The idea that procurement should play a key role in innovation projects is gaining traction.
The last couple of years have forced procurement to prioritise dealing with urgent supply disruptions. But CPOs continue to rank innovation contribution amongst the top priorities – although 39% of procurement organisations are rarely involved in innovation despite most innovations coming from commercial third parties (Deloitte Global CPO survey, 2021).
Procurement’s unique sourcing competences enable it not only to source effectively from innovative suppliers, which R&D can also do, but also to evaluate these against supply requirements: will potential suppliers perform operationally as well as technologically? Procurement can help to pre-empt bottlenecks and thereby reduce the risks of supply chain disruptions that are plaguing companies in the current supply chain crisis. This applies to any new suppliers including start-ups.
The reason why procurement must be involved innovation is simple: most innovations these days come from suppliers. R&D or engineering departments may naturally be in charge of technological innovation projects but they rarely have the knowledge of supply markets that procurement can boast.
Sources of innovation
Few companies contain all the necessary resources and knowledge for innovation in-house so rely on external sources of innovation. Sourcing innovations from suppliers is therefore not a new idea. However, as companies are transitioning towards new generations of sustainable, green technologies and products, the sources of innovation are changing. Where existing supply partners used to be the main (upstream) source of innovation, companies are now having to look further afield to potential suppliers from outside their existing supply networks. Traditional industry boundaries are becoming blurred so it is necessary to scout for innovations from existing as well as new unknown suppliers.
My colleagues and I have dedicated much of our recent research to this topic. The Audencia AXYS centre (or “chaire”) for Procurement & Digital Innovation is currently researching the use of digital technologies to scout for innovations. Our IPSERA (International Purchasing & Supply Education & Research Association) special interest group in Purchasing & Innovation is a focal point for academic researchers and practitioners in the field, and EU Erasmus+ funded Project PERISCOPE explores new skills and competences for innovative and sustainable procurement.
In addition to new ways of sourcing innovations, current themes include the role of procurement in facilitating the absorption of supplier knowledge (Picaud et al, 2019) and the need for procurement ambidexterity to manage the tensions that arise when procurement must balance fundamentally conflicting priorities (i.e., cost savings versus innovation) (Constant et al, 2020).
Procurement contribution to innovation: need for new processes
What is becoming clear is that the innovation challenge calls for new ways of working in procurement. As illustrated in Figure 1, the effective involvement of procurement in product innovation projects is closely interlinked with procurement process innovation: procurement cannot contribute to product innovations unless it develops new ways of working.
Figure 1. Interlinked product innovation and process innovations
The framework below is based on five overall processes with each of these broken down into specific tasks or roles. This is an ongoing process based on continuous development of procurement’s innovation capability. The framework is shown here in its basic version and briefly explained below.
Figure 2. A framework for procurement involvement in innovation
Innovation scouting: Procurement can perform an important role in innovation scouting, building on supply market intelligence e.g., by organising supplier innovation days or workshops. New digital tools, such as artificial intelligence and open innovation platforms may facilitate innovation scouting.
Supplier interface management: Procurement can act as a bridging function between R&D and innovative suppliers, ensuring both a commercial and an operational focus in interactions with prospective suppliers. Where R&D can be responsible for technological interactions, procurement can act as an operational and commercial gatekeeper as well as foster collaborative supplier relationships.
Reorganizing procurement: Our research shows how some companies have reorganized procurement, for example, by creating a new dedicated procurement unit for innovation that works alongside operational procurement. This is one way to develop an ambidextrous procurement organisation and another solution could be to employ innovation purchasers to take the lead on innovation sourcing.
Skills and competence development: Traditional procurement competences are insufficient for procurement to perform effectively in an innovation role. Initial findings from PERISCOPE highlight, for example, creativity and curiosity, cross-functional teamwork, critical thinking, leadership and communication, and strategic thinking. The analysis of current research is currently ongoing.
There is much ongoing work on procurement and innovation and this short article presents some of the main themes. I am happy to hear from readers interested in this theme.
☛ Thomas E. Johnsen is professor of procurement & supply management at Audencia Business School in France