Procurement Process Design

Procurement Process: 10 Reasons Why Innovation is Essential

Innovation is Essential to the Procurement Process

Creativity and fresh ideas are key factors in driving procurement. Learn why innovation is essential to the procurement process.

If procurement stays on its current path, the future does not look bright. Yet new capabilities emerge every day. When will the procurement process evolve?

Take a look at traditional procurement. You might see a focus on policy and buying. Internal teams have come to think of it that way. Use fresh ideas to improve your company’s procurement process.

But the procurement process is under growing stress. The demands for external resources have changed. Procurement teams need to align with department and corporate goals to succeed.

The complex problems of tomorrow have arrived. Procurement needs new competencies and adaptability. The solutions are within reach and already in practice.

Why Does the Procurement Process Need Innovation?

In the past, departments came to procurement for external support. This involved buying equipment and resources. Today, those are a small part of greater demands.  Small tweaks in your procurement process can make a big difference.

Companies had to become more data-driven to compete. They also needed capabilities unavailable in-house. Procurement teams had to meet those demands and re-think their entire procurement process.

But the procurement process had a disconnect with core business needs. Many teams needed agility and rapid growth. Policies and lengthy vendor qualification processes led to missed opportunities.

The procurement process is growing in its capacity. Procurement teams can make decisions driven by data and insight. But not all teams have adopted these new capabilities.

Stakeholders are aligning procurement with key lines of business. They must take on more practical roles in their work with departments.

They should learn more about what each team demands. The more that they learn, the more capabilities they can adopt.

Soon, the procurement process will include advanced capabilities. They’ll foresee future trends in the market and the organization.

How Can Procurement Become More Innovative?

Procurement must let go of its traditional buying role. Creativity and innovation will become procurement’s key areas of focus.

Consider the role of research and development (R&D). R&D transforms ideas into practical applications. Procurement may play a more collaborative role in supporting such intellectual processes.

Teams need more than equipment and resources. They need the procurement process to outsource insight and ideas. There are emerging methods and technologies that allow them to do so.

10 Examples of How Procurement Is Evolving

The evidence of the future procurement process is already here. New solutions are pointing in a clear direction for these teams.

The following examples highlight specific areas of development. As procurement evolves, it will shed its roles as buyer and policy enforcer. It will adapt to the new roles of enabler and innovator.  Changes in the procurement process will be required.

1. Earning the Trust of the Entire Enterprise

Departments are now held responsible for creating business value. This applies to all teams, including marketing and IT. They need outside capabilities and insights to succeed.  We now place “value-creation” in our procurement process.

But procurement has not always played an active role in these teams. Many teams may find the procurement process overbearing. That’s because policies often prevent them from getting the resources they want.

That’s why empathy must become a formal part of the procurement process. Rather than enforce rules, procurement teams must learn departmental pain points. Then they can work with spend managers to deliver business value.

Procurement teams can also take a risk management role. Rather than enforce policy, the procurement process can protect teams from regulatory issues. Procurement can provide insight into managing emerging opportunities and threats as well.

In this way, procurement becomes a trusted asset across the enterprise. Procurement teams will reposition themselves as protectors rather than enforcers. They will communicate with all teams and look out for new opportunities as well.  Strategic alliances with other stakeholders is an important part of the procurement process.

2. Visibility into Global Supply and Demand

The traditional procurement process does not offer visibility into greater market variables. In this way, procurement teams are not always accessing the best resources. They will not have insights into how they can best help internal teams.

But organizations are susceptible to global volatility. Competitors may use predictive capabilities that give them a huge market advantage. Procurement teams may not have visibility into these resources.

That means competitive forces may be working against internal teams. New capabilities may go unrealized that could potentially improve them procurement process.

Industry Week says, “By 2025, global companies will have procurement managers based in China to source materials and services not only for their operations in that country but for the entire organization.” This could be a big change in the procurement process for some organizations. Procurement teams must gain insights on a global scale. Then procurement teams can identify the best resources and competitive factors.

