Supplier Collaboration Programs– Why Should We?

Multiple organizations are aware of the sources of innovation capture and revenue growth through suppliers’ collaboration, but building effective roadmaps of cross-functional cooperation requires considerable organizational efforts.

McKinsey’s research of 100+ multiple sector companies demonstrates comprehensive pictures of success factors and common limitations of supplier collaboration processes.

The research first revealed that there are several barriers when embedding those programs in a company. For instance, such projects require time and management efforts, so the consulting firm advises opting for less impactful initiatives that are easier to achieve. Moreover, there is a significant need for shifting mindsets, as buyers and suppliers need to move from adversarial, cost-based relationships to collaborative value-based teams, a shift that is challenging to achieve on a large scale. Additionally, companies must build quantifying methods to evaluate the generated value. However, many of them are used to traditional purchasing strategies or are often optimizing product designs and processes, limiting the development of proper supplier-collaboration frameworks.

The good news is that, the survey also showed that companies with effective supplier collaboration programs, achieve an outstanding performance.

“Leaders in supplier development and innovation tend to beat industry trends by ~2x in growth and other metrics tend to beat industry trends by ~2x in growth and other metrics”.

Concerning sustainability ambitions, the consulting firm illustrates different examples of how organizations have assembled green initiatives by creating effective supplier collaboration programs.

We listed the top 3 sustainability projects some organizations achieved through supplier collaboration:

 1. Unilever’s partnership with Novozyme to generate new enzyme solutions, allowed the company to “improve its product performance, increase market penetration, and target premium-branded competitors. Moreover, the new formulation performed well at lower temperatures, helping customers save energy and reduce CO2 emissions”

2. L’Oreal’s annual’s exhibition “Cherry Pack”, offers suppliers an overview of future consumer trends that will influence the company’s production processes. Suppliers can therefore propose solutions through a trust-based forum. 

3. P&G’s project on aligning cross-functional teams using joint business planning processes with suppliers led them to successfully estimate a clear picture of the company’s competitive scenery, to shape their strategy, and identifying innovation opportunities.

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(Source: McKinsey & Company, July 2020)

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