In the not-so-distant past, brand companies used to rely solely on their internal resources for developing and bringing to market new and innovative products. This approach was by and large a result of what is commonly referred to as the “not-invented-here" mentality: some of it was a genuine fear that collaboration with external resources would compromise security of intellectual property (IP) and hinder first-to-market capabilities, and some of it was a perception that any hint of “outsourcing" research and development (R&D) would diminish job security. Consequently, suppliers—whether raw materials, packaging components or contract manufacturing—were never really a part of the concept development process. Rather, they were invited on a need-to-know basis, were never shown the complete picture, and were expected to do whatever was needed to be done in exchange for the privilege of securing the incremental business.
In the last couple of decades, these same brand companies started to realize this approach is actually causing them to miss out on opportunities, and therefore began to open up their process. This new phenomenon, known as “open innovation," was enabled by the growth of the Internet and led to the creation of several collaboration platforms by technology companies (such as Dell’s “Idea Storm"), but food companies soon followed. For example, Starbucks created the “My Starbucks Idea" website where people can submit and share their ideas. Campbell’s, another food company, created its Open Innovation website where the central message is: “We are looking to collaborate with consumers, inventors, scientists and businesses that can help us enhance our company. If you have an innovative ingredient, product, packaging, process or sustainability idea that we can help bring to life, we want to hear from you."
This development has certainly opened up opportunities for suppliers, but still falls short of becoming a preferred go-to resource for companies that contemplate bringing new products to market. Suppliers need to develop a comprehensive strategy and a roadmap for becoming such an entity; but, in order to do that effectively, they must first understand the various activities brand companies engage in, as well as the nuances between them. Basically, there are three types of potential interaction between brand companies and suppliers; all three provide an opportunity to increase the suppliers’ value to these companies or enable them to “get in the door." These include:
1) Innovation regarding continuous improvement
a. Objective: improve manufacturing processes, packaging solutions, logistics and general ways-of-working. These activities center squarely on cost savings—direct or indirect.
b. Suppliers’ desired outcome: a structured, cross-functional team that meets regularly to think up, vet, prioritize, implement and report upstream specific projects.
2) “Open Innovation" around an existing product line
i. Introduce new flavors or new variations.
ii. Tweak formulations or packaging because of regulatory developments or new consumer data (think about the huge movement toward clean labels, reducing waste and promoting sustainability).
iii. Tweak formulations or packaging in order to reduce cost and enable price reduction to consumers while maintaining acceptable levels of contribution margin, usually in an attempt to protect market position in the face of growing competition.
b. Suppliers’ desired outcome: be part of the conversation early on and be able to present solutions that increase speed-to-market and maximize returns for both the brand company and the supplier.
3) “Blue Sky" innovation
a. Objective: this is a more strategic process that usually deals with trying to penetrate a new market segment, introducing a brand new product line or totally revamping an existing one.
b. Suppliers’ desired outcome: brand companies typically invite many external resources to participate in the brainstorming activities so the goal, at least initially, is to simply get invited. Being on the inside provides an opportunity not only to know what’s going on but also to affect the outcome.
The key to a successful strategy for each of these three activities is—no surprise—building effective relationships. What is less clear is who to build the relationships with, and how. Many suppliers are really in the dark as to the inner workings of the brand company as it relates to innovation and new products. They talk to R&D, they talk to marketing, they talk to purchasing, and sometimes they are so “good" at it that they inadvertently cause a perception at the brand companies of going behind the back of the department that matters or trying to force an issue by working all sides. There is no easy fix to this, but the thing that helps the most is honest and transparent conversation with either procurement or R&D to understand the proper protocol and then to simply follow it.
Once a supplier has successfully developed such relationships and becomes part of a project, two things come to the fore: first, the need to negotiate and execute a commercial agreement specific to the project; and, second, create the kind of collaboration during the various phases of the project (feasibility, development, commercialization, launch and post-launch activities) that enables smooth, transparent and dependable execution. There are quite a few nuances relative to these two activities that make this a different process than the day-to-day activities around existing business—and understanding these nuances will go a long way in positioning the supplier as a go-to resource for brand companies’ innovation and new product introduction initiatives.
Suppliers have a great opportunity to become significantly more valuable to brand companies by helping them to be more effective in bringing innovation and new products to consumers. This opportunity came about as companies realized collaboration with external resources makes them even more competitive in the marketplace; but, suppliers still face a challenge in formulating an effective strategy for proactive collaboration. Understanding the different types of innovation activities brand companies engage in, building the right relationships with the right people and the right departments, and the ability to deliver flawless execution when part of a specific project are the three pillars that such strategy is based on.
Ori Amrami is a strategic sourcing professional with more than 15 years of experience in driving innovation and building reliable and cost-effective supply networks. Amrami's knowledge and experience spans several industries and product categories in food and beverage and health and wellness. He has worked for industry leaders such as Herbalife and Nestlé, as well as for several startups in the natural and better-for-you business segments. After several years of managing SOURCING ALTERNATIVES, a company that focuses on supply-base optimization, driving innovation, and accelerating new product launches, Amrami has recently joined Guittard Chocolate Company—a fifth generation family owned high-end chocolate manufacturer—in order to upgrade the capabilities of its purchasing department.
Looking for more on New Product Development?
Ori Amrami will speak on “Partnering with Brand Companies for Innovation and New Products" as part of the New Product Development panel discussion at SupplySide West. The two-hour session will take place on Wednesday, Oct. 7, from 2 to 4 p.m. at Mandalay Bay in Las Vegas. Visit west.supplysideshow.com/panel-discussions.aspx for the complete agenda and to get registered.