Supply chain innovation: a framework of public procurement as a demand-side innovation driver

Governments have employed various strategies and initiatives to support innovation capacity in supply chains to address grand societal challenges such as climate change, environmental damage, global pandemics, and social inequities (Wesseling and Edquist, 2018). These problems often transcend regional and national borders, potentially negatively affecting larger populations and communities (Voegtlin et al., 2022). Prior research (Chang and Andreoni, 2020; Luomaranta and Martinsuo, 2020; Kabadurmus, 2020) suggests that a concerted effort by government and nonstate actors, including firms, is needed to explore innovative supply chain solutions to address these challenges by creating value for stakeholders. Public procurement, which stood at US$11 trillion of global GDP in 2018 (World Bank, 2018), presents a powerful incentive for policymakers to stimulate innovation among supply firms and towards achieving Sustainable Development Goal 12.7.

Existing research (Luomaranta and Martinsuo, 2020; Kabadurmus, 2020) advances that supply chain innovation (SCI) (i.e. changes to products and processes across the supply chain) occurs through technology advancement, supplier partnerships, response to uncertainties, changes in customer taste and changes in business processes. We focus on the responsiveness of the supply chain in meeting customers’ new demands and responding to dynamic market conditions. Supplier responsiveness encompasses both operational agility and relational dynamics, and is crucial to enable suppliers to meet buyer needs effectively (Bellamy et al., 2014; Choi and Krause, 2006; Gulati et al., 2011). Through industry policies like patent laws, tax rebates and fiscal injections, governments support supply firms’ capacity to find innovative ways to address public challenges (Chang and Andreoni, 2020). In this article, we refer to such strategies as supply-side innovation drivers, as they are characterised by firms’ internal efforts and lobbied government support to innovate.

Although these supply-side innovation drivers could be effective (Kabadurmus, 2020; Jia et al., 2019; Guan and Yam, 2015), they are often inadequate in making the supply chains more promptly and accurately responsive to governments’ innovation needs. For example, Jia et al. (2019) examined the effect of incentive systems to promote indigenous innovation and found that the fiscal support extended to supply firms only led to a high quantity of patents with high product similarity. Such supply-side innovation initiatives created marginal and incremental changes in products, and they rarely resulted in radical innovation to the supply chains, making focal suppliers (i.e. representatives of the supply network who interact directly with buyers and coordinate their network along its supply chain towards buyers’ needs) less responsive (Uyarra et al., 2020; Shin and Lee, 2022; Voegtlin et al., 2022).

Incremental innovation involves steady, small improvements to products/processes. Over time, these changes help boost efficiency, cut costs, support learning and growth within the organisation, and make it easier to adapt to change without causing major disruptions (Chapman et al., 2003). While it is useful, combining it with radical innovation helps firms exploit current capabilities while also exploring new opportunities, enabling sustainable solutions and responsiveness to addressing societal challenges. Radical innovation involves transformative changes that fundamentally alter supply chain structures and processes (Wagner and Sutter, 2012). Focal suppliers often overlook transformative and radical changes in supply chains as they are mostly preoccupied with controlling and coordinating the complexity of their diverse networks. Network complexity refers to the differences among members of a supply network and their intricate interactions. While network complexity introduces challenges in coordination and risk management, it also presents opportunities for greater resilience and responsiveness if strategically managed (Choi and Krause, 2006; Sharma et al., 2020).

Analogous studies (Kusi-Sarpong et al., 2019; Uyarra et al., 2020; Viale et al., 2022) have suggested that new requirements in public procurement and effective coordination of supplier relations may promote transformative innovation outcomes in supply chains. Public procurement refers to how government agencies acquire goods (e.g. office supplies and defence hardware) through buying, leasing, and renting, engaging service providers in providing citizens with public goods, essential services and works such as buildings, roads and bridges (Uyarra et al., 2020). Traditional public procurement promotes transparency, accountability and fair competition among tenderers in the evaluation and selection processes (Quiroga et al., 2021; Brown et al., 2012). While these principles help prevent potential bid-rigging and collusion and ensure fairness in the supplier selection process (Bawole and Adjei-Bamfo, 2019; Lember et al., 2011), they often hinder innovation outcomes as they impede supplier collaborations essential for information and knowledge sharing.

The innovation procurement literature (Edquist et al., 2015; Foss and Bonacelli, 2023; Aschhoff and Sofka, 2009; Edler and Georghiou, 2007) repositions public procurement as an innovation policy instrument to demand new or improved technologies and products (including services hereafter) from suppliers. It is increasingly recognised as a powerful demand-side innovation policy tool, where governments influence innovation not by directly funding research and development (R&D) but by acting as sophisticated buyers of innovative goods and services through demand articulation (Edquist and Zabala-Iturriagagoitia, 2012). Demand articulation in procurement involves how buyers’ needs and requirements are defined, and markets are identified. For instance, while Uyarra et al. (2020) discuss various scenarios where public procurement is adopted in innovation policy to advance economic diversification, Kusi-Sarpong et al. (2019) observe that government demands for new standards in procurement may engender the production of new products and processes that are environmentally and socially friendly.

Despite existing research on public procurement and innovation (Uyarra et al., 2014, 2020; Adjei-Bamfo et al., 2023), there is still scant knowledge about how public procurement influences supply chains to be more responsive to governments’ urgent and unique product needs. Therefore, this article attempts to answer the question: how can public procurement influence supply chain response to government innovation needs in urgent and unique product situations? Our research examines the role of government procurement in driving SCI from the downstream supply chain context and making supply chains responsive to public buyers’ innovation needs. In this article, we draw on network theory lenses to propose a supply chain innovation-oriented procurement (SCIP) framework that explains how demand articulation in public procurement could influence supplier responsiveness and consequently lead to radical (and not just incremental) innovation from supply chains.

Our article makes three important contributions to theory. First, this article contributes to the SCI literature by advancing procurement as a demand-side innovation driver to complement existing supply-side innovation initiatives. Existing research on supply-driven SCI (Kabadurmus, 2020; Luomaranta and Martinsuo, 2020) has discussed how technological advancement, strategic alliances among firms, and change in business processes as factors underpinning innovation outcomes within the upstream supply chain. However, these studies do not consider the effect of industry and macro conditions, supply network complexities and the role of unique customer demands in SCI (Wang et al., 2023; Jia et al., 2019) – resulting in marginal and less transformative outcomes. The article explains the dynamics of how communicating innovation needs may generate either incremental or radical innovation, depending on the focal supplier’s responsiveness and ability to manage complexities in their supply networks.

Second, this article further explores the resource-based competitive advantage of firm alliances on innovation (Lavie, 2006). Innovation is considered a product of a social network shaped by the interconnectedness of firms both upstream and downstream of the supply chain (Muller and Peres, 2019). With this observation, our research provides insight into government efforts to facilitate alliance formation among suppliers toward mobilising innovation resources through procurement. We critique the mainstream public procurement practices that are characterised by strict supplier competition and discourage alliance formation and information sharing among suppliers to control potential collusion and bid-rigging (Brown et al., 2012). New procurement approaches that promote knowledge exchange and supplier interactions and allow for creative solutions essential for radical innovation are encouraged (Choi and Krause, 2006).

