It can be hard to stay abreast of the newest, most disruptive pieces of technology (although my kids don’t seem to have the same problem!) but a recent statistic suggested that a third of market growth and up to two thirds of new hires over the next five years will come from the emerging disruptive technologies. Most suppliers possess these new innovations, so after years of squeezing suppliers and reducing cost how do you then position a proposition that will encourage your suppliers to bring value and innovation to the table?
I recently sat down with Procurement Director Marie Flint to discover how she brought value and innovation to Johnson Controls. Throughout her distinguished career Marie has delivered cost savings to some of the most high profile blue chip companies across the globe. As she explains, a majority of large companies could negotiate excellent rates with suppliers but the next smart evolution in procurement lies in allowing them to also bring innovation to your business.
How Will Supplier Innovation Support Organisations?
When it comes to understanding how supplier innovation will support organisations, Marie explains that “in many cases the traditional well is dry from continued re-procurement of the same scope in the same manner and cost savings will only be achieved from eroding the suppliers margin.” This will have short term benefits and so the Procurement organisation “need to look to delivering longer term operational efficiencies as well as competitive benefits to the Business to keep their customers and ultimately Shareholders happy”.
Procurement organisations need to seek the next level of value from their Supply Chain to identify areas than need to be focussed on to drive supplier innovation. Marie tells me “there are various activities that can be undertaken with lower value, non-strategic suppliers” while in parallel “organisations need to start tapping into and leveraging the potential benefit of their high value strategic suppliers can bring to their Business.
What Activities Should Procurement Undertake To Capture Innovation?
In order to leverage the supply chain to capture innovation and drive out cost, Marie suggested three main activities that procurement can undertake.
- Explore Supplier Technology – “This can be jointly developed or licenced to other organisations, including other strategic suppliers. Technology can also be used for cross functional purposes, for example, cleaners from one supplier could identify where an electrical socket does not work, and inform the maintenance team, from another supplier, via an App on a tablet (which would also capture the KPI metric).”
- Cross Functional Supplier Forums – “Forums (Kyoryoku Kai) held with a few Strategic suppliers with the objective of ideas sharing, identifying innovation, increasing quality and reducing cost. Procurement can also look to leverage knowledge and best practice other similar size, non-competitive organisations.”
- Back Office Synergies – “Organisations and their supply chain can explore the benefits of creating synergies from Back Office functions such as Call Centres, Accounts Payable and Purchase to Pay. This could involve offshoring their location, sharing facilities or utilising Six Sigma methodology in order to minimise waste, increase efficiency and productivity.”
What Does The Future Look Like With Regards To Delivering Innovation?
The way in which Procurement engages with and drives their strategic suppliers is critical for future competitive advantage. Marie explains, “The future goes beyond cost savings. Strategic suppliers should now be expected to share and deliver thought leadership, innovation and technology solutions which positively contribute to evolving business models.” Like any transformational change it won’t happen overnight, but businesses can achieve a significant competitive advantage from bringing in innovation while driving out cost.
No one knows quite what innovations will have the biggest impact, but given the role disruptive technologies are forecast to play over the next five years, smart procurement professionals will already recognise the key role they will have in shaping their companies short term future.
As disruptive technologies continue to impact all areas of businesses, the demand for individuals who can understand and implement these technologies will increase. Download my ebook to find out more about how you can use science and technology to make more informed Procurement and Supply Chain hires.
About Marie Flint
Marie is part of the COO team at Johnson Controls, managing supplier spend of over $2bn in 33 countries with a staff of 130. Marie delivered $108m savings to GWS & customers in FY14 through the deployment of a Global Category Management Program, an integral part of the GWS Business Transformation.