Considering that many times, 50 percent or more of the corporate budget is expended on suppliers, suppliers represent one of the most influential means of creating value and competitive advantage. However, because suppliers have traditionally been seen as "vendors," their potential as innovation partners has often been overlooked, and thus undervalued.
Today, companies can no longer afford to simply adhere to traditional thinking. Supply management must face the ultimate reality that a company cannot cost-cut its way to long-term prosperity. And worse, in numerous instances, wholesale hacking of suppliers has resulted in a severe diminishment of the supply base, leaving fewer options and alternatives. In addition, global competition is forcing companies to recognize that they must double, and even triple, their innovation output if they are to remain competitive. More and more, executives are invariably coming to the conclusion that in a fast-moving, rapidly changing world, the most sustainable source of competitive advantage is collaborative innovation.
Innovation is the most effective strategy for combating competitors with low price structures because it gives rise to a wide range of new options, including new technologies, process improvements, new business models and access to new market opportunities. In short, innovation from the supply base is a strategic initiative that impacts both revenues and profits.
Source: Inside Supply Management, http://www.ism.ws