There’s more to procurement than meets the eye.
If you simply focus on the transactional aspects such as purchasing, you could be missing the many opportunities inherent in the procurement process, which starts with identifying internal needs all the way to paying suppliers and maintaining records.
The procurement process, with its many moving parts, is quite a beast for organizations of any scale to wrangle. Yet, it also presents numerous opportunities for innovation that can streamline workflow, improve demand forecasting, increase operational efficiency, lower costs, and foster innovation in other business units.
Optimized procurement lets you delight customers by delivering products that exceed their expectations faster than they may expect particularly for B2B customers.
Sustainable procurement is a hallmark of customer centric organizations and leads to better business performance.
To uncover the hidden opportunities for innovation, you need to understand how innovation can be introduced into procurement, the key areas that will make the highest impact for your business, and the best practices for incorporating innovative ideas and technologies into the procurement process.
Opportunities For Innovation in Procurement
Here are the 4 most common facets within the procurement process that are good candidates for innovation:
This refers to increasing the efficiency and profitability of everyday procurement tasks within the organization. The use of new technologies or strategies can also help utilize sources that may not have been feasible in the past due to constraints such as scale and availability.
State-of-the-art systems can be used to leverage crowdsourcing, optimize the sourcing process (e.g., using IoT), reduce wastage, or streamline supplier selection and contract negotiation.
This refers to the positioning of the procurement function in a strategically different way within the organization.
This could mean establishing a joint venture relationship with vendors to devise unique approaches to supply chain management or even outsourcing the supply chain function to an external company.
Organizations can support innovation by purchasing materials and services from suppliers that pioneer new ideas and technologies.
Since today’s consumers demand transparency from brands and corporations, buying from suppliers that use cutting-edge ideas or technologies to support ethical sourcing, sustainability, and environmental initiatives can often add an extra dimension to your brand story and generate goodwill.
Large enterprises with different divisions often have the scale to incentivize suppliers to devise innovative methods that match their unique business strategies and priorities.
This will encourage suppliers to put forward new ideas specific to the needs and goals of the corporation, leading to a customized process that can be highly cost-effective.
Key Areas of Innovation Through Procurement
Procurement touches many aspects within an organization – from R&D and product development to supply chain management, demand forecasting, and marketing.
An optimized process achieved through innovation will not only improve efficiency and reduce cost but also increase the organization’s agility in responding to market demand and consumer expectations.
Identifying the key areas in which change can move the needle will directly impact your profitability and bottom line. Here are the key areas that an innovative approach to procurement will make a significant difference:
Consumer demand for sustainable sourcing, sustainable production methods, and sustainable products are pushing businesses to devise new ideas and technologies to address climate change and the impact of manufacturing on global ecological systems.
Not to mention, share prices are increasingly linked to long-term initiatives such an organization’s participation in sustainability initiatives through its sourcing, production, and fulfillment processes.
Procurement has become an integral part of supporting a corporation’s brand image and meeting investor and customer expectations, which will not only drive revenue but also increase its long-term brand equity.
Some examples of incorporating sustainability in the procurement process include reducing the use of raw materials or water in the manufacturing environment and employing circular economy principles, such as clean energy, recycled materials, and closed loop products designs.
Today’s corporations need to break down silos and encourage communication among different departments so they can streamline operations and increase efficiencies.
Innovation in the procurement process offers the opportunity to reinvent workflows, which can bring together various stakeholders to develop improvements that will create positive impacts throughout the entire organization.
An effective approach is based on sharing information and insights between different parties. It introduces a new perspective that encourages long-term commitment between corporations and suppliers so they can enhance each other’s capabilities while eliminating waste and increasing efficiencies.
New initiatives can help translate business strategies into directions and priorities that align product designers, engineers, marketing team, finance department, R&D experts, operations, and external vendors.
Supply Chain Management and Demand Forecasting
Procurement is a key supply chain activity and it can have impacts beyond sourcing and purchasing.
Today’s consumer demand can change on a dime and product life cycles are shorter than ever. In order to stay competitive, organizations need to accurately forecast demand and support the insights with a nimble supply chain.
Innovation in procurement can support product development, the manufacturing process, and fulfillment networks to quickly respond to market demand – positioning the brand as an industry leader and gaining market share as a first mover.
The use of innovative technologies such as robots, automation, and e-procurement platforms can free up the team to focus on value-add and strategic initiatives that will ultimately reduce lead-time, lower working capital, and increase the supply chain’s responsiveness to market demand.
How To Incorporate Innovation Into Your Procurement Process
Innovation and procurement go hand-in-hand, presenting valuable opportunities for corporations to improve operations and the bottom line. Here are 12 ways to optimize the synergistic effects:
- Educate and involve employees, customers, and suppliers in key initiatives (e.g., sustainability) and demonstrate how innovation in procurement is relevant to them.
- Revisit the roles of each department to determine how it can be involved in the procurement process to support innovation in both procurement and other business functions.
- Encourage cross-disciplinary collaboration so insights from various business units can inform procurement and vice versa.
- Get leadership support so procurement is incorporated into the long-term strategic plan of the company.
- Conduct market research and survey strategic customers to uncover how you can improve the procurement processes to meet consumer expectations.
- Gain a clear understanding of the manufacturing process to identify key areas where innovation can lead to significant improvements in the organization’s operational efficiencies and profitability.
- Collaborate with the finance department to understand key cost drivers, such as margin expectations and margin management, so you can focus on innovation that has a substantial impact on profitability.
- Work with R&D so the procurement process takes product development and manufacturing into account.
- Understand expected outcomes in pricing, margin, and timing, as well as the selection of suppliers and expectations on cooperation with internal and external stakeholders in order to optimize profits.
- Make sure the procurement team is aware of all the criteria and expectations of other departments so innovation will have an organization-wide impact.
- Centralize procurement from various brands and business units by appointing a single point of contact (e.g., a procurement innovation manager), which can work with suppliers to achieve economies of scale, prioritize business objectives, and avoid duplicated efforts.
- Develop collaborative relationships with suppliers and be responsive to new ideas and technologies that they bring to the table.
Procurement has become a key component in driving business innovation in today’s fast-paced business environment, helping organizations meet market demands and consumer expectations.
In order to leverage procurement to facilitate innovation, and vice versa, you need a good grasp of your business processes to identify key areas where you should direct your resources.
For example, you can use a visualization tool to map out the purchasing process and identify areas where automation can free up employees from repetitive tasks so they can focus on key strategic initiatives.
When an organization leverages the opportunities procurement brings to the table, they can create more value in the market while increasing operational efficiencies and boosting the bottom line.
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Photo by Rakicevic Nenad from Pexels