By responsible procurement, 10 January 2014, Responsibleprocurement.dk
In many companies, the Procurement function is undergoing a radical change. Rather than simply being an administrative function, Procurement is fast becoming a strategic part of the business.
Since the financial crisis of 2008, most established firms have reduced costs, focused their resources, and become more lean and efficient. Now, however, they face the challenge of how to grow — which will require the development and implementation of truly innovative products, services, and business models.
The efficiency of Procurement is now seen as a critical part of moving the business forward, and in this challenging economic climate, Procurement Professionals are being asked to do more with less.
In order to support this company process CPO’s and Procurement Executives will have to be clear about, how they can best enable innovative thinking to their suppliers and Procurement professional. In a recent article published by Harvard Business Review “Don’t abandon innovation – simplify it” they argue that the key ingredients are “straightforward”:
- Robust and regular interaction between people from different areas (e.g. marketing and engineering)
- Support and encouragement for internal entrepreneurs (including giving them some amounts of time and freedom)
- Recognition and rewards both for people who succeed at innovation and those who fail smart
- Targeted investments for projects that warrant further exploration.
Sounds simple, but in many companies the above approach might sound foreign.
What are the typical barriers to involving the suppliers in the innovation process?
When talking about making innovation more simple I believe it is important to recall the most well known barriers to involve suppliers in the innovation processes.
They are:
- “Not invented here”: Many do not believe that ideas coming from outside can be used (Source: Henry Chesbrough of the Center for Innovation, Berkeley, California).
- “Lack of knowledge”: When a solution does not suit the individual business unit but may be used in whole or part in another part of the company the supplier might not be informed Not because of ignorance, but because of lack of knowledge about the need in other parts of the business.
- No control over IP rights: Some customers want complete control over the IP rights, which suppliers cannot give them. This can shortcut the process.
- Forgetting to share knowledge-sharing-tools.
- We forget to incorporate KPI ‘s in the cooperation related to innovation. One might well give a reward for the number of ideas a supplier has made over one year. You could also segment the suppliers from an innovation point of view (gold, silver or bronze). Including the use of scorecards: How many ideas have they come with? How useful are the ideas? How much value do they bring to the company? How much they save us per year?
- Lack of Periodic reviews with strategic suppliers: Which technological investments, new product development and capacity outlook are suppliers foreseeing in the new year.