They can develop expertise in emerging markets to get started. They needn’t have a physical presence with the digital resources available to them.  Relying on 3rd parties can augment your procurement process.

Then they can expand the supply chain globally. They can outsource business processes to the most capable third parties in the world.  The procurement process can be greatly improved with outsourcing.

3. Integration with Enterprise-Wide Information Assets

A vast amount of information flows back and forth through the procurement process. Specific needs of internal teams flow out to the supply chain. Supplier and critical market data flow back to procurement.

This information is usually internalized by procurement. But internal and external information can be an asset to all arms of the company.

As a resource for business-critical information, procurement improves its role in the company. The procurement process becomes a more holistic resource as well.

The role of procurement can evolve with this flow of information as well. The integration helps procurement identify shortcomings in processes across the enterprise.  Shared data will improve the procurement process when working with other business units.

The company may come to procurement to report on auxiliary business needs as well. Procurement can report on sustainability and social responsibility commitments. The integration as part of their procurement process ensures they have an evolving role within the organization.

4. Risk Forecasting with Predictive Technologies

Procurement has made progress leveraging disruptive technologies. These include business networks and cloud technologies. These assets improve their both practical and strategic functions.  New innovation in software has significantly improved the procurement process in many organizations.

But procurement needs to become more competitive. They need to foresee change and provide internal teams with the right resources.  Staying relevant should be a part of the procurement process.  Evaluating the procurement process to see where improvements can be made is an important piece.

Predictive technologies are growing in adoption. These tools help companies foresee market changes. They can act upon them to increase returns on strategic initiatives.  The procurement process can be greatly enhanced with this types of tools.

The procurement process needs statistical methods to develop better spend strategies. This includes anticipating price trends and interdependencies in the market.

Predictive technologies process data so teams can visualize competitive, pricing, and customer behavior. This helps procurement remove risk and optimize spend.  Risk mitigation and cost reduction goals become easier to achieve when using these types of tools as part of your procurement process.

These technologies ensure teams have the best resources for future. They also help prevent costly disasters in your procurement process.

Companies can deploy Internet of Things (IoT) sensors that track equipment conditions. If something changes, predictive technologies help procurement teams prepare for consequences. They can automate the scheduling of repairs or even identify alternatives to existing equipment in their procurement process.

5. Innovation Touch Point Across the Organization

The procurement process must deliver enough value to the entire organization. Subjective and geographic conditions make this a complicated task.  Considering macroeconomic factors should also be a big part of the procurement process.

The organization will grow into new and foreign markets. In their procurement process, teams must adapt to these geographic changes and should hire from appropriate backgrounds to meet all cultural changes as well.

Obviously, transparency should be a part of the procurement process.  Departments are working together to find holistic solutions for their shared pain points. That’s why procurement must become the most transparent entity within the organization.

Procurement teams need to incorporate external collaboration in their procurement process as well. They will outsource business processes that coordinate service management with several vendors. Collaborative outsourcing broadens resource opportunities for more internal teams.

Finally, procurement must always be a financial resource, and the procurement process should reflect that. They must help the whole organization manage spend to adapt to complex challenges.

Procurement professionals must adopt greater financial expertise as part of their procurement process. They must also work with financial teams to improve business outcomes.

6. Business Applications of Artificial Intelligence (AI)

Companies also need procurement teams to be more agile and responsive. These trends place a great deal of responsibility on the procurement process.

This can be a struggle for existing models in the procurement process. Real applications of artificial intelligence may provide leverage to deliver on those expectations.Procurement teams may already be using machine learning. This can improve spend analytics by identifying savings and automating key processes.

Today, vendors provide AI solutions like cognitive procurement advisors (CPAs). These entities use natural language to provide summaries and recommendations to procurement teams.  Research into new and exciting advancements should remain a part of even the most experienced team’s procurement process.

Applications include supplier assessments and performance management, among others.

Procurement teams may need to create new roles within their procurement process to manage these technologies. The return on efficiency and cost savings will far exceed the cost of these investments.

Procurement teams must first make progress in their procurement process with existing technologies. Gartner says, “The first step to automating spend management is to make sure that existing tools are both fit for purpose, and are used throughout the organization. Proper use of existing tools provides the platform for AI, as well as the data on which to train it.”

