Over the past decade, and with considerable acceleration spurred by the Covid-19 pandemic, sourcing executives have been making meaningful progress around sourcing diversification and supply chain resiliency. This progress, however, has come at the cost of innovation, even while it continues to be a key priority area for organizations and the sourcing teams responsible for executing new strategies.
Consulting firm PwC recently surveyed 40 sourcing executives representing a variety of global companies across multiple industries. PwC sought to learn more about how these companies prioritize innovation as they diversify their supply base(s) and seek to optimize supply chain resiliency practices and results.
Sourcing diversification and innovation
A sizable portion of companies (80 percent) have moved order volume away from China over the past one to three years through targeted efforts to diversify their sourcing portfolio and improve supply chain resiliency. Through this move, however, 52 percent of executives shared that the level of innovation driven by Chinese suppliers is below where it was before the volume shift and related lower fund availability.
Though innovation has declined, sourcing executives continue to see it as a priority. Specifically, two-thirds (65 percent) of respondents named product innovation as a high priority, while an additional 25 percent consider it a top priority. To enable this innovation, sourcing executives are investing in technology targeted at expediting product innovation efforts and expanding platforms for supplier collaboration.
“Extracting value from sourcing is increasingly based on a company’s ability to innovate pragmatically,” a senior apparel executive focused on private label product development shared. “Costs are rising, competition is increasing, and our customers expect high quality at low prices. If we’re not innovating, we’re falling behind.”
Most companies (93 percent) indicated the high importance of technology in enabling innovation capabilities. With this emphasis on technology, 82 percent say they plan to increase their technology spending either significantly (21 percent) or slightly (61 percent). Meanwhile, 18 percent plan to maintain their technology spending.
Supplier collaboration
Suppliers are playing an active role in manufacturing technology innovation, with 36 percent of sourcing executives surveyed saying their suppliers work collaboratively with them on innovation-focused projects from start to finish. Another area where suppliers are often involved end-to-end is optimizing products, with 30 percent working with brands on projects such as improving price or quality.
Among the tools being used to accelerate innovation is generative artificial intelligence for the design stage. Generative AI is much more commonly used internally (83 percent) than within suppliers’ operations (33 percent). PwC spoke with a major supplier to U.S.-based retailers, learning from their head of strategy that “we’re being squeezed on cost today and see innovation as a path to growth. As we make investments in innovation, we expect to expand our target customer base and enhance our own profitability.”
To incentivize suppliers to partner on innovation, 30 percent of companies are increasing the volume of business with suppliers, while 24 percent are entering joint partnerships or long-term agreements. The main hurdles that companies face in their quest for innovation are resource constraints, mentioned by 45 percent, and technology limitations, referenced by 30 percent.
Along with sourcing diversification, sources of innovation and supplier collaboration are also moving geographically. There is an opportunity for sourcing executives to invest in innovation through technology, product development and increasing supplier collaboration.
Three actions for sourcing executives to consider taking to continue fostering innovation:
- Investing in supplier relationship management
- Developing new incentives to foster innovation investments
- Piloting new collaboration tools
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Content contributed by Ron Klein, PwC principal and leader of PwC's Operations Transformation Global Sourcing COE.
