Innovation in Procurement
Innovation in Procurement
Innovation in Procurement
Contents
1
Findings 10
4
5
Conclusion
16
Appendix 17
Adrian Penka
Global Procurement Transformation Lead
Tel.: +1 40 4806 5082
Email: adrian.penka@capgemini.com
4
Kirsten Schipper
Managing Consultant Procurement Transformation
Tel.: +31 30 689 5526
Email:kirsten.schipper@capgemini.com
Open Innovation
Firms that include their suppliers in the early stages of innovation projects
seem to substantially outperform their peers that do not. Yet a large proportion
of companies, does not include suppliers in over 90% of their New Product
Development projects. This is based upon our initial findings from World Caf
sessions and survey respondents.
Over the past decade we have seen a significant increase in turnover in
procurement as companies focus on core capabilities and outsource others.
This has increased the influence of the procurement function typically
controlling all spend one way or the other. At the same time, the nature of
innovation recognized by most successful companies as the key to sustainable
growth has evolved from a purely internal capability to something to be
delivered in collaboration with the external network of supply partners. From
this concept of Open Innovation, Capgemini expects two key developments: 1)
A greater focus on value chain optimization and interaction, and 2) A broader
role of supply partners in the innovation processes. In practice, however, these
two developments have not emerged as prominently as expected. In fact, the
role of procurement in managing supplier involvement in innovation continues
to be very limited.
Recently, some leading procurement organizations have embraced and
pursued the concept of being a key player in seeking, fostering and delivering
innovation in collaboration with other functions. From this, these leaders have
found that this type of capability requires them to play a completely different
game in terms of organization, skill sets and processes.
As companies realign and focus on becoming more open by leveraging a wider
knowledge base for sources of innovation, the total supply base both current
and potential suppliers should be utilized. Companies should consider
identifying and developing a supply base with complementary capabilities that
drive value through collaboration. From this, a joint development process can
emerge to support more innovative products through a more innovative value
chain. Consequently, this drives down supply management costs and drives up
value for the end customer.
Depending upon the product category, the innovation relationship continues
throughout the product/service lifecycle. This process of continuous
improvement will continue to yield new ideas and opportunities for further
value creation. In short, the key is to find supply partners, jointly develop
capabilities and improve products through close collaboration.
1
6
Evolution of Procurement
Operations
2
8
Performance Scores
- Respondents were asked to rate
their performance in terms of
overall gains such as growth,
ROI, profit, competitiveness, and
on innovation performance such
as time-to-market and product
success.
Analysis of Outcomes
- High performance companies are
those that conduct open as well as
closed innovation, resulting in a
mixed view of high performance
companies when we examine
3
10
Findings
Degree of
Open Innovation
>90%
50 - 90%
10 - 50%
<10%
Unknown
Dedicated
innovation sourcing
Virtual teams
Cross-function teams
6
5
>90%
50 - 90%
10 - 50%
<10%
Unknown
Supplier innovation
meetings
Supplier support
11
Figure 4: KPIs
7
6
5
>90%
50 - 90%
3
10 - 50%
2
1
<10%
Unknown
Material efficiency
Supplier Involvement
- Sales realized from projects with
supplier involvement
- Number of projects completed in
conjunction with suppliers
- Number of innovation events
with suppliers
- Supplier satisfaction
These targets illustrated the difficulty
of measuring innovation-related gains,
especially if it was to be distinguished
for every team member. About half of
the targets for Procurement focused
on the effort, not on the outcome.
But a target set based on both effort
and outcomes balanced the needs of
getting everyone engaged/focused on
customer value and at the same time
contributing to the goal or expected
result.
The survey outcomes clearly
differentiated between top performers
and the rest. Shared targets were
formalized among most top
performers, and the targets they
apply were largely in line with those
mentioned. However, there were
strong differences even among the top
performers on the use of target sets.
Top performers in the survey scored
high on the number of ideas brought
forward by procurement
(see figure 4), whereas the World Caf
leaders clearly chose a stronger focus
on the effort to connect suppliers with
R&D.
12
Ideas brought by
procurement
>90%
50 - 90%
10 - 50%
<10%
Unknown
Procurement in
Innovation Strategy
Innovation Targets in
Procurement Plan
>90%
50 - 90%
10 - 50%
<10%
Unknown
1
Specialist
Supply base
Entrepreneurial
13
Gains from
collaboration
>6
5-6
4-5
2
1
3-4
<3
Innovation resources
Exclusivity of innovations
14
Bottleneck preference
>90%
50 - 90%
10 - 50%
2
1
<10%
Unknown
Risk compensation
Information sharing
Win-win creation
15
>90%
50 - 90%
10 - 50%
<10%
Unknown
Help suppliers innovate
Top management
committed
Manage expectations
Conclusion
The findings from the World Caf session and the survey responses all indicated
that IDP needs to be explicitly organized. We found clear differences in success
ratings and the way of organizing procurement and measuring its contribution.
