Innovation in the B2B and supply chain: you are less locked-in than you think

Most supply chain managers feel locked in by the the users stated needs. The user might be in manufacturing who is responding to the B2B market and the sales forecast put out by the sales folks. Frequently in many parts of the developed world the supply manager deals directly with marketing as the whole product is outsourced from a low cost global location. Larger, more globalized  companies have their own subsidiaries in low cost locations while others might have the sourcing folks either travelling to the foreign suppliers or might actually be positioned in Singapore, Shanghai or Mumbai to be nearer to the source for better co-ordination.

Trying out something new from a supplier is something that makes supply chain managers nervous particularly if the component is to be supplied as a feed to making the top selling offerings of the organization. It is precisely this kind of phenomena that led to the famous disruptive innovation theses of Christensen. You can almost imagine the 8 inch disk drive supplier's organizations coming up with smaller less efficient disk drives and their B2B marketing folks making only half hearted efforts to convince the computer company buyers to try it on their production line. It would disrupt production the computer buyer folks must have said if the B2B marketers had asked. Things were going well for the B2B marketers of the 8 inch drives- they were meeting quotas,getting bonuses that they just shut their internal folks up. The 5.25 inch drive makers were upstarts,new suppliers to the computer industry and some supply chain folks must get the credit for encouraging the innovation. The 5.25 inch drives were initially lower performers than the 8 inch ones but the caught up and the entire 8 inch disk drive watched in disbelief as they became extinct. But wait the story repeats as the 5.25 inch disk makers and their B2B marketing start to love the big steady orders that the computer industry gives them. Even when their internal folks suggest a smaller less efficient disk drive to try, the marketers are reluctant to push their customers to try in a limited fashion within the buyer seller relationship. And the story repeats, the 5.25 inch drive industry dies out while the "nothing to lose" entrepreneurs improve the 3.5 inch disk drive with the help of some innovative and receptive supply folks at the computer company.

So how do you break this cycle? Leaders and managers at buying and selling organizations can do two things:

  • At the marketing end encourage your B2B marketers to take innovations to trial and market. If they ask, they'll find innovative supply managers who are willing to try. If you do not have a quota -set one like : we'll get 10 % -40% of sales from new products -depending on the rate of change in your industry.
  • At the supply end do not just focus  on lowering costs for routine buy items for meeting the sales forecast. Encourage supply managers to talk to suppliers about innovations that can be tried out. Try a quota , a small one that you want 10% new products from your supplier. In you have earmarked bandwidth to try new products from existing and new entrepreneurial suppliers- you'll spur innovation.

You'll find that your are less locked-in than you think. Check out an older post for a diagram.

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