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Transformation is a major focus for many businesses and, to this end, the pace of innovation means everything.
If you consider some of the most famous innovations of the past, which have included solar panels, microchips, self-propelling cars, robotics and the Internet of Things (IoT), the quality and speed of these developments is increasing dramatically.
With that, the cost of those technologies is falling. Instant messaging application Skype, for instance, is no longer a paid-for service, the price paid for solar energy is expected to decrease considerably in the near future, and the cost to unravel the structure of DNA has fallen from that of a jet fighter in 2001 to less than $1,000 today. In two years time, it expected to cost as much as a pizza.
Today, the need for new innovations often comes from the threat of climate change and pressures on global ecological systems. Sustainable products, customer demands for sustainable sourcing and sustainable production methods are pushing businesses to devise new ideas and new technologies.
Procurement is increasingly being called upon to support the organisation’s brand image, with share prices closely linked to an organisation’s sustainability. It is common knowledge that companies focusing on innovative and sustainable products or reducing greenhouse gas emissions create more value than businesses that ignore sustainability as an important business driver.
Sustainability is also increasingly recognised and pushed forward by senior management.
Some companies are investing in delivering ’future’ innovations, which use newly developed materials or solutions. They want to set an example by introducing programmes to reduce the use of raw materials and clean water in their manufacturing environments, by using circular economy principles, such as clean energy, recycled materials and closed loop products designs.
But the big challenge for senior management is to get the entire company to move in this direction.
Defining sustainability objectives and translating these to stakeholders is essential. Educating and involving employees, customers and suppliers in key objectives helps embed sustainability. Targets must be communicated and results measured in order to drive awareness and actions throughout the entire organisation.
As a function, we can help stop the use of child and forced labour in the supply chain, reduce the use of natural resources and end the pollution of both water and airways.
The sustainability evolution can lead to a dramatic change in roles across many different functions.
Marketing should obtain a deep understanding of future market trends and customer requirements if it is to stay ahead of the competition. It will demand closed-loop products from the innovation team so as to create additional value for customers. The innovation team is faced with the challenge to create viable products or solutions in line with these trends.
Procurement, meanwhile, will be required to find the raw materials, services, suppliers and products in time and at the right cost to support the time to market planned for.
In this fast-changing environment, the function must define and embed a strategy based on understanding, supporting and proactively delivering these aims. How can procurement do this?
Get a seat on the board
If the CPO has a seat on the executive board, the function will be more aware of – and be directly involved in setting – the strategic direction of the company. This will also give the function clarity on mid- to long-term plans across other functions. Using this knowledge, the CPO can determine where procurement should focus its attention in order to drive out new innovations.
Talk to stakeholders
Procurement should start by visiting strategic customers. Ask them about their requirements, look at how they use products and ask what they want from the relationship now and in the future. These visits can be arranged in collaboration with marketing and sales. The objective is to ’feel’ the market and ’taste’ how your company is perceived.
The function should also establish regular meetings with leadership team members to discuss progress and the challenges procurement is facing. These meetings will also give you the opportunity to reassess expectations and outline how the management team can support the goals surrounding innovation.
Hold regular discussions with marketing and sales to confirm the image the business is striving to create and understand what it is selling and how it is selling it. These meetings will also affirm mid- to long-term product plans and expectations.
Outside of that, the function should visit production facilities to ensure there is an understanding of production processes and the risks in terms of any potential bottlenecks.
Lines of communication should also be opened with finance to understand margins and the company’s key cost drivers, such as margin expectations, margin management and claims.
Perhaps the most important internal customer procurement should build a relationship with is research and development. The two functions should collaborate on roles and responsibilities in the innovation process; the expected outcome in pricing, margin and timing; the selection of suppliers and expectations on cooperation; and project management. If these meetings take place on a regular basis, procurement won’t be taken by surprise and can work proactively on solutions for stakeholders across the business.
Talk to each other
Finally, and most importantly, talk to procurement. The entire team must understand the expectations and requirements of internal stakeholders so it can allocate the necessary resources to support the innovation process.
In my experience, purchasing is often not completely aware of all the criteria, expectations and pressures of the company so, as a consequence, does not deliver in line with these expectations.
Ultimately procurement needs to be at the heart of the business and its needs. After all, the company can benefit from the value procurement can bring through the innovation process, but the function needs to work to ensure this value is recognised.
Dick Bartelse, former purchasing director at AzkoNobel, is now a consultant at DBConsultancy
This contributed article has been written by a guest writer at the invitation of Procurement Leaders. Procurement Leaders received no payment directly connected with the publishing of this content.