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Episode 36: supplier engagement and management; an interview with Paul Coppens
In the final part of our interview series with Paul Coppens, he and Omer discuss supplier innovation. Paul shares with us some of the best examples he has seen in his career and how to incentivise suppliers to bring this innovation to you.
Omer Abdullah: Hello everyone and welcome back to Inside Procurement, our video series where we speak to the procurement leaders of today about the issues that matter most. We’re back with the fifth and final video in the series with Paul Coppens. Paul has had a long and storied career with Johnson & Johnson and has now launched his own firm, 4PX consulting over the course of the last several videos we’ve touched on a range of topics, from procurement trends and how it’s evolved over the last year and into this year and where it’s going, we’ve talked about category management, we’ve talked about risk, and in the last video we talked about supplier engagement. In this fifth and final video we’ll be talking about another topic that is very prominent in the conversations that practitioners are having today, and that is this topic of supplier enabled innovation. So, Paul, welcome back.
Paul Coppens: Happy to be here Omer.
OA: To kick off our conversation, as we talk about innovation, you’ve had a long career in procurement; what are some areas where suppliers have delivered material value to you in terms of real innovation that you’ve seen. What are some examples where you’ve seen that impact?
PC: Yeah, a very nice example happened actually very early on in my career. We didn’t call things ‘innovation’ 25 years ago, but if you think of it now, that’s what it really was. The topic was for one of our veterinarian products where we needed a sort of easy to use, in the field dosing device, so the farmer is walking in the meadows, sees a cow needs to pour product on the back of the cow, but dependent on the weight of the cow the dose needed to be different. So the challenge was there, we needed a flexible bottle of high enough volume with an easy to switch dose in the device. So we went to two suppliers with this question, one bottle supplier and then a supplier specialised in dosing devices. Long story short, after a couple of weeks, we got this very nice combination of bottle and dosing device that suppliers worked on collaboratively to really have a good fit of the dosing device on the model, because we couldn’t permit ourselves any leaks, and on top of that the dosing device was even overdose proof, so a very nice example. Why were we successful? In my opinion we did not give any sort of solution that we may have had in the back of our heads, we just gave them a high level brief of this is what we need, and I think for any sort of innovation that is critical, don’t give the suppliers the solution. They will give you the solution, in the end they’re the experts in this field.
Another example is a more recent one. For one of our major product lines we wanted to upgrade our overall global platform to more standardised building blocks in using the chemicals we use. At the time we wanted to reduce cost, improve product performance, stay compliant with the internal and external ingredient expectations, and harmonise these building blocks across many products. We had a very short timeline so we reduced the burden of our internal R&D resources by leveraging supplier technology, support and innovation. An upgraded platform was set up in co-development with one of our major suppliers, becoming the basis for over 60 marketed products, and all the other goals that we had set forward were reached as well. So again a very nice example of how things can be done properly.
OA: I guess the core takeaway is the supplier knows their business. They know their business better than you the customer or we the customer would know their business, so let’s rely on them to give us that insight, and give them the flexibility to be able to come up with and deliver that insight based on what they know best. Of course the the big question is: how do you incent a supplier to want to bring innovation to you? How do you incent them so that they do keep bringing innovation ideas to you and your company? How do you think about that?
PC: I think there’s different ways in creating that appetite for suppliers and to to bring that innovation to me first and not to the others. I can think of three main incentives. It’s on the one hand side legal, then commercial, and then really the risk and value sharing incentives. Now, on the legal part, to be sure you could offer exclusivity to the suppliers to license certain rights for a fixed amount of time, where we as a customer will do the same towards suppliers. So protecting the IP in in a sense. Secondly, on the commercial part, you could think of an agreement where you would offer the supplier the use of your own resources and infrastructure, such as tech guidance, lab use and other assets for developing and testing the products we need. The focus is here really on leveraging the resources and avoiding duplication of efforts. It will result in a very close relationship with the supplier.
You could also set up a sort of innovation fund to finance the work to be done. The supplier, and me as a company, we can set aside some money that we mutually agree upon, and we also define together what exactly is it that we’re gonna work on. It could help suppliers to work on projects that are usually out of scope for them. And then, last but not least, it’s really the risk and value sharing part, an arrangement where you could contribute intangible but substantial value to the supplier to aid on an innovation project. Again this technological guidance, training, access to relevant vendor databases or introduction to key vendors. These are difficult to value but intangible in nature. They provide a platform for an opportunity to progress from a transactional based relationship to true partnership in my opinion.
The other way is a joint development model parties agree on jointly developing a product, a technology, or some form of IP that you want to commercialise. The model allows for healthy collaboration between ourselves and the suppliers by sharing the cost, and each party concentrating really on all core competency.
