How to Increase Supplier Innovation

When customers collaborate with suppliers they can build trust, reduce relational stress, and increase innovation-related activities.

Suppliers are more willing to invest in and share innovative ideas and technologies when they have open and collaborative relationships with the companies to whom they sell supplies. Supplier commitment, as reflected in its long-term innovation intentions, provides a basis both for the customer and the supplier to build confidence in the stability of their working relations and to act toward each other in an increasingly trusting manner.

There are three basic collaborative activities suppliers and companies can engage in:

  1. They must involve suppliers in their processes–especially product development.
  2. They should demonstrate openness. They must share information with suppliers in a timely manner.
  3. Finally, companies need to work with suppliers to help them improve their competitiveness both in terms of cost and quality.

If companies do this, suppliers will be more likely to invest in new technologies and, furthermore, to share these new technologies.

Customers involve suppliers in various stages of their products’ life cycle — from the earliest, when suppliers may provide design suggestions or even be given complete responsibility for the design, engineering and development of the new product, to later stages, when suppliers may help commercialize the product and manage after-sale product quality. Involving suppliers in the product development process and using their skills and expertise in other, less formal, collaborative processes can reap great benefits for the customer. These benefits include shortened product development cycle times, lower costs and higher-quality end products.

However, companies can hinder the likelihood that suppliers will innovate if they set forth conflicting objectives about what they want from the suppliers. They also risk this outcome if they are too late, or too demanding, when it comes to the engineering and specification challenges they need met. Finally, if companies push suppliers too hard to reduce their prices, then they also lessen the chances that suppliers will strive to innovate.

This article is adapted from “Increasing Supplier-Driven Innovation,” by John W. Henke Jr. and Chun Zhang, which appeared in the Winter 2010 issue of MIT Sloan Management Review. The complete article is available at http://sloanreview.mit.edu/smr/.

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