Suppliers are an underused source of innovations — most organizations are not ready to pursue, receive, evaluate and deploy them. Executive leaders at Schneider Electric developed a system to elevate the best proposals, align them to corporate strategic goals, vet them and move them to the business.
Shortages, logistical bottlenecks and scarce talent all amplify the importance of an underused source of creativity: your organization’s suppliers. Companies seek their help, particularly in times of crisis, asking a vendor, for example, “What new material can replace the one we can’t acquire now?” These executive leaders seek innovations tailored to the company’s need to trim and avoid costs, fuel growth, improve products and processes, or meet environmental, social and governance goals. Yet, businesses capture just a fraction of the value they could reap from supplier innovation, for a variety of reasons.
Sometimes the supplier is uncooperative. Chief procurement officers relate to us instances when suppliers have responded to their requests for innovation proposals with an attempt to sell them something rather than coming up with a true innovation. Some suppliers have no interest in coming up with an idea and developing it. It’s hard to blame them — if innovation was easy, everyone would do it.
Unfortunately, even when suppliers do submit proposals, organizations are often not ready to receive, evaluate and scale them. In most enterprises, supplier innovation is not a core responsibility, making it susceptible to inertia as other priorities take precedence. Moreover, decision criteria and priorities are determined ad hoc for different projects, business units and spend categories.
The first challenge, then, is making the business’s innovation needs clear and making it easy for current and prospective suppliers to submit ideas — for example, by hosting supplier innovation events or creating web-based portals for submissions (see Figure 1).
The next challenge is to effectively and efficiently filter the incoming ideas and to pass the best ones along to the business. A strong evaluation process is critical to overcoming delays. Good supplier innovation ideas can languish when stakeholder groups fail to agree on which criteria or standards an idea must meet if it is to move forward in development, but that’s not an issue when proposals are prequalified.
Schneider Electric developed a method to efficiently identify and vet high-quality supplier innovation ideas and deliver these ideas to the business. As a result, the company significantly improved the average conversion success rate — the percentage of incoming ideas that are successfully implemented — to 20%, on average, resulting in over 500 supplier innovations deployed in a five-year period. The company estimates that these projects have a business impact of €80 million to €100 million in incremental revenue annually.
Procurement leaders at the France-based energy management and digital automation company recognized that an enterprisewide set of minimum quality standards was necessary for any innovation implemented throughout the company. They also observed, though, that needs might vary by business unit or location.
To balance these factors, Schneider Electric developed a two-level process. First, a centralized, cross-functional Procurement Innovation Evaluation Boardscreens all incoming supplier innovation ideas according to standard companywide criteria. Next, the evaluation board passes qualifying ideas to Innovation Squads — decentralized groups, organized by business unit and region, which select and implement ideas from the preapproved list (see Figure 2).
With over 700 ideas currently in the pipeline, Schneider Electric needed a way to quickly and accurately sort higher-potential proposals from duds. The evaluation board uses a simple 3 x 3 matrix. First, the board scores every idea as “high,” “medium” or “low” on two scales: alignment to Schneider Electric strategy and financial attractiveness. Based on these two grades, each idea is then broken into five categories: top priority, opportunistic action, watchlist, monitor and low priority (see Figure 3).
To remove ambiguity, the organization clearly defines what “high,” “medium” and “low” mean for these two metrics. Initial assessments on only two dimensions provide a quick and reliable way to identify ideas worthy of further investigation, and ranking priority levels offers leaders a set of ideas ready for evaluation as soon as resources become available, avoiding lag time.
When an idea is deemed worthy based on its position on the matrix, the evaluation board will more thoroughly examine that idea against seven criteria. The company’s scoring guideprompts them to assign a score of 1 through 5 for each factor. These objective scoring definitions remove subjective disagreements from the assessment. The evaluation board further distills grades into a three-tier scale of “positive,” “mixed” and “negative,” along with color codes (see Figure 4).
A visual representation of the idea evaluation makes it easy to digest and draw conclusions at a glance. Ideas graded as “mixed” or “negative” on some criteria are not automatically eliminated from consideration, but they will be passed to the Innovation Squads with warnings to be conscious of certain weaknesses.
By the time an idea reaches the Innovation Squads, a deployment decision is much easier because the teams have:
Preapproval to investigate, lowering the risk that an idea might not be viable or desirable.
Fewer ideas to investigate, making more efficient use of their limited capacity.
A consistent flow of ideas, relieving them of the burden of sourcing ideas themselves, thereby reducing the time between idea submission and evaluation.
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2022 Gartner Gaining Competitive Advantage With Supplier-Generated Innovations Survey. The survey was fielded for 100 procurement professionals from 14 February through 4 March 2022. To participate, respondents had to work for a company with a minimum of $250 million in annual revenue ($500 million in the U.S.); live and work in North America, Western Europe or APAC; have participated in a supplier innovation project in the last two years; and have visibility into their organization’s supplier innovation activities. Of the respondents, 33% hold a title of VP or higher, and 70% work for companies with annual revenue of $2 billion or more.