Innovation Driven Procurement

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Information about Innovation Driven Procurement
Business & Mgmt

Published on December 24, 2008

Author: RdenBraber



Innovation Driven Procurement (IDP) enables purchasing organisations to actively contribute to the strength of a company's innovation, an important strategic objective of many companies

Innovation Driven Procurement (IDP) December 2009

Corporate mission, vision and strategy statements stress the importance of innovation as the engine for growth We deliver innovation by investing in world class strengths in end-user insights, technology, design and superior supplier networks Philips Source: corporate websites Capgemini Consulting Supply Chain Management • Proprietary and Confidential 2 -Innovation Driven Procurement-

An example of an innovative company: Procter & Gamble Open Innovation initiatives connect external parties to contribute to new product development Open Innovation with P&G P&G’s Innovation Net Mechanisms Consumer  An internal network of 70 technology Insights entrepreneurs who think up scenarios and write technology briefs R&D Customer  Suppliers’ research teams work in P&G labs Labs Teams and P&G researchers work in supplier labs  Interactive prototyping tools to co-invent new product packaging with consumers.  Networks connect companies that have a science or technology problem. Employees Trade  A network that links over 800 retired but high Suppliers performing scientists and engineers from over 150 companies. Results  Since 2000, share price has doubled and R&D investment as a percentage of sales is down Venture Suppliers from 4.8% in 2000 to 3.4% in 2006 Capitals  Launched 100 new products, 35% of which originate externally, up from about 15% in 2000  45% of the initiatives in product development Contract Labs Research have key elements discovered externally Institutions  Increased product hit rate to more than 90%, from 70% in 2001 through open innovation Source: (a) “Why companies should have open Innovation”, HW Chesbrough, (2007); (b) “Connect and Develop: Inside P&G’s new model for Innovation”, HBS 58 (2006); (c) Company website Capgemini Consulting Supply Chain Management • Proprietary and Confidential 3 -Innovation Driven Procurement-

The Innovation Driven Procurement (IDP) Strategy based on the Corporate and Procurement Strategy will transform procurement into a true business partner From Strategy to IDP Corporate level Procurement level It is essential to align the Procurement Strategy with the overall Corporate Strategy to ensure Procurement’s efforts are focused appropriately and are consistent with the fundamental direction of the business. This is what makes Procurement Strategy a service provider for the business. Corporate Procurement Whereas innovation is often stressed in Corporate Strategy Strategy Strategy and open innovation is embraced by many successful companies, many struggle to translate this into the Procurement Strategy. Let alone providing procurement services satisfying the business’ innovation needs. The translation of the Corporate Innovation Strategy into a Innovation Driven Procurement (IDP) Strategy provides focus for procurement. Mechanisms such as those shown in the P&G Innovation case need to be formalised and embedded in the organization. IDP will transform Procurement from Innovation Innovation Driven a service provider into a business partner. programs Depending on the IDP strategy, new roles and Procurement services will be provided by procurement. This can have an effect on the entire procurement function, mainly impacting tactical procurement operations such as sourcing, demand management and supplier relationship management. Capgemini Consulting Supply Chain Management • Proprietary and Confidential 4 -Innovation Driven Procurement-

Innovation Driven Procurement is one of the crucial aspects in adding value to your business if innovation is part of your Corporate Strategy IDP in procurement development Over the past decades, the increased importance of the procurement function has set a development in motion. Nowadays, most •Value extraction companies have spend management strategies, Value focus and creation allowing them to leverage economies of scale and managing demand in the organization. Procurement maturity level IDP Most have gone further with involvement of the •Performance enhancement business in the procurement processes. This Product focus process focus makes procurement a reliable •Supplier involvement service provider responding to business demand and mitigating risk and costs. •Eliminating deficiencies Some have successfully gone further recognizing suppliers as a key actor of the end product. This Process focus goes beyond responding to business demand with •Business involvement procurement services, mitigating risk and costs. It means pro-actively providing value added services that will help the business reach the corporate •Consolidation goals. Spend focus •Compliance IDP services are focused on future client demand and (potential) markets. It encompasses a procurement function which is embedded in new product development, which uses its extensive market knowledge to scout for new opportunities Transactional focus •Negotiation beyond direct business demand, and may even spur new directions for the company. Capgemini Consulting Supply Chain Management • Proprietary and Confidential 5 -Innovation Driven Procurement-

