As the world approaches what could be described as an unprecedented economic downturn, businesses are increasingly talking about “innovation to navigate the crisis” by working more closely with their suppliers. But what does innovation mean in this crisis, and what should be done to foster it?
During a roundtable discussion with procurement teams from various industries, participants agreed that while innovation helps businesses recover and grow, it must not neglect environmental, social, and governance (ESG) standards. Even though the coronavirus has caused an immediate crisis in recent months, collaborating with suppliers to mitigate the pandemic must still support the sustainability goals businesses aim to achieve. Otherwise, these objectives may be at risk and could threaten future business growth.
Achieving this requires a structured approach with clear objectives and processes to ensure that innovation and sustainability are aligned, rather than operating separately. Three key learnings were shared by organizations participating in the roundtable to achieve this alignment:
1. Develop innovation and sustainability strategies jointly
Innovation and sustainability in procurement must go hand in hand. Organizations need to define integrated strategies. Working in isolation can lead to innovation projects that either fail to contribute or potentially undermine the environmental or social goals an organization is pursuing.
Two approaches to structuring procurement were shared. One organization established a procurement team responsible for both supplier innovation and sustainability, focusing on carbon reduction, water management, and waste minimization. This team develops sustainable innovation strategies and applies them across all sourcing activities, ensuring that any supplier collaboration supports the organization’s sustainability objectives.
Another organization separated procurement functions for innovation and sustainability but ensured that both teams collaborated on strategy development. The teams evaluate incoming supplier collaboration projects—for example, assessing the carbon impact of an innovation project before approval. This approach ensures that supplier-led innovation does not conflict with the organization’s sustainability strategy.
2. Establish sustainability criteria for supplier innovation projects
Alongside joint innovation and sustainability strategies, teams should create specific criteria for evaluating supplier proposals to ensure alignment with the company’s environmental, social, and governance objectives.
In one company, the team selects innovation ideas that advance environmental goals. If a proposal contributes to achieving the organization’s sustainability objectives, it is approved for collaboration and may receive additional funding.
Other organizations apply a similar structure, particularly for investment projects. Supplier initiatives that drive carbon-reducing innovation receive funding support, reflecting the recognition of the supply chain as a “competitive differentiator” and highlighting the close link between sustainability and business growth.
3. Segment suppliers based on innovation and sustainability
While some suppliers proactively propose collaborative ideas, procurement must ensure supplier participation in driving better innovation and sustainability outcomes, which requires segmentation.
Each organization applies different criteria for segmentation. Key factors include the supplier’s sustainability impact—covering environmental performance, human rights, and fair business practices—often verified through third-party assessments. These are combined with innovation metrics, such as supplier service capabilities, product launch records, and strategic importance to the organization. Procurement teams then use this information to identify the most suitable suppliers for collaboration.
Businesses recognize that supplier-driven innovation is critical for growth and improved organizational sustainability. Therefore, it is essential to implement such structures to ensure that innovation and sustainability remain integrated. As one company noted:
“Improving supply chain sustainability by co-innovating with our suppliers is essential for our organization, and we must organize our working methods to ensure continuous progress.”
