Overview
The majority of innovation projects, specially supplier innovation fail. There is a lack of innovation ecosystem understanding and the ability to champion the new innovation as a journey and the strength to set up an environment in which bringing ideas to the internal organization and the vendor community is feasible.
Introduction
As the economy begins to show signs of recovery, many organizations are now returning their focus to growth which relies on support from the supply base. Innovation is essential to satisfy growth in a sustainable way, to remain competitive and, importantly, maintain cost control. Traditionally, departments responsible for innovation such as R&D and Marketing have worked independently from the rest of the organization. There is now a need for functions such as procurement to become more innovative to improve top and bottom line performance.
Although the majority of procurement leaders are aware of the importance of innovation in procurement, and the effort of many organizations to support the function towards creating an innovative culture and workforce, it seems that little advancement has been made in this regard.
In reality the success of innovation in procurement is far more complex than many want to admit. Beside theoretical knowledge of innovation through training and development of the workforce, the success of integrating innovation in procurement requires a great effort from the leadership team to change the perception of procurement from cost reduction to value creation, a redesign in process and the know how to use data to identify opportunities and support strategy development – and this is easier said than done.
For the management of innovation projects the traditional Procurement departments have to transform into multiple Innovation Driven Procurement projects teams with the aim to support the business strategy in pursuing innovation targets such as:
• Delivering more innovations in less time
• Accelerating design and launch cycles
• Improving product / service price quality ratio
• Increasing the end customers’ experience / satisfaction
“Innovation is about understanding customer engagement and aligning strategies accordantly”
From my experience the purchasing function’s contribution to innovation is highly dependent on:
1. The level of exposure of the company to innovation
2. The integration of the purchasing function into the business.
I have been fortunate to contribute into achieving innovation in procurement in two major steps
1. Leading purchasing department to contribute to innovation in a proactive and structured way.
2. Integrating the purchasing function in the innovation process. Establishing a mature structure for purchasing to support company wide innovation initiatives.
Innovation for me has been the exploitation of opportunity to create
market differentiation and competitive advantage.
The innovation process requires tight internal and cross-functional collaboration. Providing the right skills and training is also critical. In addition, the purchasing function’s knowledge of the supply market, its vision of future trends and suppliers’ innovative solutions as well as its transversal position are assets to share with the other innovation stakeholders.
Cross-functional collaboration is the foundation for purchasing’s contribution to innovation. Linking procurement to other functions’ objectives in the value chain as well as developing the correct skills set is an enabler to promote innovation opportunities through creation of aligned, agreed and shared objectives.
Innovation Driven Procurement Organization
Such organization fundamentally differentiate themselves on four key dimensions:
They are able to integrate themselves with the business lines and gain the buy in to be considered as a key player in the innovation process. This is by far the most challenging task that required in-depth subject matter expertise and soft skills. Understanding all aspects of organization innovation from Technology Roadmaps, Future Service pipeline, business plans and portfolios of products and services.
They are able to help find new opportunity and sources of innovation capabilities. These capabilities are not easy to find in part because suppliers typically are used to being mere contractors delivering according to specifications and directions. Finding sources of innovation supply requires knowledge of markets and technology. Besides being able to find the right supplier, the buying company needs to make itself attractive enough to the supplier in order to ensure resources are actually secured for the buyer rather than its competitors. A value proposition is required to make all supplier interested in such collaboration.
They are involved in innovation projects from conceptualization to end of life. Procurement will have to re-align its value proposition to innovation projects as the values to measure success (time-to-market, product success, project efficiency, ROI) are very different from what Procurement traditionally delivers (savings, contract compliance, risk reduction). Further Procurement must adapt to the chaotic and uncertain environment of early innovation stages with the right organization, people and processes.
They are able to manage supplier involvement collaboratively. This requires early procurement involvement in innovation projects to set supplier involvement strategies and drive them all through the project and possibly beyond. Procurement, as the owner of the interface between the company and its supply base, will have to make sure collaboration within the innovation project is enabled and monitored. It should be a win-win for all parties involved.
Understanding
the end customer
Customer engagement has never been more vital: Not only might it help companies develop alternative streams of revenue in the current moment, but it could also offer a significant advantage when the economy reopens.
Research shows that engaged B2C customers “return a 23% premium in terms of share of wallet, profitability, revenue and relationship growth over the average customer,” and that engaged B2B customers lead to 50% greater revenue, 34% higher profitability, and 63% lower customer attrition.
While meeting customer expectations may seem to increase the complexity of the procurement process at first glance, this trend also presents new opportunities for improving operational efficiency, building goodwill in the marketplace, fostering internal collaboration, reinforcing market positioning, and developing a unique brand message.
To take advantage of these opportunities, you need to adopt a customer-centric approach to procurement so you can become more responsive to changes in market demand.
It all starts by understanding how customer engagement works and the key benefits that could be obtained.
Customer-centricity will also help you lower cost with more efficient inventory management while being the first to introduce a new product and gain more market shares as a first mover.
