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Cost-focused procurement is blocking innovation

Six in ten companies say their suppliers are important for driving innovation but basing supplier relationships on price alone is holding back progress according to a new survey.

Despite recognising the potential of collaborating with suppliers to develop new products and services, around two thirds of UK businesses view their supplier relationships as primarily ‘transactional’ and believe a focus on always negotiating lower prices is blocking innovation.

The findings, from research commissioned by procurement platform Ivalua, come at a time when pressure is growing on businesses to develop new, innovative products at a faster pace.

More than half (51 per cent) of the businesses surveyed said the number of products or services they launch has increased over the last year - indicating that the pace of innovation is on the rise. However, despite the majority believing that innovation and cost savings from suppliers are not mutually exclusive, less than a third said they always collaborated with suppliers on new innovations.

Alex Saric, Smart Procurement Expert at Ivalua, said:

“The majority of UK businesses (92 per cent) say they are now highly dependent on their suppliers, so when it comes to innovation, companies must rethink how they approach supplier relationships. 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. 

“Effective collaboration with suppliers requires UK businesses to take a smarter approach to procurement, so they can understand supplier capabilities and strengths, assess risks and recognise opportunities. This allows businesses to collaborate deeply on new products or services, unlocking maximum innovation from their supply base. 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.”

According to the survey, the biggest perceived barrier to innovation is a lack of understanding around supplier capabilities and strengths, followed by security risks, poor data quality and a lack of incentives for suppliers to become a supplier of choice.

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