There is more to Procurement than Savings

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RP_waste_healthProcurement is a fairly new discipline. Having started in the mid 80’s where “the Chinese” made prices go down and Procurement had their glory because Procurement savings were a safe bet – we now have a new situation. What is the role of Procurement going forward?

THE NEW REALITY
After multiple rounds of cost reductions, customers and suppliers find themselves in a different world. Demographics in China have become unfavorable, and the cost of Chinese labor has more than quadrupled over the past 15 years. Growth rates are slowing or stagnating around the world, and politicians in Europe and the United States are promising to roll back globalization.

In this new reality, it is difficult to have much leverage over suppliers and pushing them further would mean that you would have to compromise on product quality, delivery reliability, or working conditions.

Procurement must create value in new ways and strategic innovation could be a helpful tool. In this blog post I am discussing ways in which you can start building your new value proposition as a CPO.

WHAT IS INNOVATION?

No matter whether you work in Procurement or anywhere else in the organization we are all dependent on our ability to bring in new radical ideas to the business. Not just the incremental ones but true radical ideas. We need to encourage to examine established beliefs, facilitate innovative solutions, and even challenge what is core. How can this be done in a structured way?What is innovation? This discussion is very important to have not only on an executive level but also with your employees. Quite often employees will think that innovation is something which is all about developing new products. It is much more than that. Frame the way you want to change the world. Start with defining and publishing innovation goals at the company level, and then ask teams for a breakdown into incremental, sustaining, and disruptive innovations.

This discussion is very important to have not only on an executive level but also with your employees. Quite often employees will think that innovation is something which is all about developing new products. It is much more than that. Frame the way you want to change the world. Start with defining and publishing innovation goals at the company level, and then ask teams for a breakdown into incremental, sustaining, and disruptive innovations.

INNOVATION IS MORE THAN PRODUCT DEVELOPMENT
Encourage your employees to think about innovation from different domains – it could be the 4 P’s: profit models, processes, products, and policies. By highlighting the different arenas in which employees can be involved with innovation, companies can help employees add value in areas where they have deep knowledge and a desire to get involved. Tools which could support you here is an innovation intent. If your company does not have an innovation intent – get inspired by the innovation intent which Grundfos has created right here. If your company has an innovation intent – describe to your employees how you expect them to translate that in procurement. By highlighting the different arenas in which employees can be involved with innovation, companies can help employees add value in areas where they have deep knowledge and a desire to get involved.

If your company has an innovation intent – describe to your employees how you expect them to translate that in procurement. By highlighting the different arenas in which employees can be involved with innovation, companies can help employees add value in areas where they have deep knowledge and a desire to get involved.

FIND YOUR CHAMPIONS AND DEVELOP YOUR INNOVATION CULTURE
Big businesses have large employee bases with clear reporting lines.  While this structure provides a number of benefits, it can also be a roadblock when it comes to creating a culture of innovation.  While a company may preach the benefits of innovation, middle managers are still tasked with ensuring optimal performance in the business’s core activities.  They have little desire or capacity to jeopardize core initiatives for unproven innovation efforts. Innovation champions can help employees find friendly spaces to test their new ideas, while also providing a level of protection against managers who are charged with focusing on the core.

NEW METRICS & FRAMEWORK
New initiatives can’t compete at the same level, and they are killed off before they’re given a chance to prove themselves.  Performance metrics often suffer from the same problem.  While employees are told to be innovative, their performance goals and compensation packages don’t create the incentives to do so.  Even the best ideas aren’t going to get any traction if the value they bring to the organization isn’t made clear.  And that’s often where companies fall short.  I recommend that you invest in innovation programs to bring in new ideas. You should give individuals the tools or frameworks to show why those ideas which have been generated are worthwhile. So instead of teaching employees how to come up with new ideas, you should rather teach them what to do with the good ideas they come up with, from knowing who should hear the idea to what that person should be hearing.

The world needs new solutions & more effective collaboration to solve some of the biggest challenges. That is why we inspire companies to move to more open forms of strategic innovation. We are doing that by mobilizing capabilities and resources for mutual benefits and by putting more focus on trust in the relationship. Get inspired on the Collaboration Growers platform.

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