Thirdly, this article offers a conceptual framework to guide managers responsible for buyer-supplier relationships to navigate the different responsiveness factors and network complexities influencing suppliers’ willingness and capacity to bid and fulfil buyers’ innovation needs. Compared to other innovation mechanisms, such as private sector R&D investment or industry consortia, public procurement stands out in its dual capacity to address public policy goals and catalyse innovation markets (Georghiou et al., 2014).

The remainder of this article is structured as follows. Section 2 outlines the research approach. Sections 3 describe the key constructs of our SCIP conceptual framework, while Section 4 explains the logical relationship between the constructs of our framework. Section 5 discusses the framework, implications for theory and practice and avenues for future research. Finally, Section 6 provides our concluding thoughts.

We used a two-step approach to gain knowledge to answer our research question: how can public procurement influence supply chain response to government innovation needs in urgent and unique product situations?

First, to avoid the common problem of lack of breadth with most theory papers (Cropanzano, 2009) and to determine which concepts should be considered (i.e. the what) in explaining the topic (Whetten, 1989), we searched and consolidated existing knowledge for theory extension on this topic. We followed a structured review drawn on Durach et al.’s (2017) and Seuring and Gold’s (2012) guidelines.

Existing relevant literature was searched from Scopus and Web of Science (WoS) databases due to their broad geographic and disciplinary coverage as well as their extensive use in management research (Fahimnia et al., 2015). Search strings used were “supply chain” AND “innovation”; “public procurement” AND “innovation”; “supply network” AND “innovation”; and “innovation” AND “public procurement policy”, without set date ranges. A total of 2,688 first-hit article outputs were obtained from the search (i.e. 1,440 from Scopus and 1,248 from WoS). Based on our research question, the inclusion criteria in Table 1 were developed by the research team and used by two members of the team to screen the articles.

Thirty-six articles were finally selected and synthesised (see Figure 1). Articles that met these criteria were included irrespective of their methodology and publication year. Only studies that discuss/focus on SCI at an industry level with innovation procurement or customer demand as a driver were included as being within scope. These articles were published in leading journals, including the Journal of Operations Management and Research Policy, between 2006 and 2023, with a significant growth in attention only since 2014.

Second, we synthesised in Section 3 the different streams of knowledge to develop a SCIP conceptual framework to bridge theory and practice with examples and scenarios. Developing a SCIP conceptual framework was relevant due to two reasons: (1) the limited available research on public procurement’s role as a demand driver for SCI, and (2) the topic is theory-light – the existing literature has few theory articles (Cropanzano, 2009), with a theory/data ratio of about only a third (with review articles dominating).

We adopted a conceptual review method following established guidelines for building theory and conceptual development in management (Cornelissen, 2017; Whetten, 1989; Alvesson and Sandberg, 2020), and particularly in supply chain management (SCM) studies (Wacker, 2004, 2008). While the framework explains how the concepts are related, we also formulate propositions that provide boundaries and conditions for these relationships (i.e. the how and why) to offer scientific and practical utility (Corley and Gioia, 2011).

We analysed the 36 selected articles, which include qualitative and quantitative studies, using an interpretive approach (Burrell and Morgan, 2019) to develop a new logic addressing how demand management in SCM enhances innovation. Drawing from diverse fields – purchasing and SCM, strategic and operations management, sociology, innovation policy and marketing – we synthesised existing insights and findings from the literature into our proposed SCIP framework (Patriotta, 2020). Incorporating social network theory’s concept of synergistic resources (Kim, 2014) and recognising opportunism in public procurement, we explain how buyers and focal suppliers can reduce innovation risks and costs by leveraging innovative resources from network partners to boost supplier responsiveness.

Using the network theory to explain procurement’s role in supply chain innovation offers a valuable contribution because it emphasises relational dynamics, knowledge exchange, and coordination mechanisms that are central to innovation in procurement settings (Choi and Krause, 2006; Sharma et al., 2020). This framing was chosen over alternatives like transaction cost economics or resource-based views since it better accounts for collaboration, adaptability, and learning across diverse organisational boundaries, which are essential in public procurement’s evolving innovation role (Uyarra et al., 2014). The main constructs forming the components of our framework are summarised in Table 2.

Public procurement characterises an agency relationship between a buyer and supplier(s) (Jensen and Meckling, 1976; Adjei-Bamfo and Maloreh-Nyamekye, 2019). The process involves public buyers articulating a problem requiring innovative solutions that suppliers must address either in the form of a request-for-quotation, request-for-proposal or expression of interest (EOI) (Selviaridis et al., 2023; Wesseling and Edquist, 2018). The relationship requires communication with potential suppliers and the supply chains about expectations to minimise goal conflicts in public procurement (Kauppi and Van Raaij, 2015).

Beyond knowing procurement policies and procedures, procurement managers also require technical knowledge about the problem, knowledge of the industry, and current innovation trends to ensure that the desired innovation addresses this need (Uyarra et al., 2014). With this capacity, procurement managers define desirable standards that suppliers must meet. In this situation, the agency theory suggests that both the principal and agent are opportunistic and would not hesitate to optimise their self-interest (Wilhelm et al., 2016; Holloway and Parmigiani, 2016). For example, while supply firms often aim to increase their profit margins and market share, government buyers seek improved products and innovative solutions worth their spending to address societal problems.

Communication gaps and goal incongruence in articulating buyers’ needs may give rise to problems such as moral hazards and adverse selection (Eisenhardt, 1989). Adverse selection occurs when a supplier misrepresents their ability during the contracting process, knowing public buyers may not be able to verify the information fully and accurately. Alternatively, Eisenhardt (1989, p. 61) refers to moral hazard as a “lack of effort on the part of the agent”. In this way, due to goal incongruence and communication gaps relating to how parties to a contract must behave, an advantaged party, mostly the agent (i.e. suppliers), shirks their responsibilities under an agreed contract to optimise their interest. This aspect poses a risk to the principal (i.e. public buyers).

In innovation procurement, buyers often employ either precise specification demands for standard products and desired incremental innovations or use outcome-based demands such as EOIs and request-for-proposals for nonstandard products to allow creative solutions that could lead to radical innovation. The buyer’s clear and precise articulation of the technical specifications of their innovation need is critical to aligning their interests with those of the supplier firms (Kauppi and Van Raaij, 2015). However, precisely articulating demand may limit innovation to incremental outcomes and hinder radical innovation as it does not allow creativity in proposing unique and alternative solutions.