A customer-centric procurement process has profound impacts across the various functions of an organization, from R&D and product development to supply chain management and marketing to customer understanding.
By putting customers at the center of procurement, you’re shifting the priority of the decision-making process from being cost-driven to demand-driven, with a focus on sales and revenues.
While adopting this new approach will require a fundamental shift in how the entire organization interacts with procurement, the long-term benefits will be well worth the effort:
- Develop strong and mutually beneficial supplier relationships through close collaboration and innovation.
- Provide a common goal that fosters collaboration among various internal departments, breaking down silos and improving overall cost-efficiency.
- Increase the accuracy of demand forecasting so you’ll have the right products in stock in the right place and at the right time while reducing the time-to-market.
- Improve inventory management by reducing the cost of storing excess inventory while avoiding low stock and missed sales.
- Inform product development by anticipating new consumer trends so you can be the first mover and gain more market shares.
- Inform your brand’s marketing message and positioning. For example, by incorporating a storytelling component on how the raw materials are sourced, you can build emotional connections with your audience, distinguish your brand from competitors, and increase brand loyalty.
- Build trust and loyalty with customers by proactively taking their needs and priorities into consideration.
Implementing a Customer- Centric Procurement Process
There are many moving parts in sourcing, supply chain management, fulfillment, and demand forecasting. Here’s how to implement a customer-centric procurement process:
Recognize that customer-centricity isn’t a short-term initiative. Instead, it requires fundamental changes in an organization’s culture, operations, and strategic direction.
Identify metrics that indicate the successful execution of a customer-centric procurement process. Many of these will likely be related to business performance, such as revenue and profit, brand differentiation, etc.
Combine these business-performance KPIs with traditional procurement metrics (e.g., cost savings, cost avoidance) to create a balanced procurement scorecard.
Improve collaboration with suppliers and encourage innovation in the supply chain to stay ahead of changing customer expectations and improve efficiencies.
Evaluate your supply chain and make improvements so you can become more responsive to customer demands. For example, you may need to reorganize the supply chain, such as using near-shoring, to reduce lead-time.
Digitize supply chain management to enhance real-time information sharing and use automation to increase efficiency. The elimination of manual and repetitive tasks will allow your employees to focus on strategic and creative efforts that’ll improve the customer experience.
Obtain first-hand insights from customers through polls, surveys, social listening, and focus groups to predict market trends, inform product development, improve the accuracy of demand forecasting, and explore sourcing options.
Gather information from customer-facing teams, such as sales and customer care, to gain insight into customer sentiment.
Leverage real-time data analytics from various sources, such as retail POS, warehouse shipment, return merchandise, eCommerce platform, and big data to gather business intelligence and inform decision-making.
It’s not procurement’s role to cut budgets, but to maximize the outcome of investments
While the procurement process has multiple “customers,” such as internal departments, suppliers, and top management, their roles should be designed to serve the ultimate end customer – the consumer.
The procurement process should ultimately focus on meeting market demands and improving customer experience so it can help your brand gain market shares and improve top-line results.
Changing the self-perception of the procurement team is critical to strategically positioning the function to enhance customer experience and demonstrate added value to the internal stakeholders.
The procurement team need to understand that they don’t just take ownership of which suppliers are chosen, rather they support the business in its strategic goals.
Customer Value Touchpoints
Building the Case
Sitting at the interaction of market & business
Business Model Design
for Innovation Partner Ecosystem
I developed the model below to support procurement leaders in creating customer centric business models by taking an ecosystem perspective on the outcomes they wish to create in accordance to identified customer journey pain-points, and the configuration of the value network they envision.
Creating an ecosystem business model requires a predictive value creation map aimed at influencing the way procurement organizations identify and realize value.
The aim of this model is for procurement organizations to influence the way they create and capture value within the context of the partner ecosystem. In the delivery of complex solutions, procurement should be prepared to consider relationships with firms from different industries and adjacent markets.
Different business scenarios need to be considered in the early stage, but business model plans may result in completely different applications than expected. Finally, the innovation generated between both parties will result in partial or full servitisation of the value delivery.
The framework could be useful for companies to take an ecosystem perspective on their business models. It includes criteria that are essential to any sector, such as business model flexibility and enabling of technological innovation.
In my experience what makes innovation so complex and difficult to manage is finding the right balance between having the rights skills set, processes & a collaborative culture to be able to align and adapt strategies as described below.
SUMMARY
A customer-centric procurement process requires a shift in your company’s culture from product-first to customer-first.
The shift in the procurement paradigm involves supporting business and brand strategy, adding value for consumers, contributing to top- line results, building collaborative relationships with external partners, fostering supplier diversity, and leveraging technologies such as AI and IoT to improve tracking and data-driven decision-making.
While the procurement process has multiple “customers,” such as internal departments, suppliers, and top management, their roles should be designed to serve the ultimate end customer – the consumer.
Your procurement process should ultimately focus on meeting market demands and improving customer experience so it can help your brand gain market shares and improve top-line results.
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