Supplier innovation has a lot of definitions, there is a common theme and it is “supplier driven innovation”, which is the expanded form of the term.
When you do your business, you build relationships with your suppliers. This suppliers learn your business; often in great detail. When suppliers learn about your business, it is common for them to take new ideas to the table. In strong cases of supplier driven innovation, their ideas would add to the improvement of the customer’s core product, but there are cases as well.
Let me give you an example,
Your company made a measurement device you can call “Widget”. Widgets are being used in the construction industry to be able measure the degree, which concrete has hardened using the ultrasonic sound-wave technology.
From a supplier, you source an ultrasonic transceiver. This ultrasonic transceiver transmits and receives the sound waves that your device uses to do measurements, but the other hardware and software process the outcome of the transceiver, there’s many more to your product than just the component.
There comes a day that the supplier of the ultrasonic transceiver goes to you with a new design that can give a more better signal-to-noise ratio. The improved signal will be able to let you reduce the time that is needed to make a reading by 30%, outpacing all of your competitor’s products by a lot. Your customers like it, and your so called “Widgets” are a big hit.
There will be times that your suppliers are happy to continue selling you the same components and services every year. Cultivating a relationship with your suppliers where they can feel comfortable, and motivated, to bring new ideas to the table is the idea behind supplier innovation