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A series of articles on the world of procurement from the Insider Procurement consultancy team.

Why procurement should be involved in business innovation

Posted by Jeremy Bowley
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Procurement consultants aren't usually challenged with driving business innovation.

More likely, they are charged with reducing the bottom line financial figures.

Traditional procurement consultants will examine all aspects of expenditure to lower costs and thereby improve profits for their customers.

What makes us different is that we achieve a bigger impact by focusing on what drives shareholder value.

Sure, profit is a major contributor, but market share, customer retention, and other elements are at stake when it comes to the true value of any business intervention.

So companies come to us with simple problems, eg

"How do I reduce the cost of disposable items?"

And our “disruptive procurement” thinking tells us to question why these are treated as disposable in the first place. So we might seek an alternative solution:

"Is it possible to replace them with something longer lasting, and improve customer retention AND reduce total cost of ownership - all at the same time?"

You might then ask, "but isn’t that what our product designers or operations managers should be doing?"

For sure, your operations people, your product designers, your process engineers and others can and do think in innovative and "disruptive" ways.

But they are focused on the future.

They are challenged with finding new opportunities, fostering new ideas, creating niche markets, developing new products and services and generally breaking new ground.

They look to do NEW things, not necessarily how to do the current things differently.

They are very often looking at improving the top line of the business - improving sales, customer retention and addressing competitive pressures with innovation.

Today's new breed of procurement consultants know that it's difficult to replace like for like at a lower cost. They've shifted their challenge to encompass improvements in shareholder value not just lowering costs. They see themselves playing a pivotal role in re-engineering business processes, sourcing alternative solutions and driving business innovation.

Suppose you were asked to replace a piece of machinery that is specifically involved in making a small range of items that you sell to customers.

A traditional procurement consultant would try to obtain a replacement at the lowest available price.

A forward-thinking person would find a machine offering the lowest total cost of ownership (taking account of ongoing cost of spares, maintenance and running costs like electricity usage and labour costs).

But a procurement consultant who adopts "disruptive procurement" principles will probe into the real business need for that machine and seek to compare the total cost of ownership for alternative solutions.

They will ask questions like:

  • What profit contribution is this machine providing? Should we be using it at all?
  • If it runs at a loss, what can we do? Stop producing the items that require this machine?
  • Can we redesign the items so that they can be made on other (existing) equipment?
  • What would be the impact of outsourcing this part of the process?
  • Could we buy these items rather than making them?
  • Is there a different machine that satisfies this need and others as well?

In short, these forward-thinking procurement consultants seek to be innovative.

They collaborate with other business functions as well as suppliers and potential suppliers to come up with the best solution for the business.

To find out more about just how innovative procurement consultants can be, tell us a little about your issues and we will provide a free strategic procurement audit to point out the areas that lend themselves to the most improvement.

Book your Strategic Procurement Audit 

 

Topics: Innovation, Procurement Consultancy, Disruptive Procurement