Measuring Supplier Innovation

This is an excerpt of the original article. It was written for the March-April 2018 edition of Supply Chain Management Review. The full article is available to current subscribers.

March-April 2018

"Inflation creeps into U.S. Supply Chain.” So said the headline on a Wall Street Journal article I read this morning before writing this column. The Journal went on to write that U.S. companies are grappling with rising material and ingredient costs on top of pressure from higher wages—a potential double whammy— and noted that companies like Whirlpool and Ford have already issued warnings to the market.

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In 2016, Chevrolet’s all electric Bolt was named Motor Trend’s Car of the Year, thanks in part to delivering the most miles per charge for any electric vehicle then on the market. The award was as much a testament to GM’s newfound ability to access the innovation of its supply community as to its internal engineering prowess. In fact, GM noted in SCMR that gaining access to supplier innovation—like the propulsion technology from LG Electronics—was key to its competitiveness in the marketplace and the health of its balance sheet.

Automotive is not the only industry to benefit from supplier innovation. Pharmaceutical companies now investigate far more possible molecular designs because of innovations by analytical software providers, while farmers irrigate their land more precisely because of innovations by soil modelers. Even innovation giants like Google and Microsoft scan the landscape of tech start-ups to license or acquire intellectual property created outside of their company. Their chief procurement officers understand that the next big idea is being invented now, somewhere outside their company. Who is going to find it first: you or your competitors?

The answer is a mixed bag, based on the results of a recently completed research project on measuring supplier innovation by CAPS Research, a joint venture between Arizona State University and the Institute of Supply Management. While over 90% of CPOs surveyed thought it was important to measure a supplier’s innovation performance, only 25% had a system in place to do so (see sidebar: About our research).

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