A recent empirical study (Kauppi and Van Raaij, 2015) has suggested that the principal (i.e. the buyer) may potentially also exercise opportunistic tendencies under honest incompetence – in Hendry’s (2002) sense ^[1]. Honest incompetence occurs in demand articulation, where buyers have limited technical knowledge about their needs and cannot clearly communicate them to suppliers for their response. Supplier responsiveness to the buyer’s articulated demands is discussed next.

Supplier responsiveness refers to how promptly and accurately focal suppliers can respond to public buyers’ articulated innovation demands (Choi and Krause, 2006). The buyer-supplier relationship is typically defined as linear or dyadic. In the context of innovation procurement, however, Selviaridis et al. (2023) suggest that institutional set-up for articulating demand underpins most of the challenges faced and recommend instituting structures that seek to support innovation procurement. Due to the increasing interdependence among these actors in order to fulfilment and value creation, a network perspective seems to provide richer insights into the multiple interactions and relationships occurring between supply firms and buyers (Choi and Krause, 2006).

Kim (2014) defines a network as “a broad set of firms that are motivated to accumulate tangible and intangible resources” (p. 220). The network offers supply firms the opportunity to build ideas and knowledge from interactions and relationships with both their internal and external partners. Besides knowledge, network firms also share various resources such as patent information and risk, giving them more of an urge to innovate (Burt and Burzynska, 2017). Networks increase both the capital flow and trust in the supply chain to enhance capabilities for SCI (Lu et al., 2018). We, therefore, posit that supply size and absorptive capacity determine supplier responsiveness. These factors relate to how the buyer directs the innovation procurement process and identifies suitable suppliers.

Although a higher number of suppliers participating in a bidding process appears to translate into supplier responsiveness (Choi and Krause, 2006), the competitive pressure associated with a higher number of suppliers that engage with a buyer exposes suppliers to the risk of unsuccessful bids, denying them a chance of recovering invested innovation resources (Adjei-Bamfo et al., 2023; Roumboutsos and Saussier, 2014). A high supplier number, therefore, affects suppliers’ interest in bidding for government innovation procurement contracts and underscores the frequent use of preferred suppliers in a panel or framework agreement, restricted and single sourcing methods when unique or design changes are required (Kauppi and Van Raaij, 2015). A smaller supplier number engaging directly with a buyer, however, reduces innovation risk to focal suppliers, and buyers may potentially communicate their problem more effectively to fewer suppliers while making the innovation procurement process appear less competitive.

Focal suppliers with innovation acumen also have a high response to market innovation demands (Bellamy et al., 2014). Depending on the focal supplier’s innovation orientation, they access additional diverse ideas and technologies from their external partners, interpret them, and translate this knowledge and information into innovation outcomes. This ability is known as absorptive capacity – the extent to which focal suppliers in the network can understand and utilise the network resources accessed to create new knowledge that can result in change (Bellamy et al., 2014). Identifying suppliers with absorptive capacity in the innovation procurement process also moderates the relationship between the supplier’s access to network resources and responsiveness to innovation needs.

Suppliers form networks to draw on synergy resources and knowledge for innovation. Supply network members vary in various forms and relate differently among themselves, depending on the nature of their network structure. Sharma et al. (2020) and Choi and Krause (2006) define network complexity as the degree of differences between network members and their interactions in the network system. These differences give rise to network complexity, which Choi and Krause (2006) consider a critical issue that must be managed to achieve desired network outcomes. For example, members of a supply network may vary in terms of spatial complexity – their geographic spread (Sharma et al., 2020), interconnectedness – either densely or sparsely (Bellamy et al., 2014), accessibility to network resources (Gulati et al., 2011; Burt, 1992; Burt and Burzynska, 2017), and vertical complexity – members’ closeness to the focal supplier or downstream (Sharma et al., 2020). For the purposes of parsimony of our conceptual framework, however, we focus on network interconnectedness and network resource accessibility.

Network interconnectedness refers to the various potential sources from which supply network members can access innovation resources due to their association with other network members (Bellamy et al., 2014). The connection of network members shows the extent to which the focal suppliers’ network partners are directly connected to each other. Network members may be either densely or sparsely connected. A densely interconnected network implies that a large number of the focal supplier’s network partners share direct links without intermediaries. Bellamy et al. (2014) suggest that for a network to be considered densely interconnected, there must be at least three direct links connecting the focal supplier’s network partners. With sparsely interconnected networks, however, almost none of the focal suppliers’ network partners share a direct link among themselves besides their links to the focal supplier, creating the need for brokerage through intermediaries (Burt, 1992; Burt and Burzynska, 2017).

Generally, it is assumed that dense interconnectedness positively influences innovation because interconnectedness presents network members and the focal supplier with multiple knowledge and other innovation resource sources from which they may tap. These interconnections also suggest congruent goals among network members, effective communications and clear translation of buyers’ needs to network members in the supply chain. Public sector procurement regulations on anti-trust laws, mergers and acquisitions, and patent laws often limit such interconnection by controlling unfair supplier partnerships and associations, especially in bidding for public contracts. These regulations and related methods used may also hinder focal suppliers’ access to vital innovation resources (Uyarra et al., 2014).

The capacity of suppliers to introduce product changes in response to buyers’ articulated innovation demands largely depends on their ability to broker network resources. How effectively focal suppliers can access information and knowledge resources for innovation is critical. Although buyers often assume that network members have homogeneous characteristics with the same access to their network’s resources, studies on network characteristics (Bellamy et al., 2014; Muller and Peres, 2019; Gulati et al., 2011) disagree with this assumption.

Gulati et al. (2011), for example, suggest that network members have different levels of capacity and position within the network structure that influence their access to network resources. The supplier’s ability to leverage network resources to achieve innovation outcomes depends on the reach, richness, and receptivity of their network structure (Gulati et al., 2011). Reach details the extent of a supplier’s connection with network partners and how close a supplier is to its network members. This aspect implies that the closer a supplier is to other network members, the easier it is for the supplier to formally and informally access resources from network members and the network as a group. Richness describes how useful and unique a network resource is to the supplier (e.g. new technology, useful patent information, an investment pool, useful market information, or access to critical raw materials and skilled personnel) to facilitate a response to buyers’ innovation needs. Lastly, receptivity refers to the extent to which suppliers can access and use network resources across the network boundaries – explained by Burt (1992) as network brokerage – for radical innovation.

The SCI literature (Kabadurmus, 2020; Kusi-Sarpong et al., 2019; Luomaranta and Martinsuo, 2020; Shete et al., 2020) defines SCI as incremental and radical changes in products, processes, or technology that occur in the production activities of supply firms, among supply chain members, or in an industry that creates value for stakeholders. SCI features as an outcome of several strategic decisions that the management of focal suppliers and their supply chains implement (Goodale et al., 2011). Goodale et al. (2011) advance eight innovation areas, which may be categorised into product and process innovation (see Prajogo, 2016). Product innovation is often, however, the primary interest of government innovation procurements (Wesseling and Edquist, 2018).

