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Procurement’s latest test: measuring innovation’s intangible value

Espresso-live Speakers
by Harish Soundararajan, Sridevi Akkarajuvenkata & Sakthi Prasad
1 January 2017

Over the years, procurement has evolved from focusing only on achieving cost savings to becoming a key driver of continuous business growth.

To be sure, cost savings continues to remain an important goal of global procurement organizations. However, as companies chase the game of value addition, new imperatives have emerged out of complex business landscape besides cost savings. Procurement organizations will have to view their role through the prism of Cost, Speed, Flexibility, Innovation and Risk.

Everyone understands the basic concept of Innovation, but the challenge remains as to how procurement organizations can use as well as measure the intangible value generated by Innovation across the supply chain.

With a drop from 2016 in supplier collaboration as a priority from 39 percent to 26 percent and a reduction in the restructuring of existing relationships in favor of increased competition, generating innovation and managing risk will likely become increasingly difficult for procurement, according to Deloitte Global CPO Survey. Yet it pays to be an innovative company. The 2015 Top 100 Innovators outperformed the MSCI World Index in revenue by 6.01 percent, employment by 4.09 percent, and market-capweighted R&D spending by 1.86 percent, according to Thomson Reuters Top 100 Global Innovators report.

Typically, departments such as R&D and Marketing have been earmarked for innovation. The trend is now slowly but surely changing: there is now a growing need to share the ownership of innovation across the business, and interestingly some of the efforts in innovation have been pioneered by procurement organizations.

Gone are the days when procurement was seen only as a tactical function. The function as a whole is now becoming more strategic in nature. For their part, procurement managers are working on various plans to deliver value to their business stakeholders. Important among them is harnessing innovation across the supply chain.

Contrary to what many think, procurement organizations do deal with innovation on a regular basis -- be it evaluating suppliers to purchase new-age drones or connecting business stakeholders with innovations in the marketplace.

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