Creating new and sustainable products with suppliers
The power of cooperation
Attractive new products are the best way to stay a step ahead of the competition, and to achieve your own growth objectives. This is becoming a priority for managing directors and procurement managers across Europe, as our latest study on procurement transformation reveals, in which 185 companies took part.
The study results show that traditional tools such as sourcing and product group management, processes and policies, and supplier management currently remain at the forefront as action areas in procurement. These instruments ensure the fundamental priorities in procurement are fulfilled: ensuring a reliable supply to satisfy all the company’s needs, achieving savings, and establishing efficient
processes. However, the top executives surveyed said that, in future, they will focus on further skill areas: systematic innovation management, conscious design of procurement strategy and team culture, employee development, sustainability, and social responsibility.
As well as assuming the role of cost manager, modern buyers are increasingly taking on cross-sectional tasks for further development. The decisive factor for success is how employees understand and fulfill their own role in day-to-day business and when communicating withsuppliers.
Role of procurement under transformation
Procurement’s ability to create and implement innovation, something which is essential for the future, is the most striking change. Yet respondents cited this as one of the lower current priorities.
This development reflects these changes, as well as the perception of external innovation, and is therefore a response to the challenges that companies face in terms of growth, competitiveness, and sustainability. These issues, which respondents find themselves concerned with, call for changes to procurement. Procurement should be looking to expand its contribution to the overall organization beyond its traditional field of competence, which focuses on cost reduction, risk and a reliable supply.
As an intermediary between the internal and external supply chain, procurement is in a unique position to shape this new structure, together with the company’s specialist departments and suppliers.
Supplier as an innovation partner
Suppliers are often more innovative and more ambitious in their fields than the customers who buy their products. They know best about which products are competitive, what the underlying technologies are, and what development opportunities exist. Their customers, in turn, are in contact with end customers, and therefore know about their needs and behavior. Close cooperation on innovation is very much worth it, for both sides. But how can this work?
When seeking to involve external development partners, procurement forms a vital link to various functional areas. Close cooperation with specialist departments within the company and communication with suppliers can help procurement to create new alliances. Of course, this only works if procurement understands the needs of the specialist departments better than ever before and can also grasp the challenges for which suppliers need to develop innovative solutions.
To engage suppliers in the development process, procurement must develop cooperation even further within a performanceoriented partnership. The focus here shifts from pure negotiation, which focuses on quantities and prices, toward give and take, in which further factors such as cooperation, open exchange, and exploring shared perspectives come to the fore. The aim is to increase performance to a level previously thought impossible, based on specifically defined expectations. That way, both sides can benefit from the new-found cooperation.
Cornerstones for new-and-improved procurement
Future supplier relationships will be structured around different, pre-determined type groups. After all, not every provider is a suitable
innovation partner, and not every procurement need requires such close cooperation. The strategy of tomorrow’s buyer towards their suppliers will depend much more than ever before on how important the supplier is to the company. The aim is a close development partnership with suppliers who can drive innovation forward. By contrast, procurement can implement a cost reduction strategy with suppliers of standardized components.
But if this transformation is to be successful, buyers will need to possess different skills than they do today, their managers believe. It is no surprise that the CPO study respondents said that leadership strength (50%), a willingness to work together (47%), and agility (42%) are the most important skills and ways of working. The transformation of procurement involves making the development process dynamic and agile. And equally, employees must be promoted and trained accordingly for them to keep up.
Improving transparency and sustainability
While originally a niche issue, an increasing number of customer groups are now looking to produce goods more sustainably. Fridays for Future is perhaps one of the most recognized public movements, and more and more consumers are basing their purchases on sustainability and social responsibility factors. The number of investors whose investment strategies prominently incorporate these aspects has exceeded a critical mass. Equally, it is becoming more important to take the cost of transporting resources into consideration, typically in the form of a CO2 certificate, the cost of which is already expected to rise.
Customers’ sustainability demands have changed, and many companies have realized this. Nearly 72% of those who responded to our Procurement Transformation Study said that they considered it important to include sustainability goals in their business operations. However, this is not so much the case for global supply chains, with only a handful of companies being able to trace all their primary products back to their origin.
A strategy for sustainability
As with other development strategies, making production more sustainable involves analyzing which sustainability criteria apply in your own supply chain. What is absolutely essential is achieving transparency throughout the chain. The United Nations’ Sustainable Development Goals can be taken as a starting point, in addition to certifications and standards that are specific to your sector.
However you approach it, involving suppliers in the process is vital. Ultimately, innovation and sustainability go hand in hand, as sustainable products require new materials and methods. That is why there is so much pressure on procurement, as the department responsible for finding and evaluating new preliminary products. It is also procurement that needs to ensure that new criteria are also met. To achieve this, procurement needs to set new evaluation standards, which the team must derive from the new specifications. It also needs to investigate new procurement markets and harness the potential of new instruments, such as certificates or monitoring tools.
Companies that proactively get their strategically important suppliers involved in putting innovation and sustainability into practice together can unlock competitive advantages. The key to getting to grips with this new supplier relationship is ensuring an open dialogue and freer exchange of information, forming the foundations for an effective collaboration. By developing a common definition of cooperation and innovation, you as a company and your strategic partner create value in a new product range that will meet the needs of your customers and the expectations of your stakeholders.
is a Managing Director at INVERTO based in the UK. Through procurement transformations, digitalization projects, cost savings and supplier management, he helps his clients secure competitiveness and increase shareholder value. Lance co-authored the Procurement Transformation Study.
is a project manager at INVERTO in the UK. He supports customers with cost reduction, transformation, and supplier partnerships programs. As a member of the Procurement Management Competence Center, he co-authored the Procurement Transformation Study.