And then there’s the profit sharing model, it’s a type of risk sharing model between you, the vendors, and the company, who come together as partners and it’s usually based on a predetermined formula of sharing gains or losses. It’s a bit the same as the part in the mutual gains in the supplier engagement that we talked about. The essence of the model is really profit and risk sharing with the supplier we’re working with to develop and make sure we commercialise together.
Those are in my opinion the most important ones.
OA: Yeah, and that makes sense. And you know if there’s one takeaway from that it’s that you have to make the idea of mutual value very tangible. And that it is a true partnership and there is true sharing, and that sharing can be in multiple different ways. It’s not simply financial, but there’s capability, knowledge, all other aspects that flow into that as well. So how do you sort of think about… if you were to speak to a procurement leader today, who wants to maximise the opportunity from supplier-enabled innovation, what are two or three key lessons that you would tell them?
PC: I think that, as a procurement professional, I may be in the driver’s seat of it all, but what’s important to realise is that procurement cannot do it alone as a function. Again, you will need to have that full engagement of R&Dd, supply chain, quality engineering, you name it. So depending on what you’re looking for you need to ensure to have that alignment across all these relevant functions. But at your end, and at the supplier end. If not it won’t work, it’s a collaborative effort, so don’t keep it in procurement, don’t work in silos because you will fail.
Second one would be it’s critical to provide again the supplier a good brief of what you’re looking for, but without providing them the direction to any solution as we already talked about.
And then, last but not least, create a visibility within your company and ensure top management is supporting innovation all the way.
OA: Yeah that’s fantastic. I mean, you know, that that point around giving them flexibility, giving them leeway to do what they do best, is so important, it’s so important. One last question for you: how do you suggest that we think about monitoring and measuring the success of an SEI program? What are a couple of the things that you would say are most critical to consider?
PC: Yeah, indeed. What you don’t measure, you don’t know how well it’s going, so one of the things that we we certainly did was, supplier innovation is fully part of the supplier scorecard, and that’s where it’s housed best. You measure those suppliers bringing innovation, they’re your top tier suppliers. Let’s not forget, how do you want to make them better? Well if they don’t bring an innovative idea every year, for example, they’re slowing down. That’s not what we want from our key partners.
So you can start by setting a goal for a specific area in terms of the number of innovations you want to engage on with your key suppliers. It will be important to define upfront what is going to be considered ‘innovation’ and what is not. That’s what I’ve seen happen in the past, at some point everything fell under the umbrella of innovation. Be careful with that. You need to think, is the innovation a truly breakthrough idea? Maybe it can be expanded to to other categories that are out there. Or is the innovation creating any additional growth for my company and other value creation. That’s critical.
Another measure that we could consider is to set a goal for the revenue we create as a result of the innovation brought by our partner. Revenue that otherwise would not have been there. In general this is a nice measure, and it will show other functional areas, such as supply chain, what the value of innovation truly can bring.
Now all of the above are really internal measures, but you can make it external as well. As I mentioned, put it on the supplier scorecard, and it is a clear part for the supplier to grow with us as a company, to make sure they become better and better every year. It’s the strength of the supplier scorecard, I would say it’s the dashboard between suppliers and your company to have that clear pathway to become better and better. And that’s why it’s critical to make a scorecard. I wouldn’t call it supplier scorecard, let’s call it partner scorecard, because we should measure in two ways. We should also give opportunities to suppliers to measure ourselves as a company.
OA: Yeah, two-way score cards, mutual value.
OA: Things that have come up multiple times, time and again in this series of videos that we’ve done. Well, Paul, I think that’s fantastic, these are great practical tips, practical advice that you have to offer. So thanks so much Paul for coming with us on this journey and sharing your perspectives on this host of different topics that we’ve gone through um and thank you for taking the time, we really appreciate it.
PC: Oh, I was very happy to be part of this, Omer. Thanks for providing me with the opportunity. I’m very happy we did this and I’m looking forward to whatever may be next, but I enjoyed this truly, thank you.
OA: Fantastic, and we look forward to hearing more about 4PX Consulting as we go forward.
Omer is a co-founder of The Smart Cube and leads the firm’s business across The Americas. He works with Procurement and Strategy leaders at global organisations, transforming their teams to become value-driven and insight-led. Omer has more than 30 years of management consulting, global corporate and industry experience across North America, Europe and Asia. His prior roles include A.T. Kearney (North America), Warner Lambert (USA) and The Perrier Group (Asia-Pacific). Omer has an MBA from the University of Michigan at Ann Arbor, USA, and a BBA from the University of East Asia.