Role of Procurement Team in Innovation

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By: Ipsita Suman -- Principal Analyst, Indirects

17 November, 2019

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Introduction

The role of procurement is becoming significant, although slowly. According to Deloitte CPO Survey 2017 and 2018, the role of procurement has increased in the area of New Product development. However, this comes after procurement's major role of cost savings and Risk management.

Roadblocks to Innovation in procurement

Most organizations seem to lack the idea of involvement of supplier when it comes to innovation. The idea of Innovation still brings the thought of technical teams such as R&D centers and business in most organizations. Often times organizations overlook the fact that Procurement has the view of entire supply base; hence this is an untapped area.

  • Low supplier visibility is making supply base consolidation, introduction of Supplier development programs difficult. According to Deloitte CPO Survey 2018, 65% of the organization do not have visibility beyond tier 1 suppliers.
  • Lack of supplier collaboration requires an immediate attention. As per the survey, only 23% of the organizations aimed for improved collaboration practice in the coming year.
  • Lack of role development in Procurement is one of the leading cause of low level of innovation. Procurement is yet to catch up on the soft skills required to drive innovation policies in organizations.

Approach towards instilling Innovation in organization

 Innovation approaches impact the entire organization. Cross functional teams must be the driving teams along with dedicated Innovation management team, which act as Change management and Governance agency

Key features of Procurement Innovation Team/Council

  • Cross Functional team design
  • Shared responsibilities, Shared KPIs
  • Leveraging IT systems for effective Knowledge Management
  • Process development

procurement-business

  • Balancing the holy trinity - People Process System

For each type of system implementation, there should be a corresponding change in Process and People. Organizations currently focus on systems part actively. The process improvement/ change comes after redundancy/error is reported after many iterations. However, people are just expected to change by themselves. Without a proper framework development, procurement teams are left stranded

  • Connecting the dots between Planning, Sales, Marketing, Finance, Innovation, Engineering

Procurement is no longer contained as a purchase support function and is increasingly having say in other teams. in such case, having experience and knowledge in other domains would enable procurement to make unbiased decisions. This also helps to widen network and learn from innovations in other domains and apply in another domain.

  • Continuous Improvement and adding soft skills

Procurement consists of many hard skills such as Negotiation, Budgeting etc. Soft skills such as Design thinking and consultative selling would enable procurement to interact with other teams and make an informed decision

continuous-improvement-adding-soft-skills

Measuring Innovation

KPIs
Number of strategic partnerships
Pipeline of Innovation projects
Spend by innovation project
Revenue generated by innovation project
Number of innovation Leaders achieving target
% of employees who passed training for innovation
% if ideas turning into Innovation projects
Percentage of successful Innovation projects
Number of Innovation projects directly impacting the top line
ROI of Innovation exercise


Example of different Innovation roles across major organizations

Nike 

Project Management: To ensure high quality project management practices. Proactively engage, inform, align, and facilitate key decisions with stakeholders.

Influencing skills: To present ideas and solutions in easy-to-understand manner to influence people and decisions. Build a community to drive innovation from inside out and outside in.

Colgate Palmolive 

Industry knowledge: Drive innovation by understanding industry  landscape, material trends and supplier capabilities, actively driving SRM (supplier relationship management) with strategic suppliers

Supplier rationalization: Optimize Supplier base by recommending suppliers based on innovation capabilities, costs and alternative sourcing following Strategic Sourcing Process.

Glaxosmithkline 

Collaboration: Collaborate closely with  External Innovation team to gain clear visibility into current state priorities and new needs/wants from the categories and exchange quickly via proper channels and forums to prioritize ideas. Attend strategic meetings and be deeply involved into key decisions. 

Supplier Identification: Work with supplier diversity team on collaboration with small and diverse suppliers as a source of innovation. Leverage start up networks, accelerators and other sources to access new innovative suppliers for the organization.

Mondelez

Business case analysis: Lead the business case analysis for selected emerging technologies. Participate in the creation of innovative strategies to identify and match business needs with Supplier capabilities

Assurant

Track Innovation Output: the number of innovations that reach the market in a given period, the percentage of revenue derived from new products and services, and the margin gains that are attributable to innovation.

Impossible Foods

Stakeholder management: Develop strong working relationships with the principal stakeholders and acquire an intimate knowledge of the emerging food technologies and or platforms that will drive future product innovation

Freshly

Supply Chain management: Works cross functionally to develop, implement, and then optimize an effective and scalable supply chain for new product lines - including, but not limited to: procuring, storing, and distributing goods or services and maintaining stock level.

Henkel

Cost Modeling: Cost calculation for new products (across development phase up to Go2 decision / project approval) and optimisation of production costs for new products (and/or existing products)

iHerb Inc

Technology implementation: Lead, develop, and implement innovative technologies across all sites, while creating strategic plans for future operational performance throughout the Supply Chain.

Ball Aerospace

Supply Chain System development and architecture: Includes linking strategic goals and objectives to tactical execution through development of one/holistic system, providing visibility and tracking of cash, product and data.

Supplier Performance system development: Concepts, responsibilities, measurements, cadence, delivery targets, delivery systems.

Category Management: The process of selection of suppliers, segmentation of supply base, metrics management, and supplier performance management.

Conclusion

Best in class procurement teams are moving towards Business Partnership and Supply Chain Innovation. Cost Saving skill has become a mandate for the procurement team. The core functionalities such as Value Creation, operations are being kept separate for ease of work.

However, soft skills and other allied skills such as Finance, Relationship Management, Consulting is being required at an individual level in order to improve the integration of procurement with the business and other functions.

References

https://www2.deloitte.com/content/dam/Deloitte/uk/Documents/operations/deloitte-uk-global-cpo-survey-2017.pdf

https://www2.deloitte.com/content/dam/Deloitte/at/Documents/strategy-operations/deloitte-global-cpo-survey-2018.pdf

 




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