In order to sustain their competitive advantage, businesses are more and more focusing on the development of supplier innovation programs. However, procurement leaders should be careful. Launching into supplier innovation without first sorting out your company’s competencies in supplier collaboration will almost certainly result in the failure of your supplier innovation objectives.
There are two articles I have read over the last few weeks that have inspired me to write this post. The first is Kevin McFarthing’s Innovation Excellence post, which discusses how companies need to have a collaborative mindset and structure before attempting open innovation. The second is an article from Malcolm Wheatley in a past copy of the Procurement Leaders magazine titled “The Nature of Collaboration”.
In his article, Kevin writes the following:
So how should you approach Open Innovation if your company does not have an inherently collaborative company? The answer is – wait. The focus should be on introducing collaborative ways of working first – Kevin McFarthing
Kevin suggests that if a company is structured so that country, regional or divisional groupings have full control and decision-making power over the resources allocated to them, this is likely to limit collaboration. Interestingly, in many companies procurement is often one of the few centrally run functions, with dotted lines into the regional or divisional leaders, thus providing a good basis for aligning collaboration across the business and with suppliers.
As one of my mentors Neil Deverill told me, “procurement are integrators”, bringing together internal and external stakeholders to help create value and in this instance drive collaboration and then innovation.
As part of this process Kevin highlights the need to tackle cultural issues such as the “not invested here” syndrome and the fear of failure, which inhibit both innovation and collaboration.
Open Innovation needs a collaborative mindset throughout each part of the company involved in the project. So even if you can find an externally facing and collaborative group of people to implement Open Innovation, if the rest of the company remains predominantly closed, suspicious and distrustful, the Open Innovation projects will fail. They will hit a roadblock sooner or later – Kevin McFarthing
When we talk about collaboration it is important to address the type of collaboration that Malcolm Wheatley quotes in his article. This comes from Kieran Curran, the Group Purchasing Director of Talaris, and is described as “deliberate collaboration, rather than collaboration which is unfocused or accidental.” An important point to make is that collaboration, whether it is internally or externally focused, needs to be clearly targeted to a desired outcome.
Procurement Leaders Take on Supplier Collaboration
Malcolm discusses the topic of supplier collaboration with the good and great of the procurement world. I particularly liked some of the quotes from Rick Hughes (Former CPO at P&G) and Thibault Eissautier (CPO at Diageo).
Within the FMCG space, P&G are one of the leading companies when it comes to supplier collaboration and innovation. Rick clearly knows the challenges of trying to move a company to focus on supplier collaboration:
When we started supplier collaboration, a lot of companies looked at us as if we had three heads, and worried that we were aiming to reduce their margin or to take intellectual property.
It took a lot of time to sit down with people and change their mindsets: you need to move them from a ‘win-lose’ attitude to one of ‘win-win’- but once you’ve done that there’s a huge upside potential.
Internally, there’s an education job to be done. Collaboration calls for a culture change, and it has to go beyond simply the procurement function: it has to embrace logistics, R&D and any other function that might be impacted. It’s not a process for the weak, or faint hearted – there will be resistance, and it will take time.
Rick Hughes, CPO at P&G
While fairly new to Diageo, Thibault has a great background in working for companies that have a strong emphasis on supplier collaboration. This shows in the final quote on the goal of collaboration!
It takes two to dance. Suppliers won’t fully take part unless there’s something in it for them – and so you may as well plan for this and make it happen, and aim for two way benefits from the onset.
If one company is very process driven, and the other one isn’t, then that can result in problems. Arrogance can be a barrier. For collaboration to work, you need to identify and resolve these issues.
Lots of form filling and box-ticking, and quarterly reports and presentations just get in the way. So does an excessive number of cross functional meetings. The goal is collaboration, not writing reports about collaboration or talking about it.
Thibault Eissautier, CPO at Diageo
Here are my takeaways:
1) Ensure your business has developed a culture and structure to support supplier collaboration, before moving onto innovation.
2) Building collaborative relationships with suppliers takes time to educate both suppliers and your own team.
3) Focus on the Win-Win from the offset.
4) Be pragmatic and focus on collaboration and do not bring in more bureaucracy.