7. Agile Procurement for Cyber Security

Cyber threats are ever increasing for organizations. They need to ensure they have the right digital defenses. That responsibility has become a part of the new procurement process.

Cybercrime has already done a great deal of damage in the business world. And Cyber threats evolve as quickly as the technologies that protect us. Defense against attacks should be a part of your procurement process. Agile procurement teams can become arbiters of the best defense solutions.

As mentioned, procurement teams must become trusted advisors. They should understand cyber defenses and the resources that provide the right protections.  Gaining an understanding of these methods is good to incorporate as part of your procurement process.

Procurement teams also process mountains of data. Tasking procurement with protecting that data is a logical step forward.

But how can procurement service the security needs of the entire organization?

The procurement process can establish security standards for the entire organization. International policies dictate certain standards procurement can adopt.

Procurement can also demand security standards from its buyers and suppliers.  Being proactive in business security is an important piece of the procurement process. They can be a gatekeeper to entry through these channels.

Soon, companies’ security ratings will determine their value as business partners. Procurement must become more than a strategic and financial advisor in its procurement process. It must become a security task force as well.

8. Procurement Agility for Creative Solutions

Companies also need procurement teams to be more agile and responsive. These trends place a great deal of responsibility on the procurement process.

Procurement technologies make it easier automate buying and cost reductions. Now, internal teams need help with creative challenges affecting their work within the procurement process of their day to day operations.

Govtech says, “If I wanted to buy computers for everyone, it makes sense to do that in bulk and across the enterprise. That way we don’t have variation in the product and lots of unnecessary cost. However, if I am building a customer-facing application like a website or digital service, I might want a lot more creativity.”

The procurement process must become a creative force as well. But not in the role of an author or painter.

Creativity in procurement depends on structure and discipline. Procurement teams need to understand visions and challenges from top to bottom. They must articulate them in a strategic way.

Spend management and optimization are only functions. Procurement professionals must be contributing to a greater vision as part of their procurement process.

But many lack perspective on what that vision is when it comes to their procurement process. When they service they company, that will not perform with it in mind.

Procurement teams must create an information hierarchy in their procurement process. They can choose two team members of any rank to lead.

Then, create a timeline and communication schedule for creating that vision. Team members can challenge their assumptions based on their experiences.

All team members should have contributed in a meaningful way. Then all members will ascribe to the vision. Base future plans on that agreed-upon vision to get full team adoption in every case.

9. Nurturing the Next Generation of Procurement Leaders

Technology and business will be unrecognizable in ten years. Procurement teams must prepare the next generation for these future challenges.  Thinking about the next generation of your procurement team should be a part of your procurement process.

Talent is the greatest contributor to progress in procurement. But teams are hardly investing in training and development.  This gap in talent jeopardizes the future. Continued education and ongoing training should be a part of your procurement process.

But many companies are ahead of the competition. CPO Rising says, “While many organizations have not begun to engage, or effectively engage Millennials as part of a dedicated, systematic recruitment and retention campaign, some organizations are going out of their way to draw them, touting fast advancement, generous salaries and benefits, flexible work arrangements, and the promise of meaningful work.”

Young people are joining the workforce with urgency. Procurement teams must find innovative ways in their procurement process to seize on this opportunity to get ahead.

10. Value-Based Procurement in Supply Chain Management

The interest of all departments must be those of procurement. That means finding solutions that provide both long-term value and adaptability must be a part of the procurement process.

Supply Chain Quarterly says, “Procurement’s problem is how to judge the value of competing proposals, a task that isn’t easy when dealing with large or complex bids.”

Departments needs will vary from new equipment purchases to outsourced predictive analytics. Procurement teams must increase flexibility and the value of spending in their procurement process. Then they can provide long-term benefits for these departments.

Value-based procurement stems from these simple principles. It emphasizes the partnership procurement must share with every team and should be a part of every team’s procurement process. It indicates a more valuable, responsive enterprise asset as well.


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