Latest / The Buyer's Side with Fexingo: Procurement, Sourcing, and B2B Purchasing Decisions / How One Buyer Turns Supplier Audits Into Innovation
Transcript
- Lucas: Luna, I want to talk about something that I think a lot of procurement teams get wrong — and that's the supplier audit. Most teams treat it as a compliance exercise, a checkbox. But there's a version of this that actually drives innovation. Luna: You mean the kind of audit where you're looking for problems, but also looking for opportunities? Lucas: Exactly. I came across a case recently — a mid-sized automotive parts manufacturer, about 500 employees, supplies stamped metal components to several OEMs. Their procurement team decided to redesign the audit process entirely. Instead of sending just quality and compliance people, they embedded a design engineer in every audit. Luna: That's interesting. So the engineer isn't there to check tolerances — they're there to see how the supplier actually makes the part and find ways to improve it? Lucas: Right. And the results were pretty striking. Over 18 months, they conducted 22 audits with this approach. They identified 11 modifications to the suppliers' processes that were patentable — shared IP between the buyer and supplier. And the total value they calculated from those innovations was about $4.2 million in cost savings and new revenue. Luna: Wow. So it's not just about cutting defects — it's about creating new intellectual property together. How did they structure the IP ownership? Lucas: They used a simple joint-ownership agreement, with a royalty split. If the idea came from observing the supplier's process — not from the buyer's proprietary design — then the supplier got 60 percent of any licensing revenue. That created real incentive for the supplier to open up their operations. Luna: That's a huge shift in mindset. Most suppliers are nervous about audits — they think you're going to penalize them or demand price cuts. Here, they're actually excited because they might get a new revenue stream. Lucas: Exactly. And this is where it gets interesting for procurement teams listening. The key was not to do a separate innovation workshop — they embedded innovation into the existing audit cadence. Same schedule, same preparation, same report structure. They just added one person and one agenda item: 'What could we do differently?' Luna: So the audit becomes a two-part conversation: first, the compliance checklist — safety, quality, delivery. Then the innovation audit — process observations, material substitutions, tooling improvements. And the supplier knows that second part is coming. Lucas: Right. And the company found that the most valuable insights came from the informal conversations — over lunch, during a plant walk-around. The design engineer would notice that the supplier had modified a press tool in a way that reduced scrap by 3 percent. That was something the supplier had been doing for years but never thought to mention because it wasn't a formal innovation project. Luna: The thing is, that kind of tacit knowledge is gold. It's incredibly hard to capture in a standard survey or RFP. You have to be there, and you have to have someone who knows what they're looking at. Lucas: And that's the skill set most procurement teams don't have in-house. This company made a deliberate trade-off: they pulled a senior design engineer out of product development for two days a month. That's a cost. But the ROI was clear — $4.2 million over 18 months is a pretty strong business case. Luna: I also like that they didn't try to scale it too fast. They started with their top 10 suppliers by spend, and only expanded after they proved the model. Lucas: That's a good point. And they also created a simple scoring system for suppliers — they called it 'innovation readiness.' It had three criteria: the supplier's willingness to collaborate, their technical capability, and their IP experience. They only rolled out the innovation audit to suppliers that scored above a certain threshold. That avoided wasting time with suppliers who weren't ready or interested. Luna: You know, this is exactly the kind of conversation that I think a lot of our listeners would find useful in their own work. And it's conversations like this that remind me why we keep this show ad-free. If these episodes have moved your work forward in some small way, one way to support that is at buy me a coffee dot com slash fexingo. It's a simple way to help us keep doing what we do. Lucas: Yeah, I'd echo that. We deliberately don't run ads — we think the content speaks for itself. So if you find value in these episodes, that link is a low-key way to say thanks. And now, back to the innovation audit. One thing I really appreciated about this case was how they handled the compliance side. They didn't abandon the traditional audit — they just added a second lens. Luna: Right. So the compliance audit still happens, and it's still rigorous. But the innovation audit is a separate section of the report, with its own metrics. They track things like 'number of ideas generated,' 'ideas implemented,' and 'estimated value captured.' Lucas: And they found that the compliance findings actually improved as well. Suppliers became more transparent because they saw the buyer as a partner, not a policeman. One supplier even proactively disclosed a quality issue during an audit because they trusted the team would help them solve it. Luna: That trust is huge. And it's hard to build. But I think the audit redesign is a tangible way to signal that you're different. Lucas: The company also created a simple one-page template for the innovation audit. It had three sections: 'Observations' — things the team noticed that the supplier might have overlooked. 'Ideas' — potential improvements, even if they weren't fully formed. And 'Next Steps' — who would own the follow-up and by when. Luna: That makes it easy for the supplier to participate. They're not being asked to write a white paper — they're just being asked to have a conversation. Lucas: Exactly. And the company found that about 40 percent of the ideas came from the supplier's own employees — the line workers, the maintenance techs. Because the design engineer would ask them directly: 'If you could change one thing about this process, what would it be?' Luna: That's the kind of question that doesn't get asked in a standard audit. And it's powerful because it gives the supplier's team a voice. Lucas: So what's the takeaway for a procurement manager who wants to try this? I think it's: start small, pick one supplier you have a good relationship with, and send one engineer on your next audit. See what happens. The worst case is you learn something. The best case is you find your next $4 million idea. Luna: And if you do try it, I'd love to hear how it goes. We might even do a follow-up episode with listener case studies. Lucas: That's a great idea. For now, I think the key message is: your supplier audits are already happening. You're already spending the time and money. So why not get more out of them? Luna: Well said. Until next time, keep questioning the checklist.