As the economy begins to show signs of recovery, many organizations are now returning their focus to growth which relies on support from the supply base. Innovation is essential to satisfy growth in a sustainable way, to remain competitive and, importantly, maintain cost control

1. Innovation Driven
Procurement
Understanding how customer
engagement works
By Reza Hagel

2. Overview – Innovation & Co-creation
Introduction – Innovation Operating System
The writer’s perspective
Innovation driven procurement organization
Understanding the end customer – Scenario Chain
Engaging your customers – Benefits Dependency
Network
Implementing a Customer centric Procurement
Process – Customer journey map
Business line support through Customer value
touchpoints
Building the case – motivational drivers for vendor
innovation
Driving value from market opportunities
Key Performance indicators for value
Business Model Design for Innovation Partner
Ecosystem
Procurement’s Alignments to company wide
strategies
Summary
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Table of Content

3. The majority of innovation projects, specially supplier innovation fail.
There is a lack of innovation ecosystem understanding and the ability
to champion the new innovation as a journey and the strength to set up
an environment in which bringing ideas to the internal organization
and the vendor community is feasible.
Co-creation
Overview
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4. Introduction
As the economy begins to show signs of recovery, many organizations are now
returning their focus to growth which relies on support from the supply base.
Innovation is essential to satisfy growth in a sustainable way, to remain competitive
and, importantly, maintain cost control. Traditionally, departments responsible for
innovation such as R&D and Marketing have worked independently from the rest of
the organization. There is now a need for functions such as procurement to become
more innovative to improve top and bottom line performance.
Although the majority of procurement leaders are aware of the importance of
innovation in procurement, and the effort of many organizations to support the
function towards creating an innovative culture and workforce, it seems that little
advancement has been made in this regard.
In reality the success of innovation in procurement is far more complex than many
want to admit. Beside theoretical knowledge of innovation through training and
development of the workforce, the success of integrating innovation in procurement
requires a great effort from the leadership team to change the perception of
procurement from cost reduction to value creation, a redesign in process and the
know how to use data to identify opportunities and support strategy development –
and this is easier said than done.
For the management of innovation projects the traditional Procurement
departments have to transform into multiple Innovation Driven Procurement
projects teams with the aim to support the business strategy in pursuing innovation
targets such as:
• Delivering more innovations in less time
• Accelerating design and launch cycles
• Improving product / service price quality ratio
• Increasing the end customers’ experience / satisfaction
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5. From my experience the purchasing function’s contribution to innovation
is highly dependent on:
1. The level of exposure of the company to innovation
2. The integration of the purchasing function into the business.
I have been fortunate to contribute into achieving innovation in
procurement in two major steps
1. Leading purchasing department to contribute to innovation in a
proactive and structured way.
2. Integrating the purchasing function in the innovation process.
Establishing a mature structure for purchasing to support company wide
innovation initiatives.
Innovation for me has been the exploitation of opportunity to create
market differentiation and competitive advantage.
The innovation process requires tight internal and cross-functional
collaboration. Providing the right skills and training is also critical. In
addition, the purchasing function’s knowledge of the supply market, its
vision of future trends and suppliers’ innovative solutions as well as its
transversal position are assets to share with the other innovation
stakeholders.
Cross-functional collaboration is the foundation for purchasing’s
contribution to innovation. Linking procurement to other functions’
objectives in the value chain as well as developing the correct skills set is
an enabler to promote innovation opportunities through creation of
aligned, agreed and shared objectives as shown in the
example below:
“Innovation is about understanding
customer engagement and aligning
strategies accordantly”
Reza Hagel
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6. Innovation Driven
Procurement Organization
Such organization fundamentally differentiate themselves on four key
dimensions:
They are able to integrate themselves with the business lines and gain the buy in
to be considered as a key player in the innovation process. This is by far the
most challenging task that required in-depth subject matter expertise
and soft skills. Understanding all aspects of organization innovation
from Technology Roadmaps, Future Service pipeline, business plans
and portfolios of products and services.
