Latest / The Buyer's Side with Fexingo: Procurement, Sourcing, and B2B Purchasing Decisions / How One Buyer Used Supplier Innovation Days to Cut Costs 18 Percent
Transcript
- Lucas: So there's this mid-sized industrial manufacturer in the Midwest — about $400 million in annual revenue, makes hydraulic components. Last year their procurement team decided to try something they'd never done before: a Supplier Innovation Day. Luna: I've heard of those. Basically inviting your top suppliers to pitch cost-saving ideas, right? Lucas: Exactly. But here's the thing — most companies do this as a one-off. Maybe they bring in pizza, listen to a few presentations, nothing changes. This company ran it like a formal procurement process. They invited their top 15 suppliers by spend, gave them a structured brief six weeks in advance, and asked each to submit one concrete proposal. Luna: Concrete meaning with numbers attached? Lucas: Yeah. They required every proposal to include an estimated annual savings, implementation timeline, and any investment the supplier would need from the buyer. No vague 'we could improve efficiency' stuff. They wanted hard numbers. And they made it competitive — suppliers knew their proposals would be scored against each other by a cross-functional team from procurement, engineering, and operations. Luna: So it's like a reverse auction, but for ideas instead of prices. Lucas: Exactly. The winner got a multi-year contract extension and a share of the savings — about 30 percent of the first year's cost reduction went back to the supplier as a bonus. That incentive structure was key. Suppliers weren't just pitching to keep the business; they were pitching to earn more. Luna: And what kind of ideas actually came out of it? Lucas: One supplier proposed switching to a different grade of steel that required less machining. Another suggested consolidating three separate parts into a single casting, which eliminated a welding step. A third supplier — this was the one that won — redesigned the packaging so it fit standard pallet sizes, which cut shipping damage by 40 percent and reduced freight costs. Luna: The packaging one is smart. It's not the first thing you think of when you say 'supplier innovation', but those logistics savings add up fast. Lucas: Right. In total, the company implemented nine of the fifteen proposals within twelve months. Their procurement director told me the combined savings hit about $2.1 million in the first year — that's roughly 18 percent of their addressable spend with those suppliers. Luna: Eighteen percent is huge. But I'm curious — how did they keep suppliers from gaming the system? Like, proposing ideas that sound good but actually just shift costs somewhere else? Lucas: They built in a validation step. Each proposal went through a three-week analysis period where the buyer's engineers and cost accountants ran their own numbers. If a supplier claimed $200,000 in savings, the buyer verified it independently. They also required suppliers to sign a non-disclosure agreement so proprietary manufacturing methods stayed protected. Luna: That makes sense. So it's not just trust — it's audit. What about smaller buyers? If you're only spending $10 million a year with a supplier, can you realistically pull off something like this? Lucas: That's a great question. The director I spoke with said they started small — they only invited five suppliers the first time. They ran it as a half-day workshop, not a full-day event. And they didn't offer a contract extension as the prize — they offered a public recognition and a letter of commendation that suppliers could use in their marketing. Luna: So the incentive doesn't have to be financial. It can be reputational. Lucas: Exactly. One supplier told them the letter helped them win a contract with a larger OEM because it proved they could deliver process improvements, not just parts. So the ROI was there for both sides. Luna: Speaking of ROI, did they track any non-cost benefits? I'm thinking lead time reductions, quality improvements, things like that. Lucas: They did. Beyond the $2.1 million in cost savings, they measured a 12 percent reduction in average lead time across the nine implemented proposals, and a 6 percent improvement in first-pass yield on the parts affected by the casting consolidation. Those aren't directly on the P&L, but they definitely matter for operational performance. Luna: Right. And those softer metrics can actually be harder to capture. I've seen companies run supplier innovation days and then not follow up with any measurement framework, so they end up with a binder of ideas and no way to prioritize them. Lucas: That's the trap. The company I studied avoided it by assigning a 'champion' for each implemented idea — someone from the buyer's team who owned the tracking and reporting. They met quarterly to review progress, and if a project wasn't delivering the promised savings, they either adjusted or killed it. Luna: So it's not a set-and-forget thing. It requires ongoing management attention. Lucas: Absolutely. The procurement director told me the hardest part wasn't the event itself — it was the follow-through. You have to dedicate engineering hours to validation, you have to update your cost models, and you have to communicate results back to suppliers so they see their ideas are taken seriously. Otherwise, next year no one shows up. Luna: And that sustainability is the real challenge. I've heard of companies where the innovation day is a big splash the first year, then fizzles because the buyer doesn't incentivize suppliers to keep participating. Lucas: Right. To avoid that, this company created a tiered system. Their top three suppliers from each innovation day got priority access to new business opportunities for the following year. So there was a direct link between good ideas and future revenue. That kept the pipeline full. Luna: That's smart. It turns a one-off event into a recurring cycle. Now, I want to push back a little — doesn't this model favor suppliers who are already sophisticated? What about the smaller, family-owned supplier that doesn't have a dedicated engineer to prepare a proposal? Lucas: That's a valid concern. The company addressed it by offering a 'pre-event consultation' for any invited supplier that wanted it. They'd send a buyer or an engineer to the supplier's facility for half a day to help identify potential opportunities. That leveled the playing field. About a third of the suppliers took them up on it, and two of those ended up submitting winning proposals. Luna: Okay, that's a good counter. So it's not just about picking the low-hanging fruit from your biggest partners. It's about actively enabling smaller suppliers to contribute. Lucas: Exactly. And the investment on the buyer's side is relatively small. The director estimated they spent about $15,000 on the event itself — food, venue, the consultation time — and got back over $2 million in savings. That's a 13,000 percent return. Even if you discount for optimism, it's still an enormous ROI. Luna: That kind of return is hard to ignore. And it's a good reminder that procurement isn't just about negotiating price — it's about unlocking creativity. Lucas: Yeah. And I think that's the reason we keep coming back to stories like this on the show. If these conversations have moved your work forward in some small way, we're glad. We deliberately don't run ads on these episodes — it's just us digging into the details. If you want to support that choice, the link is buy me a coffee dot com slash fexingo. Luna: It's a low-key way to keep the show ad-free and focused on the actual tactics. Appreciate anyone who chips in. Lucas: Alright, back to the innovation day. One more thing I found interesting: the company actually measured the 'stick rate' of ideas over two years. They found that proposals from the innovation day had a 70 percent implementation rate, compared to about 30 percent for ideas that came in through normal supplier feedback channels. Luna: That's a huge difference. Why do you think that is? Lucas: The director thinks it's because the formal process forces specificity. Suppliers know they're being judged, so they do their homework. They cost out the idea, they consider implementation hurdles, they talk to their own production team before submitting. A casual suggestion in a quarterly review never gets that level of preparation. Luna: So the structure itself drives better proposals. That's a lesson that applies beyond just innovation days — it's about creating the right container for creativity. Lucas: Exactly. And the company is now planning to expand the concept to their indirect spend categories — office supplies, IT services, even facility maintenance. They're piloting a version with their top five MRO suppliers next quarter. Luna: I'd love to hear how that goes. MRO is notoriously fragmented, so getting suppliers to collaborate on cost savings could be a harder sell. Lucas: Yeah, I'll follow up with the director in six months and maybe we can do a follow-up. For now, the takeaway is clear: if you haven't tried a supplier innovation day, it's a low-cost, high-return experiment worth running. Luna: And if you have tried it and it didn't work, maybe the issue wasn't the concept — it was the follow-through. Lucas: Exactly. That's the part most people skip. But when you get it right, the numbers speak for themselves.