Innovation is driven by a supply firm’s effort to adapt to the changing business environment such as increasing global concerns for environmental and social well-being in production and manufacturing (Kusi-Sarpong et al., 2019). Supply firms may also invest in their research and development (R&D), upskill employees and improve entrepreneurial acumen to design new desirable products and industrial processes. Others also lobby for government support, like tax rebates and patent policies (Jia et al., 2019). Supply firms form alliances to leverage synergistic resources to innovate (Carnovale and Yeniyurt, 2015).

While effective interaction with other firms upstream and downstream of the supply chain minimises innovation risk and enhances SCI, the information and knowledge resources shared by members of a supply network also contribute to enhancing product innovation and operational efficiency (Kusi-Sarpong et al., 2019), competitiveness (Kabadurmus, 2020; Wang et al., 2023), and profitability of their supply chain (Luomaranta and Martinsuo, 2020). The innovation literature advances two main streams of innovation drivers: demand-driven (Uyarra et al., 2014; Edquist et al., 2015) and supply-driven (Hottenrott and Lopes-Bento, 2016; Guan and Yam, 2015). We consider the above initiatives as supply-side innovation as they are driven by suppliers’ own efforts.

These supply-side SCI initiatives are inadequate for two key reasons. First, the available studies focus on firm-level and do not consider industry and macro conditions that affect SCI. Although the supply network literature (Sharma et al., 2020; Cantu and Tunisini, 2023; Bellamy et al., 2020) have established a positive effect on focal suppliers’ innovation, the existing SCI studies do not account for the effect of complexities on supplier responsiveness and how these effects lead to radical or incremental innovation outcomes. Second, the role demand-driven initiatives, such as public procurement, play in SCI has not been explored yet. Knowledge of how customer demands (i.e. as part of the changes in the business environment) and how the nature of articulated demands influence SCI is also limited. Demand-driven innovation involves customer demand from buyers and pertains to innovation driven by new customer tastes and new product features (Uyarra et al., 2014; Shin and Lee, 2022; Edquist et al., 2015). Since supply-side SCI initiatives are often left within the whims and caprices of suppliers, they have often led to marginal and incremental innovation outcomes even with formal government support (Jia et al., 2019).

Depending on the nature of buyers’ innovation needs, focal suppliers diversify their existing products to respond, as innovation involves either incremental or radical change to a product (Uyarra et al., 2020; Kabadurmus, 2020). Radical innovation relates to the creation of major disruptive changes to products or processes. Roumboutsos and Saussier (2014) suggest that radical innovation is mostly capital-intensive and involves sunk cost – irrecoverable investments. This potential sunk cost is generally a disincentive for most firms to pursue radical innovations with social interest exceeding their private returns (Wesseling and Edquist, 2018; Roumboutsos and Saussier, 2014). This situation leads to an excessive focus on incremental innovation by leveraging the positive externalities from their interactions with the few supply firms that bear the sunk cost and with whom they are connected within a network, either directly or through an intermediary (Roumboutsos and Saussier, 2014).

Incremental innovation involves a continuous and marginal advancement in a product or the process of change (Roumboutsos and Saussier, 2014). Small startup firms are considered risk-takers and with the capacity to introduce more creativity into various industries due to the unique ideas with the potential to create radical innovation. Alternatively, large incumbent firms are generally considered to be risk-averse, efficiency-oriented, less agile and resistant to change, and often end up exploiting positive innovation externalities towards incremental innovation (Roumboutsos and Saussier, 2014).

From our synthesis and development of a SCIP conceptual framework, four main constructs are crucial for understanding and managing how public buyers may influence supply chains’ response to innovation needs in urgent and unique situations. These constructs include demand articulation (Wesseling and Edquist, 2018; Uyarra et al., 2014), supplier responsiveness (Selviaridis et al., 2023; Choi and Krause, 2006; Bellamy et al., 2014), network complexity (Sharma et al., 2020; Choi and Krause, 2006) and the nature of innovation desired (i.e. incremental or radical) (Roumboutsos and Saussier, 2014; Wesseling and Edquist, 2018).

Our theory article follows a propositional style (Cornelissen, 2017) to define relationships between these constructs through clear, logically structured statements in the form of testable propositions. We propose a non-linear relationship between demand articulation and innovation (i.e. incremental and radical), as shown in Figure 2. These propositions are justified with existing theory or evidence, ensuring internal coherence and specifying the scope or boundary conditions of the theory. With this style, we provide our SCIP framework for empirical testing and to support cumulative knowledge development on the topic.

Unclear technical specification hinders innovation procurement outcomes (Uyarra et al., 2014; Kauppi and Van Raaij, 2015). Innovation procurement requires an effective framing of the problem to be solved by suppliers. Articulating demand clearly has proven essential in different government innovation procurement forms, such as competitive dialogue, pre-commercial procurement, innovation partnerships and public–private partnerships (Haugbølle et al., 2015; Roumboutsos and Saussier, 2014). Besides clearly articulating to suppliers the problem requiring a unique solution, Wesseling and Edquist (2018) suggest that initial proposals from suppliers should also be translated into functional requirements. These requirements must be both narrow enough to direct the innovation process and broad enough to encourage technological variety and creativity to achieve radical innovation outcomes (Wesseling and Edquist, 2018). For example, competitive dialogue offers a two-stage process where public buyers discuss the problem and contract terms with suppliers and then gather technical details about the solution (Haugbølle et al., 2015).

While precise specifications, such as request-for-quotations, are often used for standardised needs, other outcome-based demands are also used to communicate dynamic problems and urge suppliers to create unique solutions. The latter fosters an environment conducive to experimentation and radical innovation by shifting the focus from compliance to performance. For example, Bastianin et al. (2025) demonstrate how the European Organisation for Nuclear Research’s (CERN) performance-based procurement facilitated breakthroughs in sensor design and material performance by encouraging suppliers to propose novel solutions under technological ambiguity. These contracts also generated spillovers into commercial markets. In the renewable energy sector, governments in the Netherlands, Denmark and the United Kingdom have also used outcome-based demands to stimulate radical innovation in the wind and solar infrastructure industry. Rather than mandating specific technologies, tenders emphasised energy efficiency metrics (OECD, 2024), spurring advances such as floating offshore wind farms and advanced blade technology. These initiatives contributed to a 70% cost reduction in offshore wind energy (OECD, 2024).

Effective demand articulation is also necessary for supply chain relationship management (Lambert, 2008), and it helps focal suppliers manage, coordinate and align the activities of their network partners toward fulfilling the buyers’ needs. Articulating demand via a close buyer-supplier interaction, buyers may gain insight into focal suppliers’ absorptive capacity and network size, which demonstrates their potential responsiveness. Innovation procurement promotes collaboration and systematic coordination of innovation efforts among suppliers through industry consortia and innovation partnerships (Roumboutsos and Saussier, 2014), among others. However, the former often require intensive governance and may struggle to align diverse interests (Klerkx and Leeuwis, 2009), and suppliers’ absorptive capacity may also differ. Thus, focal suppliers with high absorptive capacity exhibit high innovation acumen and can effectively understand buyers’ needs, access relevant external innovation resources from their network partners and translate these resources into the desired innovation outcomes (Choi and Krause, 2006).