They are able to help find new opportunity and sources of innovation
capabilities. These capabilities are not easy to find in part because suppliers
typically are used to being mere contractors delivering according to specifications
and directions. Finding sources of innovation supply requires knowledge of
markets and technology. Besides being able to find the right supplier, the buying
company needs to make itself attractive enough to the supplier in order to ensure
resources are actually secured for the buyer rather than its competitors. A value
proposition is required to make all supplier interested in such collaboration.
They are involved in innovation projects from conceptualization to end of life.
Procurement will have to re-align its value proposition to innovation projects as
the values to measure success (time-to-market, product success, project
efficiency, ROI) are very different from what Procurement traditionally delivers
(savings, contract compliance, risk reduction). Further Procurement must adapt
to the chaotic and uncertain environment of early innovation stages with the
right organization, people and processesore,.
They are able to manage supplier involvement collaboratively. This requires early
procurement involvement in innovation projects to set supplier involvement
strategies and drive them all through the project and possibly beyond.
Procurement, as the owner of the interface between the company and its supply
base, will have to make sure collaboration within the innovation project is
enabled and monitored. It should be a win-win for all parties involved
Strategy Alignment
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7. Customer engagement has never been more vital: Not only might it help companies
develop alternative streams of revenue in the current moment, but it could also offer a
significant advantage when the economy reopens.
Research shows that engaged B2C customers “return a 23% premium in terms of
share of wallet, profitability, revenue and relationship growth over the average
customer,” and that engaged B2B customers lead to 50% greater revenue, 34% higher
profitability, and 63% lower customer attrition.
While meeting customer expectations may seem to increase the complexity of the
procurement process at first glance, this trend also presents new opportunities for
improving operational efficiency, building goodwill in the marketplace, fostering
internal collaboration, reinforcing market positioning, and developing a unique brand
message.
To take advantage of these opportunities, you need to adopt a customer-centric
approach to procurement so you can become more responsive to changes in market
demand.
It all starts by understanding how customer engagement works and the key benefits
that could be obtained
Understanding
the end customer
“become more responsive to changes in demand but most
importantly to any market fluctuation that may have an
impact on customers buying decision”
Reza Hagel
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8. Customer-centricity will also help you lower cost with more efficient inventory
management while being the first to introduce a new product and gain more market
shares as a first mover.
A customer-centric procurement process has profound impacts across the various
functions of an organization, from R&D and product development to supply chain
management and marketing to customer understanding.
By putting customers at the center of procurement, you’re shifting the priority of the
decision-making process from being cost-driven to demand-driven, with a focus on
sales and revenues.
While adopting this new approach will require a fundamental shift in
how the entire organization interacts with procurement, the long-term
benefits will be well worth the effort:
- Develop strong and mutually beneficial supplier relationships through close
collaboration and innovation.
- Provide a common goal that fosters collaboration among various internal
departments, breaking down silos and improving overall cost-efficiency.
- Increase the accuracy of demand forecasting so you’ll have the right products in
stock in the right place and at the right time while reducing the time-to-market.
- Improve inventory management by reducing the cost of storing excess inventory
while avoiding low stock and missed sales.
- Inform product development by anticipating new consumer trends so you can be
the first mover and gain more market shares.
- Inform your brand’s marketing message and positioning. For example, by
incorporating a storytelling component on how the raw materials are sourced, you
can build emotional connections with your audience, distinguish your brand from
competitors, and increase brand loyalty.
- Build trust and loyalty with customers by proactively taking their needs and
priorities into consideration.
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9. Implementing a Customer-
Centric Procurement Process
There are many moving parts in sourcing, supply chain management, fulfillment, and
demand forecasting. Here’s how to implement a customer-centric procurement process:
Recognize that customer-centricity isn’t a short-term initiative. Instead, it requires
fundamental changes in an organization’s culture, operations, and strategic direction.
Identify metrics that indicate the successful execution of a customer-centric
procurement process. Many of these will likely be related to business performance, such
as revenue and profit, brand differentiation, etc.
Combine these business-performance KPIs with traditional procurement metrics (e.g.,
cost savings, cost avoidance) to create a balanced procurement scorecard.
