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Innovation versus cost-reduction

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The debate around innovation versus cost reduction is more vital now than ever. Executive search firm Sourcing Solved caught up with Ed Fuchs, who has been in the procurement space for over 25 years. Most recently CPO at Aryzta and now commercialising a revolutionary biotech innovation, Fuchs explains why he believes it shouldn’t be a case of choosing between one or the other.

 

“Innovation isn’t a person or a function, it’s a mindset. When the business asks a function to embark on innovation, most of the time nothing materialises. Innovation affects the total internal value chain, and everybody involved. It’s all about creating the innovation mindset; a way of thinking openly towards the world around you, which sparks new ideas and gives energy to take action.

 

Procurement people know how to innovate, absolutely, and any process can be trained with the right skills. You do need a slightly creative, entrepreneurial spirit as a background, and if as procurement leaders you can identify these skills and the right mindset then you can start putting different teams together that will allow you to access creative ideas across the value chains.

 

This creative strain also assists in the standard procurement strategic sourcing activity. If you’re going through the initial analysis and you’re working out what you want to do with a material group, you need to be quite creative to understand what your strategic levers are inside that category. If you have that creative skill set, you can apply it to a number of areas.

 

The perception that procurement people are a little too focused on cost isn’t a good representation, because procurement’s role is to be focused on the business strategy. Strong procurement organisations usually sit inside relatively large consumer group or manufacturing organisations, and they are born out of a need to focus on and consolidate the cost base. The team’s first view is to look at cost and then to bring in innovation with the wider business, often leading to the procurement organisation being labelled as cost-focused.

 

If you have a greenfield site you can build a strategy that’s aligned to say ‘we’ll look at cost to start with, but that will then generate innovation’. Integrating this into the organisation early will allow you to develop savings with innovative thinking, and innovative thinking is a source of cost reduction as well. They go hand in hand and are in sync with each other; you need to view the two as an organic cycle to get the best of both worlds.

 

I do believe that to achieve both from this cycle, it is about pulling the right teams together, and pulling in the right skills within those teams so they can have the right technical skill set and the right clarity of behaviours. There’s a significant amount of work that goes into identifying the right skills. It’s important to ask: have you got enough consultants, consultancy collaboration skills and technical skills?

 

The great thing about the procurement field is that the team dynamics are always changing as the external environment changes. 3D printing, which will result in smaller component order quantities and revolutionise tool costs, and Amazon B2B and similar models, which will simplify corporate indirects are just some examples of these external drivers. As artificial intelligence evolves, research and insights will become commoditised. Such changes in technology will help drive the next cost-reduction and the next innovation in that space.”



After completing a strategic review of Aryzta’s investment in Groupe Picard, Ed Fuchs left to co-found Folium Food Science, commercialising a bio technology which precisely manages microbial populations. This disruption innovation has the potential to transform food, animal and crop health. Read the full article here

 

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.

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