Innovation Driven Procurement ( IDP ) demands early involvement, when potential impact on costs is greatest Typical involvement Life Cycle • Product Development (R&D, marketing, Typical involvement cost Procurement avoidance etc.) tends to involve suppliers early on determined involvement • Procurement is involved once Manufacturing specifications are nearly fixed and effects involvement on costs are limited to negotiation gains Supplier • Sequential involvement of departments involvement may speed up initial design phases, but Cost will require additional effort and time in reduction opportunities later stages to involve new parties Conceptual design Detailed design Production Operations & support IDP involvement IDP based involvement Life Cycle cost • Innovation teams including early avoidance Procurement involvement are critical to determined Procurement leverage early cost reduction involvement opportunities Manufacturing • A shared value proposition focused on the involvement external client will allow all involved departments to focus on the right targets Supplier involvement Cost reduction • Supplier involvement is a careful balance opportunities in risk management Conceptual design Detailed design Production Operations & support Capgemini Consulting Supply Chain Management • Proprietary and Confidential 6 -Innovation Driven Procurement-

Innovation Driven Procurement ensures alignment of one single value proposition, filled in from each department's perspective Typical involvement • Sequential involvement of departments results in handover moments and Typical involvement • Engineering • Engineering • Engineering • Engineering • Suppliers. • Suppliers • Suppliers iterations • Manufact. • Manufact. • Procurement • Newly involved parties are often √ √ √ perceived as disruptive to the process; it Phase 1 Phase 2 Phase 3 Phase 4 X requires understanding of and access to materials Phase 1 √ Phase 2 √ … • Issues from the Procurement process can result in major set-backs and iterations in the process, which is harmful to the time- to-market IDP involvement • A team effort from the start will set the directions for all internal parties involved IDP involvement • Engineering • Manufact. • • Engineering Suppliers • • Engineering Suppliers • • Engineering Suppliers • The team decides on supplier • Procurement • Manufact. • Manufact. • Manufact. involvement, based on procurement and • Procurement • Procurement • Procurement engineering market expertise and a √ √ √ √ common understanding of contents Phase 1 Phase 2 Phase 3 Phase 4 • Every involved party is targeted on the same value proposition and is able to work both individually and as a team, reducing time-to-market Capgemini Consulting Supply Chain Management • Proprietary and Confidential 7 -Innovation Driven Procurement-

The business models of all parties involved must be aligned for them to collaborate effectively Resources Offer Customer Co-creation Partner Customer Network Relationship Core Value Value Distribution Customer Capabilities Configuration Proposition Channels Segment Cost Revenue PROFIT Structure Streams Financial Performance Source: Adapted from Alexander Osterwalder, Business Model Generation Capgemini Consulting Supply Chain Management • Proprietary and Confidential 8 -Innovation Driven Procurement-

Bringing a shared value proposition through the value chain to the customer, requires aligned business models What businesses must do to organise for IDP: • Create enforced platforms with shared value propositions focused on external customers • Create transparency of the value proposition throughout the value chain • Map required and existing capabilities and divide roles • Develop and balance the capabilities between purchasing and business departments • Seek external partners with compatible business models • Recruit entrepreneurial skills • Get the basics (operational and tactical purchasing) right • Ensure IT that supports integration between engineering and procurement, lowering barriers of collaboration IDP requires a dedicated organisation of innovation by all parties involved Capgemini Consulting Supply Chain Management • Proprietary and Confidential 9 -Innovation Driven Procurement-

Capgemini has extensive experience in IDP, including outsourcing R&D and managing supplier relationships and aligning procurement with other business functions Outsourcing Piloted appropriate methods & tools transition Set up supplier mgt organisation R&D Supported R&D transition to suppliers Increased supplier R&D capability management Capgemini conducts R&D activities for Supplier Airbus in a long standing partnership Collaboration methods and tools are set up for management of R&D by Airbus Supply chain control for Siemens credentials Other Supplier mgt optimisation for Basell Supplier R&D mgt for Snecma Co-innovation process for Faurecia Capgemini Consulting Supply Chain Management • Proprietary and Confidential 10 -Innovation Driven Procurement-

Contacts ir. Robbert den Braber Senior Consultant Capgemini Nederland B.V. Papendorpseweg 100 P.O. Box 2575 - 3500 GN Utrecht The Netherlands Tel. : +31(0)30 689 50 56 Mob : +31(0)6 15 03 09 01 Capgemini Consulting Supply Chain Management • Proprietary and Confidential 11 -Innovation Driven Procurement-

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