Suppliers with high absorptive capacity and clear demand articulation can help in aligning SCI with socially desirable directions (Georghiou et al., 2014; Uyarra et al., 2014; Wesseling and Edquist, 2018). Effectively communicating desired product specifications enhances focal suppliers’ responsiveness to the innovation needs of buyers. However, where a focal supplier deals with a large number of diverse network members, complexity arises from this diversity, affecting the clarity and ease of translating the articulated innovation needs to elicit the desired innovation outcomes from the supply chain.

The decision to develop new products foremost depends on a supplier’s absorptive capacity (Bellamy et al., 2014). The more a firm diversifies to create disruptive products, the more it experiences escalating costs for controlling and coordinating additional experimentation and production processes associated with developing radical products (Ajay and Madhumathi, 2015). Therefore, radical change is considered more capital-intensive and occurs less frequently. This is also because producing unique products involves additional investment in new technology and skills toward new product segments (Monteforte and Staglianò, 2015). Some focal suppliers internally generate innovation resources from experimentation, simulations, and prototyping. Buyers may, therefore, invite proposed solutions from focal suppliers to assess their absorptive capacity. Without the innovation acumen and absorptive capacity to access and use innovation resources, new requirements in procurement will deter supplier firms from radical innovation – although it is a catalyst for technological invention and economic industrialisation (Uyarra et al., 2020).

For example, in the Dutch water construction sector, Wesseling and Edquist (2018) analyse an innovation procurement effort in building a radically new flood barrier technology by adopting a developmental perspective, which identifies and selects supply firms with strong R&D capabilities. However, this approach tends to hinder SMEs who are mostly resource-constrained with limited R&D investments (Saastamoinen et al., 2018). Exploring this innovation behaviour among SMEs in Finland, Saastamoinen et al. (2018) suggest partnerships among similar SMEs would help build their absorptive capacity by complementing their resources for innovation. Hence, there is a need for buyers to employ innovation procurement methods that both identify suppliers with high innovation orientation and allow alliance formation to access and effectively leverage additional external knowledge and information resources from partners.

Besides absorptive capacity, a larger supplier size and network, although increase the focal supplier’s access to wider sources for network resources, a large network size generally increases network complexity. An increase in network complexity reduces the focal suppliers’ ability to control and coordinate their network’s innovation effort, such as reducing information gaps in the network. Consequently, innovation procurement methods often maintain smaller supplier size and prefer simpler networks to reduce procurement risk and to enhance clearer communication of innovation requirements to participating focal suppliers (Uyarra et al., 2014; Kalvet and Lember, 2010). Maintaining smaller supplier size and simpler networks through restricted tendering, preferred supplier lists, or single-sourcing methods also somewhat assures suppliers of recovering their invested innovation resources and reducing the risk of sunk costs (Adjei-Bamfo et al., 2023).

It must be noted that using methods that allow too few suppliers, such as single-sourcing, may limit transparency and visibility in the buyer-supplier interaction. Swink et al. (2024) emphasise the importance of visibility of such inter-organisational relationships and is even more crucial where matters of public interest are involved. To avoid privileging a few potential suppliers, potentially breeding corruption and to promote visibility in the supply chain for the buyers in gathering market intelligence, Wesseling and Edquist (2018) recommend a two-step innovation procurement process where: (1) all interested suppliers are foremost invited to offer their diverse solutions and (2) those with desirable solutions are later selected to participate in actual tender. Therefore, buyers must attract and provide security for potential suppliers to offer intelligence about potential new solutions in the market and maintain and engage with a reasonable number of suppliers who have networks with minimal complexity. While a minimal supplier number enhances suppliers’ interest in bidding for government innovation procurement contracts, a reasonable supply size reduces the focal supplier’s burden of coordinating a complex and diverse supply network.

High responsiveness from a focal supplier with a simpler network and high absorptive capacity eventually results in incremental innovation in the long run. Thus, high supplier responsiveness exposes procurement managers to more technical knowledge about the problem and innovation trends within the industry in question (Uyarra et al., 2014). Wang et al. (2023) suggest that when the technological capabilities of a supplier and a buyer are that high, SCI is negatively affected due to the tendency of buyers and network members becoming complacent and less motivated to amend existing practices. Public buyers whose ethos, among others, is to promote value for taxpayers’ money through competitive procurement often leverage this technical knowledge to further design precise specifications in articulating future innovation demands, resulting in incremental innovation at the expense of radical innovation.

Innovation procurement generally aims to promote responsive focal suppliers by encouraging supply networks and to accumulate synergy and external innovation resources (Saastamoinen et al., 2018). Government interventions in the form of public procurement policy, either through direct innovation procurement (buyer as end-user), catalytic innovation procurement (buyer as innovation coordinator on behalf of end-users) or adaptive innovation procurement (Wesseling and Edquist, 2018) stimulate network formation and support focal suppliers to access technological capabilities and resources to innovate. Innovating products either incrementally or radically requires vital information and knowledge resources as well as financial investments to mitigate high transaction costs and supply risk (Choi and Krause, 2006).

Both literature on supply networks (Sharma et al., 2020; Bellamy et al., 2020) and SCI (Luomaranta and Martinsuo, 2020) suggest that forming alliances offers the supply chain opportunity to reinforce its absorptive capacity by drawing on external innovation resources from network members. Besides knowledge and information resources, supply networks also share innovation-related risks as network resources facilitate their capacity to mitigate the cost associated with innovation. Supply networks also provide focal suppliers access to members’ technical personnel, technology, patent rights, marketing channels and manufacturing facilities (Kim, 2014; Lavie, 2006; Holloway and Parmigiani, 2016). External knowledge resources for innovation are often obtained through vicarious learning (i.e. modelled behaviour but not completely new) (Bellamy et al., 2014). These are “resources belonging to or deployed by an organisation’s diverse partners and are accessible to it due to its ties with those partners” (Gulati et al., 2011, p. 211).

While some studies (Lu et al., 2018; Kim, 2014) imply that firms within a common network have equal access to network resources, Gulati et al. (2011) argue in contrast. Different access to a network’s resources by its members and their varied abilities to translate network resources into SCI are influenced by their power in the network structure, competency and superior market position of network members (Gulati et al., 2011; Choi and Krause, 2006). Network members have heterogeneous characteristics, with different levels of capacity for accessing network resources and internalising them to innovate (Gulati et al., 2011; Bellamy et al., 2014). Also, while network members interact within their groups, network groups rarely interact among themselves due to their different foci and ideas (Burt, 1992; Burt and Burzynska, 2017). This situation creates a gap between groups called structural holes (Burt, 1992).

