Procurement teams have a growing responsibility within organisations. Cost and quality will always play a huge part across the function (for both direct and indirect categories) but creating value and bringing innovation to the table is becoming increasingly vital.
To some extent, Procurement are on a unique footing; not only do they have access to key stakeholders but also link various departments (including sales, marketing and finance), due to the necessity of communicating key strategies, alignments and enhancing processes. And similarly, they liaise with external organisations and the supply chain.
This all equates to Procurement being able to drive supply chain innovation. In theory.
Mindset & Early Interaction
Which products or services purchased (particularly regarding indirect procurement/ overhead costs), in order to run your business today, do you see as an innovation opportunity in the future? It’s not always easy to see the wood for the trees, and working with an outsourced procurement services provider can ensure clarity and direction, but ultimately, this is how early within the procurement process innovation needs to be considered.
Your research and development, for your own products and services (and subsequent growth) can be aligned with the thousands of research and development personnel and processes within the supply chain that your organisation is intrinsically linked to. By doing so, and adopting this mentality early, you’re enabling your organisation to tap into the expertise within suppliers’ businesses. And why wouldn’t this be a great place to start? After all, the suppliers have a vested interest in staying ahead of their competitors and being ahead of the curve; utilise their passion and expertise for their own industry and solutions.
Supplier Relationship Management (SRM)
The benefits of Supplier Relationship Management (SRM) are well acknowledged within procurement but the average SRM maturity level is still relatively low. Organisations often find it difficult to initiate, develop and manage their supplier relationships for a number of reasons.
Dynamics, such as trust, open communication, empathy and a win-win emphasis, are fundamental in any company being able to benefit from the capabilities of genuine SRM (innovation, sustainability and resilience to name but a few).
Trust, at the heart of any good relationship, works both ways. Suppliers won’t necessarily take their latest developments and innovative trailblazing solutions to their largest/ most profitable customers. Suppliers will often approach the customers with whom they have the strongest and closest relationships (the ones they actually feel comfortable in approaching) and the ones that they see the best longer-term growth opportunities with.
Similarly, the amount you spend with a supplier is not necessarily the main element when it comes to identifying opportunities. The best evaluation method is whether or not you anticipate a long-term relationship with the supplier to help your organisation grow. And being able to extract the innovation and latest solutions should be at the forefront of the evaluation.
Ultimately, when the right amount of time is spent developing the relationship, and the balance of partnerships/ two-way understanding is achieved, you’ll start to reap the benefits of true supplier innovation. And improving your relationship with strategic suppliers or partnering with a company to enhance your supplier relationship management, shape supplier identification, conduct relationship analysis is a great place to start.
The Negotiation & Innovation Tightrope
The ultimate purpose of a relationship with your supply chain is for it to benefit your organisation in the most applicable way. For this to occur, long-term, truthful and open dialogue is key. And this must all be done on the basis of an equal partnership. Threats, aggression and negotiation “tricks” should be circumvented as these will likely undermine the supplier trust in the relationship. It is better to consider the supplier as an extension of the internal teams within the organisation and therefore subject to the same professional respect given to co-workers.
That’s not to say that the underlying principle of procurement should be ignored and that financial and service discussions shouldn’t occur. They should, but this is the innovative tightrope and balancing act that you’ll need to weigh up and be successful in before innovation can progress to the next level.
Conclusion
Since customer needs are constantly changing and technological advancements are sky-rocketing, the ability to create a value-oriented supply chain represents a challenge for many companies. It’s likely that a high proportion of CEOs, reading this, will consider innovation a top priority but a lack of resources and a structured process are potentially a barrier.
Innovation is not a person or a department. It is a mindset and a whole host of process and so implementing can also pose challenges for organisations. But implementation is the key and end-game and there’s little point in seeking out emerging technologies and products/ services or the suppliers who understand emerging trends and plan their business accordingly, without the implementation piece.
Companies that combine their innovation efforts with those of their suppliers typically bring products to market faster and therefor giving them a competitive edge. And due to their expertise and knowledge within their own industry/ category, suppliers are often able to suggest improvements that are potentially missed internally. Risk can also be mitigated and spread among a greater network of stakeholders.
There’s little point bringing an all singing, all dancing innovative supplier with the latest solutions to the table if it deflects from the fundamentals of harmony and collaboration between departments. But progress, development and innovation rarely occurs if the standard isn’t tested and questioned occasionally.
Be open to new ways of working and collaborating and provide suppliers with relevant, honest and timely feedback on ideas around the development of any proposals/ innovative suggestions; it’s amazing what we can all achieve together.
Finally, a quick note on cost reduction; it should form part of indirect procurement KPIs. The whole point of innovative solutions is that it’s the latest thoughts, tools and products. Therefore, cost savings are often achievable by the very ethos behind evolution.
Gemma Howard-Sandy is the Managing Director at Procuright – an Outsourced Procurement & Indirect Procurement Management services provider for UK companies. With the rationale to outsource non-core services increasingly compelling, many organisations are finding that strategic, well-managed procurement outsourcing is a sure route to securing significant cost savings and efficiencies.
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