Business Week Special Report:
"Get Creative"

“Innovation derived from the supply chain is typically the least costly
and least risky investment, and often the fastest to market.”

Letter to the Editor

Published in the August 22, 2005 Edition of Business Week, page 18

www.businessweek.com -- “Get Creative” SPECIAL REPORT

By Dr. David Burt and Robert Porter Lynch

Note: The full letter was edited by Business Week. The Entire Letter is presented here, and the Published Version is highlighted in BLUE

Your special report: “Get Creative” does an excellent job of describing advances in one end of the value chain: the OEM and its customers. Unfortunately, it ignores the other end: the firm’s supply base. In the emerging battle of value chains, one of any company’s most powerful engines of innovation lies virtually untapped, hibernating within its core of strategic suppliers.

Yet, still shackled to the myth that a business can cost-cut its way to prosperity, corporate executives have been obsessed with squeezing their suppliers and sending production overseas, overlooking the ability of suppliers to provide unique innovations in products, technologies, and processes. While Procter & Gamble has discovered the potential contribution of its supply base to innovation, most others, chained to their heritage of beating up suppliers, have lost an incredible opportunity to gain the benefit of an inflow of supplier creativity & insight.

In our study of supply chain innovation, we found only a small percentage of companies recognized their suppliers as a source of innovation, and even fewer bothered to measure their value. What’s most perplexing about this myopia is that the innovation derived from the supply chain is typically the least costly and least risky investment, and often the fastest to market.

However, those few companies that do use their supply chain as a source of innovation are market leaders. P & G is aiming to gain 50% of its innovation from outside its castle walls, much from its suppliers. Toyota gets more than half of its innovations from its supply base. Cisco Systems joins forces with other suppliers to provide innovative solutions to internet customers.

But to achieve this bountiful flow, a company must abandon its macho-style relationship with vendors and engage in strategic alliances with its top echelon of suppliers.

Alliances hold a unique advantage for innovators because breakthroughs come from differentials in thinking. By harnessing the “synergy of compatible differences,” well structured alliances with suppliers provide untold opportunities to create competitive advantages.

• Dr. David Burt is the Chairman of the Supply Chain Management Institute at the University of San Diego
• Robert Porter Lynch is the Chairman Emeritus of the Association of Strategic Alliance Professionals