Selecting, developing and rewarding employees for capabilities in managing
complex relations and projects is critical. From the World Caf session and the
IDP survey both, it is abundantly clear that successful innovation programs
start at the top commitment from executive leadership. This message must be
communicated to all levels of the organization and positioned as an integral part
of the achieving enterprise-wide goals. In keeping with that concept, KPIs should
be realigned to measure the contribution and impact of groups contributing to
innovation projects. An important part of this is attracting and retaining the
right talent in the procurement organization personnel with strong relationship
building, facilitation and moderation skills. Finally, our research clearly indicates
that true supply partnerships drive increased innovation, and this becomes a
differentiator in the market.
16
Appendix
Background: Innovation driven buyer-supplier relationships
This appendix is written by Niels Pulles (PhD researcher) and Prof. Dr. Holger Schiele (Chair of Technology Management - Innovation
of Operations) from the University of Twente, The Netherlands.
Leading firms tend to engage in buyer-supplier relationships that move away from a more traditional view on procurement
where the supplier persuades the purchaser to buy. Instead, an important aspect of IDP is that buying firms persuade
the innovative supplier to provide. The objectives of procurement function in these relationships are typically outside the
scope of exchange of goods or services. Often the buying firms aim for unique skills or capabilities that suppliers possess.
Therefore, a buying firms strategy is often not aimed at satisfying or attracting every single supplier. Most often, the concepts
relate to a situation in which buying firms want to attain preferential access to those resources that will give them an
innovation advantage over their competitors. Therefore, specific IDP strategies often focus on strategic or key suppliers rather
than on suppliers of commodity goods.
+ 0.367*
Supplier innovativeness
(R2 = 63%)
+ 0.542*
+ 0.043 n.s.
-0.103 n.s.
Preferred customer
+ 0.505*
Benevolent pricing
Behaviour (R = 24%)
*= Significant at p < 0.01, n.s.= not significant. Source: Schiele, H., Veldman, J., Httinger, L. (2011), Supplier Innovativeness
and Supplier Pricing: The Role of Preferred Customer Status, International Journal of Innovation Management, 15(1), pp.
1-27.
The figure above shows that by becoming a preferred customer, firms could significantly improve the suppliers contribution
to their innovation projects. In fact, in some cases it could be argued that a preferred customer status is even more important
than the innovation capabilities of the suppliers. Another important finding is that being a preferred customer status can lead
to benevolence in the pricing behaviour of suppliers. In other words, these findings seem to indicate that firms can acquire
better innovation resources than competitors without paying significantly more.
17
Business opportunities
Business approach
Share risks
Relationship performance
Customer attractiveness, supplier satisfaction, and preferred customer strategies can be considered as important concepts
for IDP functions. When applied properly, preferred customer strategies might make the difference in successful supplier
integration for better innovation outcomes.
18
Australia
Netherlands
Stephen Nestor
Email: stephen.nestor@capgemini.com
Tel.: +61 39 6133 388
Erick Haag
Email: erick.haag@capgemini.com
Tel.: +31 30 689 1811
Belgium
Kirsten Schipper
Email: kirsten.schipper@capgemini.com
Tel.: +31 30 689 5526
Filip Paenhuysen
Email: filip.paenhuysen@capgemini.com
Tel.: +32 27 081 363
Central Europe
Martin Raab
Email: martin.raab@capgemini.com
Tel.: +49 221 912644150
North America
Matthew Shull
Email: matthew.shull@capgemini.com
Tel.: +1 214 577 3216
Spain
Stefan Beckar
Email: stefan.becker@capgemini.com
Tel.: +49 89 9400 1126
Pedro Provedo
Email: pedro.provedo@capgemini.com
Tel.: +34 91 657 7521
Finland
Sweden
Markus Karki
Email: markus.karki@capgemini.com
Tel.: +358 94 526 5612
Micheal Skordy
Email: michael.skordby@capgemini.com
Tel.: +46 8 5368 4021
France
Bo Karlsson
Email: bo.x.karlsson@capgemini.com
Tel.: +46 8 5368 4065
Jean-Gabriel Padovani
Email: jean-gabriel.padovani@capgemini.com
Tel.: +33 14 967 2140
JeanPierre Pell
Email: jean-pierre.pelle@capgemini.com
Tel.: +33 14 967 5159
India
Prashant Kumar
Email: prashant.c.kumar@capgemini.com
Tel.: +91 9833522544
Smita Gotarne
Email: smita.gotarne@capgemini.com
Tel.: +91 9987794288
UK & Ireland
Hamish McKechnie Sharma
Email: hamish.mckechnie-sharma@capgemini.com
Tel.: +44 870 366 0435
19
About Capgemini
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