From periphery to driving force – procurement tech is enabling innovation
In the face of increasing pressure to mee...
Companies should be looking to procurement technology to put them ahead in the race to innovation excellence.
In the face of increasing pressure to meet rising customer expectations, the need for organisations to innovate quickly has never been greater. Customers are typically expecting you to deliver the “next big thing”, which is resulting in product lifecycles shrinking and technology continuing to advance rapidly. However, this demand for innovation is impacting the success of rolling out new products, with Gartner detailing that 40% of product launches fail to achieve business goals.
In this highly-demanding landscape, organisations need to turn to their procurement teams to accelerate innovation and ensure new product launches are aligned with business priorities. But a traditional and rigid approach to procurement simply won’t work. Instead, organisations need a more agile approach which taps into a key source of innovation; the organisation’s supply base.
However, this shift won’t happen overnight, and organisations must adapt over time to become smarter when it comes to procuring goods and services. This is always about finding a balance – for example, Google prefers to diversify its suppliers as much as possible, selectively working with only those who can provide innovative products that will work for them. But this approach isn’t universal.
Focusing on cost causes problems
Too often when creating a product, costs play the deciding factor when selecting suppliers to provide components and services. It’s assumed that all well-ranked suppliers are equally capable of meeting the New Product Introduction (NPI) project requirements.
At times, this plan can work out fine. However, there are significant potential trade-offs with such a focus. In cases where the supplier evaluation is incomplete, or the team fails to include available data such as performance or risks in the supply decision, the company puts their NPI launch at risk. Some examples of supply issues include suppliers lacking the necessary capital for equipment, a history of late deliveries and poor-quality processes, as well as inexperience with a material or a technically demanding manufacturing process.
Furthermore, a cost focus creates pressure on the margins of those suppliers winning a bid. This may help bolster overall profitability of the final product, but it also reduces an organisation’s desirability of a customer. In times of crisis, other customers will likely be prioritised, increasing risk of supply shortages. Similarly, suppliers are more likely to share precious IP that can create a competitive advantage with more profitable and hence important customers. Organisations must look beyond cost to foster innovation from their supply chain.
A data-driven approach
This is where smart procurement technology can help. Using cloud-based data aggregation and analytics, organisations can uncover a treasure trove of potential innovation within their supply chain, which can give procurement leaders a huge influence on the company’s bottom line and product roadmap. Suppliers possess deep industry expertise and can introduce creative ideas to improve the end-product.
This can lead to an increased potential in profitability for both companies as they work together to achieve their business objectives. Rolls Royce is a famous example of this, by collaborating with more than 18,000 suppliers and racking up a total spend of over £7bn each year, the company leveraged its suppliers’ knowledge of engine technology to become a key innovative force in a wide range of markets from aerospace to maritime.
As such, procurement should treat supplier engagement and selection as an opportunity to foster innovation, incentivising suppliers who are willing to work with you to solve problems together and create new products and services that can help the end user. By collaborating with key suppliers to discuss the manufacturability of early design concepts, organisations can build design revisions and assess supplier capabilities, all while keeping a close eye on the projected bill of material.
Collaboration is key
Taking a data-driven approach to procurement can also help manage suppliers effectively throughout the course of the relationship, utilising insights to ensure firms can get maximum value from these relationships. Organisations can do this by constantly assessing the supply chain against a myriad of factors from fluctuating costs to regional risks, identifying key areas where both parties can work together to innovate quickly and solve problems. For example, flexible workflows and digitisation of the process will keep everyone on the same page in near-real time, allowing for faster decision making as organisations work with their suppliers to highlight areas for improvement, or how to meet upcoming local regulations.
This relationship can regularly produce differentiated product offerings and give procurement teams an opportunity to help drive continued product support and profitability. One example of this is extending “innovation initiatives” to suppliers, encouraging them to make recommendations on how to reduce the weight of a component or suggesting how a supplier’s intellectual property (IP) can be included in a new product to enhance its value proposition. General Motors frequently calls out suppliers who have excelled or collaborated with GM to produce innovative technologies through its supplier programme, promoting innovation and incentivising suppliers to share their latest breakthrough technologies.
Playing the long game
The fact is, while cost cutting is important, organisations must ensure they can do it in a sustainable manner that doesn’t threaten innovation or a supplier’s financial wellbeing. The adoption of smart procurement technology provides access to supplier insights, advice and technology, giving organisations a way to work more collaboratively with their supply base.
This smarter approach puts procurement leaders in prime position to steer the course of an organisation’s innovation. This results in faster development of new products which wouldn’t otherwise be possible, resulting in a shorter time-to-market. Procurement can do more than just cut costs - it has become a major driving force behind innovation, capable of delivering NPI in a sustainable manner and enabling greater collaboration with suppliers that will lead to greater profitability and better future relationships.
SAP Ariba to digitise procurement for Expo 2020 suppliers
The global trade event, this year hosted in Dubai, was rescheduled from last year and will now take place between 1 October 2021 and 31 March 2022.
As the event’s Innovative Enterprise Software Partner, SAP Ariba solutions will fully digitise and automate the procure-to-pay lifecycle, providing a streamlined experience for thousands of market leading, global suppliers and strengthening the global supply chain with enhanced transparency and efficiency. The cloud-based platforms operate through on SAP Ariba’s UAE public cloud data centre and connects to the Ariba Network.
Expo 2020 "a long-term investment"
Mohammed AlHashmi, Chief Technology Officer, Expo 2020 Dubai, said the world trade event is “a long-term investment in the future that aims to enhance opportunities for sustainable business connectivity and growth”, which stretches beyond Expo 2020’s six-month window.
“Our partnership with SAP is an example of what can be achieved with the invaluable support of our technology partners to host one of the most digitally advanced World Expos ever,” he added. “The implementation of SAP Ariba solutions has transformed our end-to-end procure-to-pay cycle and helped set new standards of procurement automation for projects of this scale.”
To date, more than AED 1bn has already been transacted by Expo 2020 suppliers through SAP Ariba. The platform promotes collaborative partnerships and allows registered users to participate in sourcing events, negotiate and initiate contracts, and centralise their invoicing and payments in real time.
Claudio Muruzabal, President of EMEA South, SAP, said: “Expo 2020 Dubai is demonstrating global best practices in digitising its procurement process with SAP Ariba solutions to help gain visibility into its spend, tighten collaboration with its suppliers, and achieve process automation, including completely paperless invoicing.”
About Expo 2020 Dubai
Expo 2020 will take place in Dubai and is the first of the long-running World Expos to be hosted in the Middle East, Africa and South Asia territory. The original World Expo, called the Great Exhibiton, was hosted in 1851 at the Crystal Palace in London, designed as a showcase for the innovations of the Industrial Revolution.
Expo 2020 was originally due to run 20 October 2020 to 10 April 2021, but was last year postponed in light of COVID-19 restrictions - though some business has already taken place virtually. The event will place greater emphasis on innovation in sustainable solutions through the Sustainability District, blending technology and culture. It is expected that around 70 per cent of the 25 million attendees will be international visitors.