In this fast-paced business world, a firm’s ability to adapt and change quickly is crucial. Companies are facing a constant shift in focus and regularly need to introduce major transformation as client and customer demands evolve. Innovation, it would seem, is the keyword of the world today, and businesses need to equip themselves to manage this change and sufficiently meet the demand. But where is this innovation being driven from and what does this mean for procurement?
In my view, much of this change is driven by our evolving environment and growing pressure on ecological systems. Sustainability is becoming a greater requirement from customers who more frequently embrace ‘green’ solutions. However, while it’s common to see the cost of innovative developments reduce fast (they tend to half within around 2 years) consumers are often reluctant to pay the initial high prices for the environmentally friendly solutions they demand, putting real pressure on the procurement team to reduce costs of materials as much as possible.
These days company image is also very much reflective of the firm’s sustainability. In fact, businesses focusing on innovative, sustainable products are seen as more valuable to customers, with share prices often closely linked to a firm’s environmentally friendly image. With this in mind it’s no surprise to learn that sustainable products and services are being championed from the top in many organisations. At board level they are growing more aware of the need to change operations to be more environmentally friendly, particularly those that are using raw materials which are already in short supply.
These companies are investing in delivering ‘future-proof’ products using newly developed materials. They are aiming to introduce new programs which reduce waste and energy usage, they’re decreasing their reliance on raw materials and clean water in the manufacturing environment and much more. In essence, management is pushing businesses in a new direction that is focused on innovation.
This does, however, create a major challenge for top-tier management: getting the entire company to move together in a new direction. Defining overall sustainability objectives and translating these requirements internally across all disciplines will be necessary to get things done. Education and involvement of employees, customers and suppliers will be needed to embed sustainability as a long-term strategy. Defining and communicating targets and how these will be measured will be required to drive awareness and actions throughout the company.
But what does this all mean for procurement? Quite a lot, in my view.
In cases where a Procurement Director is a member of the executive team, the discipline will have a much greater involvement in influencing the direction of the company. Subsequently, procurement teams will have greater clarity on the mid and long-term business plans, marketing/product portfolio and development plans, competitor information, production/planning, budgets, expected returns and required profits.
However, the evolution outlined above leads to a dramatic change in roles of various disciplines, all of which will have an impact on procurement. Marketing now needs to obtain a much deeper understanding of future market demands and customer requirements which is critical to stay ahead of the competition.
The company’s innovation department and R&D teams have to face the challenge of creating viable products or services in line with these future-proof solutions, providing extra value to the customer.
And Logistics and Purchasing are left with the difficult task of making all of this happen. They will have to source new raw materials, sustainable services, find suppliers with similar ethics and identify environmentally friendly products on time and at the right cost levels to support the Time-To-Market planned for. And all of this must be achieved while remaining in the loop of further innovations within the company.
While it can be argued that the role of procurement has always covered much of this, the biggest challenge now lies in defining and embedding the Procurement Strategy in such a fast-changing world.
So how can procurement support and deliver this innovation? Check back for my next blog outlining my top tips.
Procurement in motion