In the context of buyer-supplier interactions for stimulating process innovation, Wang et al. (2023) also refer to this gap as technological capability asymmetry. More powerful network members (network brokers) with strong technological capability and whose network spans across these structural holes and can interact with other network groups – beyond their immediate network structure – to access valuable information, ideas and best practices have a competitive advantage to generate radical innovation (Burt, 1992).

Bellamy et al. (2014, p. 360) suggest that a supply network may also be densely interconnected or sparsely interconnected. In a dense interconnected supply network, a large number of the focal supplier’s network members (at least three) are directly connected. A densely interconnected supply network is beneficial in two main ways: (1) offers the focal supplier a good opportunity to effectively communicate the buyer’s needs to network partners as there are often fewer intermediaries (Uyarra et al., 2017); and (2) provides them with reach and receptivity to network resources (Gulati et al., 2011).

While these benefits enhance innovation, their innovation outcomes are mostly incremental due to problems such as groupthink, complacency, resistance to change and lack of richness and uniqueness of the accessed network resources suitable for radical innovation. Again, this concurs with Wang et al.’s (2023) study of the effect of supply chain members’ technological capability on innovation outcomes among Chinese manufacturing firms, which shows a higher buyer and supplier technological capabilities negatively affect SCI due to inertia from complacency and groupthink.

Alternatively, a sparsely interconnected supply network involves a situation where a focal supplier has network members with very limited to no direct connection with each other, but with the focal supplier. This implies that the focal suppliers’ network members are less receptive to accessing network resources from each other directly. We argue that focal suppliers, in these circumstances, are less responsive to buyers’ needs as intermediaries and brokers are required to access vital innovation resources (Selviaridis et al., 2023; Burt, 1992).

While a sparsely interconnected supply network suggests limited access to network resources, it minimises groupthink and increases the creativity of the network, which is positively associated with radical innovation. When there are differences between buyers and suppliers’ technological capabilities, this facilitates SCI because capability gaps stimulate change and a need to improve (Wang et al., 2023). This drives more powerful (and well-positioned) members of the network to take charge and coordinate the innovation by brokering the needed technological resources from across their existing network boundaries (Wang et al., 2023; Burt, 1992).

Drawing on the network theory literature (Lu et al., 2018; Bellamy et al., 2014; Muller and Peres, 2019), we offer a SCIP framework in Figure 3 to explain how public buyers may structure their innovation procurements to drive SCI in a manner that makes focal suppliers more responsive to both incremental and radical product innovation needs.

Our proposed SCIP framework in Figure 3 begins with the articulation of new product needs at the downstream supply chain by government buyers, to the point where supply firms tap into both their own and network resources to achieve innovative outcomes. We argue that the procurement strategy/method buyers use largely informs supplier responsiveness and the nature of innovation outcomes. For example, mainstream public procurement prioritises competitive tendering methods to promote principles such as competition and fairness in public procurement to prevent collusion and bid-rigging in supplier selection (Bawole and Adjei-Bamfo, 2019). These mainstream methods involve minimal buyer-supplier interaction.

Although such mainstream procurement methods are associated with generating competitive pressure among suppliers (Choi and Krause, 2006), innovative-oriented procurements often attract limited supplier participation (Uyarra et al., 2014). Thus, suppliers, including most SMEs and start-ups without competitive technological capabilities and ideas (see Saastamoinen et al., 2018), face the risk of failing to recover their invested innovation resources due to unsuccessful bids. Our framework, therefore, suggests using innovative procurement methods that promote open and active communication through effective buyer-supplier interactions. Unclear framing and problem description hinder suppliers’ ability to effectively respond to innovation procurement needs (Uyarra et al., 2014; Kauppi and Van Raaij, 2015). Hence, an innovation procurement process that promotes outcome-based specifications allows public buyers to discuss the problem with suppliers and co-design the solution (Haugbølle et al., 2015).

The innovation impact of public procurement is mediated by supply responsiveness factors (i.e. supply size and absorptive capacity), whose effect on innovation outcome is further moderated by network complexity factors. Firms with strong absorptive capacity can better integrate external knowledge to meet complex procurement demands (Cohen and Levinthal, 1990). In contrast, complex supply chains may require additional coordination efforts to realise innovation benefits, particularly when interdependencies span multiple tiers (Patrucco et al., 2025).

Network complexity also conditions the nature of innovation outcomes. Dense, highly interconnected supply networks often reinforce incremental innovation through established routines and shared norms but may suppress more radical shifts due to conformity pressures (Sharma et al., 2020). Alternatively, sparse networks, while less embedded, can support radical innovation if focal actors possess high absorptive capacity and connect disparate sources of knowledge (Tortoriello et al., 2012). Procurement strategies that account for these relational dynamics – by aligning contract types with the innovation orientation of supplier networks – are more likely to generate transformative outcomes.

The size of suppliers directly participating in innovation procurement and supplier absorptive capacity also enhances supplier responsiveness. Suppliers accumulate and access external innovation resources such as patent information and new knowledge and share innovation-related risks and costs with their network partners (Bellamy et al., 2014). The innovation resources gathered externally give them a competitive advantage (Lavie, 2006), which enhances their participation and responsiveness in innovative-oriented procurements. While high supplier size may imply responsiveness, this generates competitive pressure, which is a disincentive for suppliers who often avoid sunk costs from radical innovation. However, fewer participating suppliers with high absorptive capacities and simpler networks have the potential to generate radical innovation outcomes.

The higher the supplier numbers in a network or a supplier chain, the more difficult it would be for the focal supplier to coordinate, as each supplier presents different values, goals, work norms and organisational culture (Choi and Krause, 2006). This inherent need and potential cost incurred by the focal supplier (with low absorptive capacity) to control and coordinate the innovation effort of more complex networks generally limit outcomes to incremental changes. Hence, buyers and focal suppliers working with a sizeable supply network that share, for example similar cultures, aligned goals, and are in close geographical proximity and have multiple sources from which they could access rich innovation resources are necessary to enhance supplier responsiveness to buyers’ radical innovation needs.

While supply networks provide an avenue to access external synergistic resources, their ability to access or broker external resources and understand and translate them in response to buyers’ articulated innovation demands is influenced by their absorptive capacity (Bellamy et al., 2014). It is, therefore, the buyers’ responsibility to identify suppliers with high absorptive capacity by employing relevant procurement methods.

This article advances the need for buyers to engage suppliers with access to relevant external network resources. Suppliers with high absorptive capacity are more responsive to buyers’ radical (including incremental) innovation needs in both precise and outcome-based demands because they can access complementary innovation resources externally. Such suppliers are also more responsive because they have innovation acumen and can manage their network complexities through control and coordination as well as broker complementary resources for radical innovation (Burt and Burzynska, 2017).

