The Hows and Whys
Simply put, supplier enabled innovation (SEI) is leveraging the expertise and capabilities of suppliers to advance innovation in a company. But what led to leading players such as J&J, Brose, Roche, and Philips all prioritizing their investments in SEI?
In this article, I’d like to briefly touch on SEI as a concept – given its prominence in procurement conference agendas and focus more on emerging trends and specifically the use of Patent tracking to enhance SEI results. I also don’t differentiate here between supplier innovation that shapes their client’s end product or innovation that drives internal transformation.
Benefits of Adopting SEI
SEI is a game changer in terms of innovation. According to John Paterson, Chairman of the Procurement Leaders Advisory Board and former CPO of IBM, “Tapping into the enormous capability of suppliers – to develop a cost-effective competitive advantage – is perhaps our single largest opportunity.”
This is evident by the fact that Electrolux and Nokia generate almost 90% of their innovation leads via the supply base. Other leading companies have witnessed more than a third of their product pipelines being generated from SEI.
Further, when we take into account lower internal development costs (a significant portion of the total R&D cost is borne by suppliers), combined with the expedited innovation process, SEI becomes too potentially lucrative to ignore. As mentioned by Gregoire Letort, CPO, Electrolux, “Our suppliers are spending proportionally more on R&D than us. It would be crazy not to tap into that resource.”
SEI for Sustainability
Sustainability has become a board level issue that companies ignore at their peril. This increased awareness is driving companies to focus on cutting carbon footprint by minimizing/recycling packaging, reducing energy use and waste generated and using environmentally friendly products.
Companies have realized how greatly SEI can contribute to this objective. A key example here is BMW, whose polyurethane supplier Huntsman helped reduce total emissions from its seating foams by a factor of ten – without compromising comfort or quality. SEI can be used to not just reduce R&D costs or improve product performance, but also support the company’s strategic goals.
One key point to note here is the significance of effective collaboration – underpinned by trust and regular communication – among all stakeholders, without which, maintaining a strong SEI program will be impractical. Analytical (fact) based, mutual insights are foundational to the collaborative dialogues required to excel at SEI.
Supplier Patent Monitoring – The Smarter Way Forward
One avenue of identifying potential areas of innovation and staying protected from competitive disruptions is via supplier patent monitoring. It is relatively commonplace to monitor patents filed by direct competitors, partners, or acquiree firms; however, tracking patents filed by actual and potential suppliers or even individual innovators is uncommon. This activity – which may be best out-tasked given the specialist task to monitoring patent filing databases – can fundamentally change supplier dynamics and, in turn, reinforce procurement’s value in product development via SEI.
At The Smart Cube, we conduct supplier patent assessments for a number of clients. My colleague Sue Hope, Head of Procurement & Supply Chain practice points out, “Patent analysis provides an in-depth evaluation of emerging innovation trends, predicts potentially disruptive technologies and identifies the most innovative suppliers.”
Ultimate Goal: Hand-in-hand with SEI
What is the future of the SEI model? How will it be managed within the procurement function? Many CPOs may be asking such questions… but what’s important is that whether your organization is big or small, the supply chain complex or relatively simple, you manage SEI through a dedicated team or distribute it across the category structure, the ultimate aim is to embed it into the DNA of the procurement process.
Such sentiments are echoed by the likes of Clive Heal (Head of Roche’s SEI initiative), Markus Gemuend (former global CPO of Roche), and John Paterson (former CPO of IBM), all believing that SEI ultimately must be intertwined fully with strategic sourcing for it to be truly systemized along the supply chain. In their words, “essentially, a dedicated SEI team is a step on the maturity journey, rather than the end in itself.”