Suppliers as strategic partners for sustainable innovations

In the battle for market share, a new product can be an important differentiator from the competitors. McKinsey found that across industries, more than 25 percent of a company’s sales and profits can be attributed to new product launches. We all know, innovation does not originate in one department alone; it requires collaboration across the supply chain. Suppliers have extraordinary resources at their disposal. They are experts in their market areas and know the latest trends.

With new legislation (for example, Supply Chain Act in the EU), ESG goals in businesses, changing consumer behavior, and forward-looking economic concepts, innovation needs to be looked at in a new way. Circular Economy produces goods and services in a new way. In contrast to a linear or traditional approach, factors such as better customer service, lower costs and greater resilience play a role. Resources are used but not consumed; products, components and materials are kept in the system during and after use; and waste, especially hazardous waste, is kept to an absolute minimum. Even though much is already recycled today: Circular Economy goes much further by creating a virtuous cycle that includes manufacturing, repairing, refurbishing, remanufacturing, and recycling.

This means that suppliers increasingly have a strategic role to play in all the above processes. However, many companies only start working with their suppliers when it comes to purchasing goods and materials. Procurement experts know only too well that the constant search for new ways to optimize the supply chain and maintain competitiveness can be a tough challenge. Considering suppliers as innovation partners and leveraging their expertise and technology can not only improve supply chains, but also create new perspectives and opportunities for your own business. So why not tap into this potential and innovate together?

Sustainability can drive innovation by, for example, requiring new products or components that impact the use of key resources such as energy, carbon, water, raw materials, materials and waste in products and processes. These resources are ubiquitous throughout a company’s supply chain and the potential to increase efficiency and reduce costs is significant.

Material costs have skyrocketed in recent years due to higher demand and tighter supply. Higher costs can derail product development efforts before they even begin. Alternative materials or components suggested by your supplier can help reduce costs.

Meanwhile, a strong partner will prioritize your orders, provide you with the best possible service, and support you in exceptional situations. Companies are often hesitant to partner with their suppliers because it usually means sharing proprietary or highly sensitive information. However, the leap of faith can lead to a fruitful relationship that can later be beneficial in other ways as well.

By closely dovetailing and coordinating their own and suppliers’ activities, bringing in expertise from both sides, collaborating companies can increase the number of innovations, improve the quality of their products, and shorten the time from planning to market introduction.

The more closely the suppliers and the company are linked, the greater the impact of innovation. However, this requires a shared understanding of both companies’ innovation goals and the areas where the partner can add value. Defining the areas of innovation in which the company is active, communicating regularly with suppliers, and establishing effective and streamlined collaboration are essential to the success of the innovation process.

To remain competitive, achieve sustainable business goals and meet rapidly changing customer requirements, it is necessary that the innovation capability of the company and suppliers remains agile. Procurement managers need to continuously monitor innovation performance of their suppliers to ensure that they integrate the right suppliers with the right capabilities into their innovation process early on.