While precise specifications are mostly used in the technology sector for hardware manufacturing and in the construction sector for designs and architectural plans, they limit creativity and often lead to mere incremental changes. More responsive suppliers with access to rich and unique innovation resources can broker and use network resources even across their network boundaries, have generated radical innovations like AI-enabled traffic management (Edquist and Zabala-Iturriagagoitia, 2012), flood barrier technology (Wesseling and Edquist, 2018) and AI-driven diagnostic tools for early strokes and blood clot detection (Patrucco et al., 2025) through outcome-based specifications.

We, therefore, note that radical and incremental innovations are not mutually exclusive, but the specific network effects and how demand is articulated are more influential on one type than the other. Procurement can stimulate incremental innovation by encouraging continuous improvements in existing solutions while also enabling radical innovation through mission-oriented projects that seek transformative outcomes (Edquist and Zabala-Iturriagagoitia, 2012). By designing procurement processes that support both low-risk, short-term advancements and high-risk, long-term breakthroughs, governments can foster a dynamic innovation environment responsive to both evolving public needs and systemic challenges (Uyarra et al., 2014).

This article offers innovation procurement practitioners and policymakers knowledge on how public procurement may serve as an industry policy to facilitate SCI. Through innovation procurement requirements (Song et al., 2018), our article shows that buyers may design innovation procurement methods in a manner that identifies responsive focal suppliers and facilitates supply networks to adopt operationally efficient practices and enhance suppliers’ responsiveness to unique procurement needs. Our article offers greater visibility and insight into how government agencies may harness the social capital of supply networks while managing the potential opportunism in buyer-supplier interaction during demand articulation and supplier response, as well as network complexities in innovation procurement.

Particularly, practitioners and policymakers must foremost assess the nature of their product or problem requiring a solution. Having a better understanding of the problem and the solution needed helps direct the public buyers towards particular supplier industries to gather market intelligence about what solutions exist and determine whether the desired product will require incremental or radical innovation from suppliers. This knowledge is what initially informs how the innovation demand should be articulated. Public procurement managers may then use this knowledge to employ either a developmental innovation procurement method (which supports radical innovation) or an adaptive innovation procurement method (if incremental innovation is desired) (Wesseling and Edquist, 2018). In both approaches, the buyer plays the role of coordinating and directing the innovation process.

As discussed earlier in this article, radical innovation requires more investment in innovation resources compared to incremental innovation. Since the innovation risk and potential sunk cost deter focal suppliers from participating in desired radical innovation, buyers may facilitate focal suppliers’ R&D, create an enabling environment for R&D collaboration or stimulate network formation through the innovation procurement policy. This policy may also be designed into a sectoral industrial policy that targets relevant and specific sectors that government buyers wish to grow or promote innovation (Spring et al., 2017). The role of directing the innovation process also requires that the buyer – through the innovation procurement method – design functional requirements of the desired innovation narrowly enough and broadly enough to stimulate the variety and creativity of solutions. Besides a few SMEs and start-ups that present unique ideas capable of generating radical innovation outcomes to the market and have limited reach to or may not require network resources, buyers should hone supply networks to generate synergistic innovative resources in the process (see Saastamoinen et al., 2018). To effectively coordinate and direct the innovation process, the innovation procurement policy must gather information about network structure and complexities as part of its initial market intelligence.

The network conditions (i.e. supply/network size and absorptive capacity) discussed in this article may be used to evaluate suppliers and manage the complexities that affect focal suppliers’ responsiveness to buyers’ unique needs when radical innovation is desired. For example, buyers must maintain a reasonable balance between restricting tenders and competition in the selection: (1) to avoid privileging a few suppliers and (2) to allow new ideas. While these network conditions help buyers to minimise procurement risks, they also help reduce the complexities that focal suppliers deal with in the buyer-supplier relationship of innovation procurement. As discussed throughout this article, innovation procurement is also generally complex. Buyers must, therefore, have both operational expertise to manage the innovation procurement process and the technical expertise to define the problem and assess the feasibility of the solutions suppliers propose as well as the quality of the final solution focal suppliers provide.

Another key policy implication concerns the strategic tailoring of procurement contracts to align with different supply chain contexts, thereby enhancing the potential for leveraging innovation. For instance, performance-based contracts are especially effective in mature or vertically integrated supply chains, such as those in energy or construction, where suppliers possess the technical expertise and operational capacity to deliver complex outcomes. In such contexts, these contracts emphasise desired results, such as energy efficiency or emissions reductions, rather than prescriptive inputs. This shift encourages suppliers to incorporate innovative technologies and optimise lifecycle performance (OECD, 2024; Chiappinelli et al., 2025).

On the other hand, innovation partnerships fit growing or fragmented supply chains, such as in biotechnology or digital health, where co-development between procurers and suppliers is essential. These partnerships facilitate iterative feedback, joint problem-solving and risk-sharing, fostering breakthrough innovations via long-term engagement (Edquist and Zabala-Iturriagagoitia, 2012; Patrucco et al., 2025). In sectors that are fast-changing and uncertain, such as smart mobility or cybersecurity, where solutions are not well-established and multiple technological approaches are possible, framing procurement around a specific policy challenge encourages a broad range of actors, including start-ups and research consortia, to propose diverse and experimental approaches (Georghiou et al., 2014).

To effectively implement the SCIP framework in such contexts, buyers must prioritise early market engagement to assess supply chain preparedness and absorptive capacities. In mature industries, this can be achieved by incorporating performance metrics into tenders, while in emerging sectors, fostering pre-commercial procurement and co-design workshops is crucial. Buyers must also carefully balance cost efficiency with innovation incentives by adopting flexible procurement models that prioritise long-term value and performance over immediate cost savings (Grimbert et al., 2024; Kattel and Mazzucato, 2018). By integrating outcome-based contracts and fostering early market engagement, buyers can ensure that innovation is incentivised without compromising fiscal responsibility (OECD, 2024).

This article contributes to the SCI and innovation procurement literature in three ways. First, it contributes to the SCI literature (Kabadurmus, 2020; Luomaranta and Martinsuo, 2020) by advancing procurement as a demand-side innovation driver. While existing research on SCI has examined various ways through which supply firms enhance their SCI: including advances in technology, supply network formation to create synergy innovation resources, and R&D investments among others, demand-related factors and how they influence innovation from the downstream were unknown.

We extend this existing knowledge on SCI by explaining how changes in customer taste and requirement through public procurement serve as a demand innovation driver from a macro level, influencing innovation from downstream supply chain. We explain that different levels of clarity in communicating a buyers’ desired innovation needs could lead to different degrees of change in existing products. We, however, argue in our explanation that this effect is impacted by two supplier responsiveness factors (i.e. absorptive capacity and supplier size) and two types of network complexities (i.e. interconnectedness and resource accessibility).

While fewer suppliers (i.e. a good chance to recover invested innovation resources) and a high absorptive capacity enhance responsiveness, using both outcome-based and precise demands fosters more radical innovation when there is less complexity. A high network complexity, however, affects responsiveness to buyers’ needs due to the additional control and coordination constraint that could result in incremental innovation. This insight complements existing SCI discussions and offers new alternative pathways on how public procurement may foster both incremental and radical innovation.

