% of buy-side respondents reported that innovation with their suppliers should be a top priority during the next 3-5 years. However, most buy-side respondents also reported that their current efforts fall far short of what is needed.

  • Only 26% of buy-side respondents currently place a high priority on driving innovation with suppliers
  • 94% of buy-side respondents believe they have a significant amount or a great deal of untapped potential for innovation with their suppliers
  • 73% of buy-side respondents currently involve suppliers in fewer than 25% of their innovation efforts

Moreover, innovation leaders -- those companies that have translated a recognition of the importance of collaborative innovation with suppliers into concrete action and new ways of engaging with them -- are reaping tangible benefits. Of the buy-side respondents to our study, 43% have found that the return on investment (ROI) for joint innovation with suppliers is somewhat or much higher than the ROI from internal efforts (73% of sell-side respondents report the same). And, not surprisingly, those companies that involve suppliers in more of their innovation efforts realize even greater ROI than those who bring suppliers in only sporadically (see Figure 1).

Figure 1

So, if CEOs and sourcing and supply chain professionals report that working more closely with suppliers to drive innovation ought to be a top priority, and those companies that work closely with suppliers on their innovation efforts realize significantly higher ROI than those that rely primarily on their own internal assets and capabilities, why does so much potential remain untapped?

Figure 2 shows the major barriers to joint innovation with suppliers that emerged from our research.

Figure 2

- Jonathan Hughes, Partner, and Jessica Wadd, Senior Consultant, of Vantage Partners

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