Innovation blocked by focus on cost reduction

Will Green is news editor of Supply Management
9 December 2019

Two thirds (67%) of firms say innovation is being blocked by a focus on cost reduction, according to a survey.

A report by Ivalua found a similar proportion (64%) viewed relationships with suppliers as primarily transactional, with more than half (55%) saying cost savings were more important than innovation.

The survey, involving 200 UK-based procurement, supply chain and finance professionals, found three fifths (60%) considered the role of suppliers important to driving innovation, but less than a third said they always collaborate with suppliers on new innovations.

“This comes at a time when pressure is growing on businesses to develop new, innovative products, faster and at a lower cost,” said Ivalua. “In fact, 51% of UK businesses say the number of products or services they launch has increased in the last 12 months, indicating that the pace of innovation is on the rise.”

The research, carried out by Vanson Bourne on behalf of Ivalua, said more than two thirds (69%) of firms believed achieving innovation and cost savings were not mutually exclusive. But barriers existed to supplier collaboration, including lack of understanding around supplier capabilities and strengths (35%), security risks (30%), poor data quality (28%) and lack of incentives for suppliers to become supplier of choice (27%).

Alex Saric, chief marketing officer at Ivalua, said: “The pressure is on for businesses to innovate at pace, so collaborating with suppliers to use their industry expertise to develop new products and services has become vital.

“The more innovative suppliers are in a position where they can now pick and choose who they work with. As a result, UK businesses need to ensure they are appealing partners to work with. This means moving away from supplier relationships that only focus on negotiating lower prices, which can financially stress suppliers and cause them to think twice about working with cost-focused organisations.”

He added: “Procurement must refocus to foster, rather than block, innovation. Not only will this allow UK businesses to innovate at pace, but it also fosters collaborative partnerships that speed up innovation, rather than always asking suppliers to cut costs.”

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