Second, this article also deepens our understanding of SCI with insight into how the dynamics and contextual elements in innovation procurement make suppliers more responsive to government’s innovation needs. We contribute to the innovation procurement discourse with a framework that explains the responsiveness of suppliers to innovation procurement needs. Innovation studies (Jia et al., 2019; Guan and Yam, 2015) note that supply-side innovation drivers have only resulted in marginal product changes (i.e. high product similarity), making them less responsive to governments’ innovation-oriented procurements, which sometimes require urgent and/or radical product needs.

While existing supply-side innovation drivers (Jia et al., 2019; Guan and Yam, 2015) often yield incremental product changes due to their inability to control and account for complexity and network structures, our SCIP framework advances public procurement as a demand-side innovation driver with the capacity and conditions necessary to yield radical product changes in a market. We discussed how absorptive capacity and the number of suppliers engaged in the innovation procurement could enhance supplier responsiveness to buyers’ incremental and radical innovation needs.

Third, our framework also explains the effect of network complexities on supplier responsiveness, which has typically been studied in isolation in the SCI literature (Sharma et al., 2020; Bellamy et al., 2020; Choi and Krause, 2006). While we generally agree with Choi and Krause (2006) that the differentiation associated with complex networks is negatively related to supplier responsiveness, we learn from this article that this effect holds where available suppliers have low absorptive capacity, and buyers use outcome-based specifications. In these circumstances, focal suppliers struggle with significant information asymmetries and challenges of coordinating their network members (Wilhelm et al., 2016).

The direction of the effect may change where suppliers have high absorptive capacity and precise specifications are used to articulate demands as there is clarity about desired needs and suppliers can broker rich and diverse innovation resources to respond to buyers’ needs. Absorptive capacity is thus crucial in innovation procurement for determining supplier responsiveness, even in industries where supply networks are highly complex. However, supplier responsiveness to precise specifications rarely leads to radical innovation in highly complex network environments as precise specifications hinder creativity. Therefore, buyers may use relevant procurement methods to identify suppliers with high absorptive capacity and can manage their networks’ complexity towards radical innovation outcomes.

A key point to highlight is that procurement mechanisms are not neutral instruments. They actively influence firm-level innovation and supply chain structures. To optimise innovation outcomes, they must align with firms’ R&D capacities, supply chain readiness and sector/market-specific needs. Outcome-based and functional procurement, which focus on performance rather than detailed specifications, are particularly effective for firms with strong absorptive capacities (Cohen and Levinthal, 1990). These approaches also support smaller organisations when paired with tools like pre-commercial procurement or competitive dialogue (Edquist and Zabala-Iturriagagoitia, 2012; OECD, 2024). In sectors like energy and healthcare, they foster integrated supply chains and joint innovation. In contrast, rigid, price-driven models can stifle innovation and exclude smaller organisations (Georghiou et al., 2014).

While our study offers important insight into SCI from the downstream supply chain in the form of public procurement, there are several opportunities for extending and further clarifying our understanding of the topic. The propositions developed in this article offer a foundation for generating testable hypotheses in future empirical research.

For example, future studies may explore measuring items for focal suppliers’ ability to manage network complexity through their absorptive capacity. While prior studies have used R&D investment, map to external networks and patent data as proxies for absorptive capacity (Bellamy et al., 2020), these measures do not clearly explain how suppliers leverage their absorptive capacity to manage (i.e. control and coordinate) their complex networks towards desired radical innovation outcomes in demand-driven SCI.

Future research may also employ empirical approaches from various industries to validate the conceptual framework offered in this article. Although we found extant studies examining supply networks and innovation (Sharma et al., 2020; Cantu and Tunisini, 2023; Luomaranta and Martinsuo, 2020), they do not distinguish innovation types in terms of radical and incremental. Hence, the supply network’s impact on these innovation types is unclear. Following our SCIP framework, future studies may empirically test the effect of precise specifications and outcome-based demands (as independent variables) on the two innovation types (as dependent variables). Also, what will be the mediator effect of supplier responsiveness and moderator effect of network complexity on this relationship when buying from various industries? Such studies would further advance knowledge of the multiple perspectives of SCI.

Finally, future studies may also examine the effect of other forms of network complexities on radical and incremental innovation. For example, prior studies have discussed the effect of a network’s spatial, vertical and horizontal complexity on innovation performance (Sharma et al., 2020). Are there any changes to these effects in terms of radical and incremental innovation, and why? How could focal suppliers manage these other complexity types by leveraging their absorptive capacity to generate radical innovation for public buyers? Knowledge and answers to these questions would be helpful to better inform buyers and managers of focal supply firms in their innovation procurement efforts.

This theory-based article offers a conceptual framework that explains how public procurement as a demand-side innovation driver influences the responsiveness of supply chains to government incremental and radical innovation needs. The framework in Figure 3 shows that an innovation procurement system that prioritises how demand is articulated (precisely or outcome-based) and urges effective buyer-supplier interaction helps to effectively frame buyers’ needs to suppliers to elicit the desired innovation outcomes, whether radical or incremental.

Being able to effectively translate buyers’ needs into a well-understood procurement specification reduces the risk of honest incompetence by suppliers (Kauppi and Van Raaij, 2015). Also, buyers’ facilitation of network associations through innovation procurement and knowledge of power structures within supply networks is necessary for effectively stimulating innovation responses to buyers’ unique needs.

Encouraging supplier associations allows suppliers to leverage their absorptive capacity for accessing external innovation resources, interpret and translate them into innovation solutions for the buyer. To manage and meet the innovation costs of controlling and coordinating complex networks, focal suppliers must also maintain a small number of suppliers with close geographic proximity, similar cultures and complementary resources in their network (Choi and Krause, 2006).

Peter is thankful for the generous support of the Australian Government Research Training Program Scholarship during his PhD at Edith Cowan University. The authors appreciate the invaluable feedback and suggestions provided by A/Prof. Alain Neher (School of Business, Charles Sturt University) on an earlier draft. We also thank Mark Filmer and Suzanne Evas for their copy-editing, and Dr. Fahad Asmi for his research assistance on this project. Finally, we also appreciate the thoughtful and constructive feedback from the Associate Editor and two anonymous reviewers.

Erratum: It has come to the attention of the publisher that the article Adjei-Bamfo, P., Djajadikerta, H.G., Jie, F., Brown, K. and Kiani Mavi, R. (2025), “Supply chain innovation: a framework of public procurement as a demand-side innovation driver”, International Journal of Physical Distribution & Logistics Management, Vol. 55 No. 11, pp. 118-143. https://doi.org/10.1108/IJPDLM-06-2024-0237 included incorrect affiliation details for the second author Hadrian Geri Djajadikerta. The affiliation has been updated to “School of Accounting, Economics and Finance, Curtin University, Perth, Australia” in the online version of the article.

This error was introduced during the article publication process, for which the publisher apologises.