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How can procurement drive innovation?

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Sally Davis innovation, risk, Procurement...

Procurement, despite a wealth of evidence to the contrary, is still often viewed as simply a purchasing function. However, a successful procurement function isn’t just about saving money, and progressive CPOs are always on the lookout for new ways to deliver value. In fact, we would argue that this specialism is actually uniquely positioned to identify and pursue opportunities for innovation and growth that other parts of an organisation may miss. When we look into what ‘innovation’ actually means, as the ‘process of changing or creating more effective processes, products and ideas, to increase the likelihood of a business succeeding’ it bears a striking resemblance to what any good procurement function sets out to achieve. So, how specifically can procurement drive innovation?

Innovative supplier relationships        

Procurement has a huge opportunity to innovate businesses by driving supplier collaboration. Through efficient governance structures, CPOs can allow suppliers to play a far more proactive, insightful role in company innovation. These types of partnerships drive sustainable business performance for all parties, and CPOs that encourage innovation from suppliers will see this reflected back on to their businesses.  This is particularly important, as numerous polls have shown that suppliers are increasingly being relied on as a major source of new ideas, with one Accenture Strategy study identifying that 81% of C-level executives felt that having better suppliers in their ecosystems will allow their organisation to grow in ways otherwise not possible. As procurement shapes the terms, conditions and compensation of suppliers, and have negotiation tools at their disposal to help form at-risk, gain-sharing and exclusive rights agreements, they are uniquely placed to be extremely influential in this area.

Sustainability

Currently a hot topic, the demand for sustainable supply chains is greater than ever and procurement can also drive innovation in this regard. Developments in sustainability can be extremely valuable to business, and highly valued by customers, with share prices and employer brand often closely linked to firm’s environmentally friendly image. Through the implementation of large-scale collaboration, such as the interlinking of production plants, or sharing of distribution to reduce waste, procurement can help companies cut back on surpluses and excess energy usage, reliance on raw materials and much more. This will only be enhanced by innovative technologies such as blockchain, which may give us a viable way to eliminate paper from trade, with current applications of this including solutions to digitise and automate the bill of lading

Early adoption of technology 

Finally, procurement can drive innovation as the best placed business function when it comes to adopting new technologies early on and therefore bring innovations to a far wider range of business functions. For instance, big data and analytics are a growing area where procurement functions can drive innovation and integration. Companies and customers will soon have the tools to collect, analyse and use this information to previously unprecedented levels across the supply chain. These insights, and the refinement of data collecting measures that procurement teams can perform, will allow companies to use analytics gathered from supply chains to make a multitude of improvements to other business processes. Furthermore, as mentioned above, blockchain - another emerging technology that could provide a vast amount of business uses - is already being used in procurement functions.

Getting started

Clearly, procurement can drive improvement and be responsible for a wide range of company developments. Furthermore, the view that the function’s purpose is solely about saving money is a highly outdated misconception. However, one thing that is important to bear in mind with any talk of growth and innovation, is that it already presumes that a company has successful base procurement capabilities in place. If businesses haven’t mastered the basics, then it’s unlikely that people will be very receptive to a conversation about innovation. This is why talent, and having the right people on board to make sure you are in a position to drive these changes, is so important.

Have you got the right people in place to handle future challenges? Take a look at how we’ve assisted organisations in building first class procurement and supply chain functions. Or, if you’re in need of a new challenge, visit our jobs page.

Authored by Sally Davis – Sales Director, 1st Executive Ltd