The Hackett Group: Supplier Collaboration Drives Innovation

Supplier collaboration has become a core driver of business innovation, resilience and sustainability. 

Across industries, procurement leaders are shifting from transactional models to strategic partnerships that unlock joint value and accelerate growth.

Chris Sawchuk, Principal & Global Procurement Advisory Practice Leader at The Hackett Group, explores how companies are rethinking governance, incentive and technology to foster co‑creation with suppliers. 

Across the industries you advise, where are you seeing the strongest examples of supplier collaboration driving innovation?

Strong examples of supplier collaboration driving innovation can be observed in industries such as automotive, fast-moving consumer goods (FMCG) and pharmaceuticals. In the automotive sector, a German based manufacturer has reported that a significant portion of their innovation – ranging from 30% to 60% - originates from their suppliers. This collaboration has been central to advancing new manufacturing processes and technologies.

Similarly, in the FMCG industry, a UK manufacturer has highlighted that 30% of its growth stems from supplier-led innovation, with over 70% of its innovation pipeline contributed by suppliers. This strategic partnership approach emphasises mutual value creation.

In the pharmaceutical and financial services sectors, collaboration with startups and academia has been a key driver of innovation. These industries are known for leveraging external partnerships and open innovation platforms to enhance their value proposition and meet evolving business demands.

What common pitfalls do organisations face when trying to move supplier relationships beyond transactional?

Organisations often face challenges in supplier relationship management (SRM) due to the antiquated nature of traditional approaches that focus solely on managing a portfolio of suppliers. These methods tend to be transactional and lack the personal engagement needed to foster deeper collaboration and innovation.

Another pitfall is the absence of mutual respect and understanding in supplier interactions. Treating suppliers merely as vendors rather than strategic partners can hinder the development of trust and collaboration, which are critical for elevating relationships and achieving competitive differentiation

Additionally, fragmented communication channels with suppliers can delay issue resolution and reconciliation, further straining relationships. Implementing unified communication platforms can help address this challenge by centralising interactions and improving visibility into disputes.

Lack of defined ownership for supplier-related processes across functions, such as procurement, finance and accounts payable, can also create silos and accountability issues. Establishing clear roles and responsibilities is essential to avoid bottlenecks and delays.

Key challenges involve achieving alignment between customer and supplier organisations when considering a strategic relationship. A supplier may be viewed as strategic by a customer, but the reverse may not hold true, and vice versa, making initial alignment essential.

Utilising customer resources to support a supplier can pose difficulties; even if procurement designates a supplier as strategic, the wider customer organisation may not share this view or may lack sufficient resources and attention. Governance also plays an important role. Some organisations use RACI models to clarify responsibilities among internal stakeholders as well as between customer and supplier.

These points are among several to consider when transitioning a supplier relationship from transactional to strategic. Supply management is an enterprise capability and procurement depends on effective collaboration with the broader business.

How should companies rethink governance and incentive structures to encourage co-creation with suppliers?

Companies can encourage supplier co-creation by implementing governance and incentive structures that foster trust and collaboration. Paying suppliers on time is a fundamental prerequisite, as delays can undermine trust and discourage participation in strategic initiatives.

Incentives such as long-term business commitments, opportunities for business expansion and external recognition (e.g., supplier awards and positive press) are commonly used to motivate suppliers to engage in innovation.

Governance frameworks should prioritise systematic collaboration with suppliers, including regular meetings to discuss innovation goals, joint value creation opportunities and shared performance data.

Additionally, businesses can support suppliers by helping them acquire new capabilities, co-developing projects and creating compatible systems for seamless collaboration.

Focusing on strategic suppliers while also engaging with start-ups, academia and open innovation platforms can help build a diverse supplier ecosystem. This approach allows companies to capture a broader spectrum of innovative ideas and meet specific business needs.

From a technology-agnostic perspective, what digital capabilities are "table stakes" versus true differentiators for supplier-driven innovation?

Table stakes include foundational technologies such as e-sourcing, contract lifecycle management (CLM), spend analytics and e-procurement systems, which are critical for basic operational efficiency and compliance.

True differentiators, on the other hand, involve advanced capabilities such as generative AI (Gen AI), predictive and prescriptive analytics and intelligent automation.

These technologies support higher-value outcomes like faster innovation pipelines, enhanced data-driven decision-making and the ability to co-develop intellectual property with suppliers to accelerate market momentum.

Additionally, differentiators also include fostering cross-functional collaboration and leveraging supplier expertise to access new market opportunities or reduce time to market by as much as 40% compared to internal R&D capabilities.​​​​​​​

How do you see emerging technologies (AI, digital twins, blockchain) being operationalised to create measurable outcomes in supplier collaboration?

Emerging technologies such as AI, digital twins and blockchain are transforming supplier collaboration by driving efficiency, resilience and measurable results.

AI automates data analysis, offers predictive insights into supply chain risks and streamlines supplier relationship management. Digital twins create virtual models of supply chains for scenario testing, disruption prediction and real-time logistics optimisation; combined with AI, they enhance predictive capabilities to prevent bottlenecks.

Blockchain ensures secure, transparent transactions and reduces fraud by providing all parties access to an immutable ledger, improving compliance and trust.

Integrating these technologies helps organisations mitigate risks, cut costs and improve supplier relationships with outcomes like reduced operational expenses and faster deliveries.

For instance, AI supports strategic sourcing and sustainable procurement, while blockchain streamlines supplier onboarding and lowers verification costs.

What mindset shifts do companies need to unlock the full potential of suppliers as partners in transformation and sustainability?

The most significant mindset shift involves moving away from the "Not Invented Here" mentality and recognising that suppliers possess valuable capabilities, insights, knowledge and innovative ideas.

It is essential for organisations to foster an internal culture that welcomes the integration of external ideas into internal processes, such as New Product Introduction as well as transformation and sustainability initiatives. 

By adopting this open approach, procurement and supply management professionals can effectively identify, guide and introduce suppliers into appropriate internal opportunities.