Procurement as a Technology and Innovation partner
Mariëlle Wester | 8 december 2017
Written by: Annemieke Gelder
So often Procurement is confused as a purchasing function. Last week I heard that Procurement is actually a dying function, as they do not lead the innovation agenda or product development. A well-designed procurement function is strategic, drives innovative supplier collaborations in a commercial sensible and ethical way and does not limit itself on purchase order processing. To the contrary.
Key activities of procurement
Each and every supply chain function has its own unique design, depending on the organisation structure, industry, geography and maturity (this author). Procurement typically being part of a companies’ supply chain function is also subject to these factors and holds the key to the inbound operations efficiency.
Purchasing activities such as buying materials or components as per the product drawing or specifications is effectively a sub-set of Procurement. The latter is a strategic function, which drives productivity, innovation and growth and protects the business (CIPS), coming together in the Strategic Procurement Pyramid (model 1).
Model 1 – Procurement Strategic Pyramid
These key areas include many activities companies should not concern their engineers with, who need to focus on product design and innovation, manufacturing and quality. Companies are to value the expertise of its core functions. If the maturity and expertise are not at the preferred level it should review its strategy and invest in its resources and technology to get this right, allowing for an effective deployment of skills and activity.
Procurement – a strategic partner for Technology & Innovation
In an increasingly competitive world driven by shortening product lifecycles, demanding customers it is crucial for all parties, internal and external, to propel innovative product development and manufacturing processes. Procurement plays a key role in this space. A collaborative approach between engineering and procurement is fundamental to success for any material and product innovation.
The maturity of the procurement pyramid determines whether it can focus on ‘value add’ activities. Robots and e-procurement platforms will increasingly replace traditional buying activities and transaction execution to manage suppliers, contracts, transactions and sourcing activities as shown in the (red) tip of the pyramid. With routine tasks being automated, the procurement teams can concern themselves with more cognitive demanding jobs (TED). The remaining and other (new) tasks will become more important and increase their economic value and raise its profile as a strategic partner both internally and externally.
Procurement innovation stretches beyond automation and will direct new supply models to decrease lead time and working capital, replace capital intense investments with ‘As A Service’-solutions and outsourcing of non-core operations and match supply & demand for supplier forecasts (Accenture). Additionally, procurement can step up its sourcing activities and actively bring supplier innovation into its own organisation.
Raising the visibility of the procurement function
If not already, Procurement functions are to take an proactive role to reduce complexity and continuously review its organisation and geographical structure, categories and its ability to remove non-value add activities through automation. While doing so it can focus on both the short term needs and the longer term strategic needs, while not necessarily having to wait for ‘permission’ from the top.
Innovation can even be required to continue the business as usual and meet the organisations and customers needs. With the speed, agility and disruption in today’s supply chains innovation becomes a necessity in any modern supply chain partnership (EFT). Improvements in one link of the chain increases the value of improving the other links a chain, and all the links must hold for the mission to succeed, if any fails then the product or service will come crashing down (the O-link effect, TED). Therefore it is critical to invest in your procurement function.
Procurement is perfectly placed as a cross-function between finance, R&D, it’s Supply Chain ‘peers’ and the external supplier world. With increased innovation in its own right and an increasingly progressing performance it can raise the bar and the visibility within the organisation. It is very likely more CPO’s will make it to CEO as a result. Just like Apple’s Tim Cook.
Annemieke Gelder has over 16 years experience in end-to-end supply chains across different industries. She is a certified Procurement Professional (MCIPS), Project Manager (PMP) and holds a MSc Business Administraton in Supply Chain of the Rotterdam School of Management. She recently set up www.supplydirection.com to channel her learnings and views on supply chain trends, as well help businesses shaping and improving their supply chain operations.
Interested in reading more blogs of Annemieke?
Consider reading her previous blog: To Move Milk from the Cow to your Fridge – the Function of Supply Chain