Procurement is on a journey to become a main driver of innovation and sustainability for the entire business.
Supplier Collaboration & Innovation (SC&I) seems to be the enabler and many forward-looking companies from different sectors have already started implementing their own initiatives.
These are 5 of the most common challenges they face when implementing it:
1. Procurement function
Experts and leaders often agree there is a need for a change in mindset. Procurement must move from cost-savings to value creation. This creates blockers and prevents SC&I initiatives from running smoothly within the business. On top of this, there is an absence of C-suite influence in the function. This results in a lack of support and sponsorship of SC&I.
By driving value beyond savings and supporting the wider business as a business partner, procurement will become a key function as an enabler for innovation.
2. Choosing the right suppliers
The main aim of SC&I is to achieve innovation through supplier collaboration. For this reason, companies need to choose the right suppliers who have the best potential to innovate. This cannot be tackled through traditional segmentation which takes into consideration spend, company size and geography. Since there is no clear method to filter them, companies tend to struggle when it comes to partnering with those suppliers and startups.
Even though there might not be a perfect way of segmenting suppliers, companies will need to start thinking about new parameters such as strength of relationship, supplier’s resources, innovation capacity and execution ability.
3. Measuring succes
Procurement metrics have traditionally focused on cost savings. That’s because the C-suite has traditionally directed procurement teams to focus on cost savings for the business, especially since the 2007 financial crisis. Consequently, this is what procurement teams get. Also, innovation is very hard to measure. Not being able to provide clear ROI for the entire business makes SC&I seem less relevant and effective.
By having more visibility over POCs and innovation projects, companies will be able to track the performance of their SC&I initiatives and therefore, provide a better ROI.
4. Internal communication and collaboration
In order to collaborate with suppliers for innovation, companies must first achieve internal alignment. Even if procurement leads on SC&I, it will need to collaborate with other business stakeholders such as R&D, Marketing, Manufacturing, etc. Companies tend not to collaborate internally as much as they do externally and, therefore, they don’t achieve successful results.
It is key for the entire business to understand that SC&I is a business initiative, not a procurement initiative.
5. Becoming embedded in the company strategy
SC&I initiatives tend to succeed when they are sponsored by the entire business. Visionary leaders who promote these initiatives increase the chances of success. However new leadership can jeopardise the evolution of corporate SC&I programmes, especially if they are young and lack the data to make a strong business case. Even with good data, new leadership can result in cultural change that hinders the development of innovation.
Having multiple champions and sponsors across the business will help ensure the continuity of SC&I initiatives even with leadership changes.