Blog by Kristin B. Munksgaard, University of Southern Denmark
The picture is borrowed from University of Southern Denmark.
3 factors for successful supplier-driven innovation
Supplier-driven innovation strengthens your competitiveness through innovative collaboration with your customers and your own sub-suppliers.
1: Prepare your business model for more collaboration
In today’s business world – where manufacturing and services are integrated in new ways, where innovation is an increasingly complex game to master and where new areas of knowledge to be learned are expanding – the road to success puts increasing demands on businesses and managers.
Seeking to accommodate these demands while staying innovative and keeping an eye on cost reductions, front-end companies are experimenting with new organisational and management styles in their value chain and network. We are particularly seeing a growing trend of suppliers – instead of users – providing the leading-edge input for innovation, including in the food industry. Modern Danish food suppliers contribute to the very early phases of their customers’ product development and innovation projects to a greater extent than before.
This situation leads to new strategic opportunities for supplying companies and developing new forms of collaboration that disrupt tradition and create new business openings. We call this ‘Supplier-driven innovation’. With supplier-driven innovation, food companies can take the role of ‘customer developer’ and combine downstream customers and end-user insights with technical knowledge in the network of upstream suppliers. Supplier-driven innovation goes beyond simple knowledge-sharing to the co-creation of a joint action space for innovation.
The real breakthrough in collaboration patterns is still limited. However, a strategic window has been created for Danish food companies which enables new and more competitive business models to be built, based on stronger, innovative collaborations with selected customers and suppliers. Engaging in supplier-driven innovation requires collaboration in the early stages of the innovation process, where ideas are developed and concepts are designed.
By applying supplier-driven innovation in our company, we have been able to get closer to our customers. As a result, we have gained a better understanding of our customers’ product demands, which reflect in our bottom line, both in our turnover but also our earnings, as our customers are more willing to pay the right price for the products. Additionally, the work with supplier-driven innovation has resulted in us becoming the only supplier within our product category to a significant player on the retail market.
2: Expand the innovative action space
The company’s innovative action space takes shape at the edge of what is possible and impossible in collaboration with customers and suppliers. On the one hand, opportunities for supplier-driven innovation are influenced by the company’s innovative capacity – its employees, resources, knowledge and skills, as well as investments prioritised by management. On the other hand, the possibilities for accessing resources, knowledge and skills are created through collaboration in the network of suppliers and build on the insights gained from customers and users. Where the two combine, the company’s innovative action space is created, as illustrated in this figure.
The company needs to develop its ability to organise and coordinate collaborations that will merge supplier knowledge of technological opportunities with customer insight into user needs. The expansion of the innovative action space is therefore based on the co-creation of a number of ‘recipes’ coordinating innovative collaboration. These recipes should be seen as combinations of technical and market knowledge and the related actions implemented by the participants.
An increasing number of food producers do not simply forward specifications or an order but seek the innovative advice of their suppliers. The best solutions are created when suppliers, with their knowledge of ingredients, packaging and hygiene, etc., assist in not only solving but identifying the customer’s problems and needs: co-creating innovation with the customer, ultimately focusing on the end-user.
Solving customer problems and developing innovative solutions through direct involvement of our own suppliers is very rewarding. Bringing customers and suppliers to the table creates a collaborative climate, which leads to more and better innovation.
3: Take the role of Customer Developer
Working in the food industry involves a major business dilemma for suppliers, producers and processing companies: They need to balance their innovative efforts with competitive pressure on prices. Involving your partners in the very early stages of the innovation process is one way to master this balance. Taking the role of ‘customer developer’, the company offers advice on what and how to develop for the customers. As a development partner, they identify the real needs for development in close collaboration with their customers. The characteristics of the role of customer developer differ from the traditional role of ‘customer adaptor’ in several dimensions, as shown in the figure.
Additionally, companies implement strategies for supplier-driven innovation and integrate the role of customer developer into their business model. Innovation Director Charles Johansen at Solina says: “What we are trying to do is not only be the supplier but the innovative adviser.” This statement illustrates the company’s role in innovative collaborations with their customers. Solina tries to get involved in the early phases of the customer’s development process, if possible as early as the idea creation phase. Here, Solina contributes advice on what needs to be developed, and in close collaboration with their customer they define the real problems to be solved. The customer usually does not have a predefined order when they come to Solina but seeks innovative advice. If the customer has a fixed order, Solina is not afraid to challenge the customer on their specifications.
Get an overview of the tools for supplier-driven innovation here (sorry, in Danish only).
The way we work with our suppliers has developed tremendously. We feel courageous, daring to engage the suppliers, letting them run these development projects… it has been a great success.
Do you want to know how to apply supplier-driven innovation in your business and get the tools to do so?
Participate in our masterclass on supplier-driven innovation at the University of Southern Denmark, June 19th.