The shift of the procurement function from a simple cost-cutter to a strategic change-maker has already been widely discussed. Traditionally, innovation has been attributed only to R&D and Marketing functions.
However, especially modern procurement can contribute significantly to corporate innovation as it depicts a central hub for internal and external communication with suppliers.
In the following, we want to have a quick outlook on major aspects where procurement can actively drive corporate innovation.
Due to its historical habit to cut costs, procurement has often collided with the product development and quality control functions.
However, as central point of contact for suppliers, procurement can leverage market know-how and standards in order to drive and support innovative internal projects even stronger.
Crucially, many sourcing organisations already assume a more holistic approach, employing metrics for risk analysis, and analysing production materials, as well as monitoring a partner’s ability to provide timely results. However, highly innovative categories, such as marketing and software, require different metrics, that go beyond those inherited from production material and commodities. As technology is rapidly advancing, it can fall to procurement to assess new developments and a potential partners strengths and weaknesses. Which technologies is a supplier skilled with? Are they cutting edge? What challenges arise in deployment, and can these challenges be overcome? Being able to answer these questions with competence allows procurement to introduce market innovations into an organisation, and provide guidance to internal stakeholders.
Building a knowledge base requires closer interaction with suppliers from a very early stage, and to dive into the technical details early in the process. As sourcing itself becomes embraces agility, the role of the category manager becomes ever more important.
Sourcing aka finding the right partners to drive innovation
Digital tools provide a large amount of market data at the disposal of procurement teams, opening up new opportunities for innovation. In this sense, innovation can be intended as:
– The purchase of innovative, new or early-stage goods and services (Traditional Procurement Innovation)
– Carrying out procurement tasks in an innovative way, e.g. using innovative tools and systems as substitution or integration of some stages of the procurement process (Innovative Operational Procurement)
– Developing suppliers to partners in order to co-innovate beyond corporate boarders and develop new products and services together (Cooperative Innovation)
But most importantly, procurement teams have the possibility -or, rather, the duty- to always encourage innovative ideas from every supplier, asking themselves and the others “how could this good or service delivered to the customer in a way that it drives better value? And what are the best alternatives out there?”.
Indeed, the sourcing and procurement function’s essential path to value contribution stems from its ability to gain influence among internal business stakeholders. As it is involved more deeply in the sourcing process, starting from its incubation as a know-how provider, its role shifts away from a single-purpose service provider (cost-cutting). Sourcing professionals have the opportunity to leverage all their skills — from analytical, technical and financial skills to marketing and presentation skills — to facilitate change within an organization.
Conclusion — innovation results from knowledge and process
In a rapidly changing economy, forward knowledge can be critical. And procurement is ideally positioned to scout, analyse, and carry knowledge into the organization through agile and cooperative operations.