Improve collaboration with suppliers and encourage innovation in the supply chain to
stay ahead of changing customer expectations and improve efficiencies.
Evaluate your supply chain and make improvements so you can become more
responsive to customer demands. For example, you may need to reorganize the supply
chain, such as using near-shoring, to reduce lead-time.
Digitize supply chain management to enhance real-time information sharing and use
automation to increase efficiency. The elimination of manual and repetitive tasks will
allow your employees to focus on strategic and creative efforts that’ll improve the
customer experience.
Obtain first-hand insights from customers through polls, surveys, social listening, and
focus groups to predict market trends, inform product development, improve the
accuracy of demand forecasting, and explore sourcing options.
Gather information from customer-facing teams, such as sales and customer care, to
gain insight into customer sentiment.
Leverage real-time data analytics from various sources, such as retail POS, warehouse
shipment, return merchandise, eCommerce platform, and big data to gather business
intelligence and inform decision-making.
Use technologies (e.g., IoT, predictive analytics) to improve supply chain visibility and
streamline workflow so you can increase efficiency and become more responsive to
changes in market demand. And finally, create your customer experience journey map
and touch points.
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10. While the procurement process has multiple “customers,” such as internal
departments, suppliers, and top management, their roles should be designed to serve
the ultimate end customer – the consumer.
The procurement process should ultimately focus on meeting market demands and
improving customer experience so it can help your brand gain market shares and
improve top-line results.
Changing the self-perception of the procurement team is critical to strategically
positioning the function to enhance customer experience and demonstrate added value
to the internal stakeholders.
The procurement team need to understand that they don’t just take ownership of
which suppliers are chosen, rather they support the business in its strategic goals.
It’s not procurement’s role to cut budgets,
but to maximize the outcome of investments
Customer Value Touchpoints
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11. Building
the Case
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12. Sitting at the interaction
of market & business
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14. I developed the model below to support procurement leaders in creating customer centric
business models by taking an ecosystem perspective on the outcomes they wish to create
in accordance to identified customer journey pain-points, and the configuration of the
value network they envision.
Creating an ecosystem business model requires a predictive value creation map aimed at
influencing the way procurement organizations identify and realize value.
The aim of this model is for procurement organizations to influence the way they create
and capture value within the context of the partner ecosystem. In the delivery of complex
solutions, procurement should be prepared to consider relationships with firms from
different industries and adjacent markets.
Different business scenarios need to be considered in the early stage, but business model
plans may result in completely different applications than expected. Finally, the
innovation generated between both parties will result in partial or full servitization of the
value delivery.
The framework could be useful for companies to take an ecosystem perspective on their
business models. It includes criteria that are essential to any sector, such as business
model flexibility and enabling of technological innovation.
The four “quadrants” of advantage on the framework, namely, Customer, Business,
Ecosystems partners and Procurement, can be applied in the context of any industries
Business
Model Design
for Innovation
Partner Ecosystem
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15. In my experience what makes innovation so complex and difficult to manage is finding the
right balance between having the rights skills set, processes & a collaborative culture to be
able to align and adapt strategies as described below.
Define
Evolve
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16. SUMMARY
A customer-centric procurement process requires a shift in your
company’s culture from product-first to customer-first.
The shift in the procurement paradigm involves supporting business
and brand strategy, adding value for consumers, contributing to top-
line results, building collaborative relationships with external
partners, fostering supplier diversity, and leveraging technologies such
as AI and IoT to improve tracking and data-driven decision-making.
While the procurement process has multiple “customers,” such as
internal departments, suppliers, and top management, their roles
should be designed to serve the ultimate end customer – the
consumer.
Your procurement process should ultimately focus on meeting market
demands and improving customer experience so it can help your
brand gain market shares and improve top-line results.
With a knowledge capacity, being in the global market
as one of the pioneers in the telecom revolution in the
mid 1990s, Mr. Hagel has been a key player in the
development of telecom trends, market standards &
price revolutions.
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References: FOCUS & Gi Partner - Microsoft Corporation – Mckinsey Consulting