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What supplier innovation means for the future of procurement

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31 May 2019

The current state of procurement

A “win” for procurement is generally categorized by cost savings:  trimming the fat in the budget through a reduction of spend in process or purchase. However, as procurement departments are being tasked with topline growth in addition to cost savings, the focus shifts from money to innovation. The new call: innovation with a side of cost savings.

John Paterson, former Chief Procurement Officer of IBM, defines supplier innovation as “the connecting, facilitating, and galvanizing of new approaches and products within the business ecosystem through the formal mobilization of supplier capabilities and resources.” In basic terms, supplier innovation is the collaboration between client and supplier to bring new ideas to the business.

This seems simple enough: tap into the supplier base to grow the business. However, recent discussions at Procurecon Indirect West revealed a roadblock in achieving supplier innovation.  Procurement is finding a lack of supplier innovation while suppliers are fearful of their inability to deliver beyond the traditional day-to-day tasks.  Why?

A lack of supplier innovation is a result of missed communication between the supplier base and procurement team.

“One person’s innovation is another person’s useless information,” explained Patrick Fogarty, SVP of Business Development and Marketing for Tag, during Procurecon Indirect West. “There needs to be a shift in communication. I challenge procurement to put their top 20 suppliers in a room. Reveal your one, two even three-year plan and ask the group to come up with ideas that match your objectives. You have to share where you want to go in order to get there.”

Until procurement shifts the ask from a transactional task to a clearly communicated business challenge with an overall future-state goal, the response for innovative suppliers may continue to be missed. Procurement should look for a full solution set rather than the fix to an immediate problem.

“We know that the supplier base is an untapped resource for innovative ideas. Where procurement fails is that we are focused on transactional needs instead of communicating our overall objectives and revealing our goals and plans. We tend to keep our long-term strategy close to the vest,” explained the CPO of a leading technology company at Procurecon Indirect West.

The cross-industry advantage

In most companies, whether they are enterprise level corporations or smaller businesses, the supplier base is a key source for various levels of expertise. Suppliers generally work across numerous vertical markets and develop new and innovative skill sets to meet the ever-changing needs of their clients.

“Innovation is about cross-industry expertise. No one industry has the rights on all the best ideas,” Patrick Fogarty of Tag. “What happens in automotive could be better for technology.  Some (industries) are better at harnessing data and one-to-one marketing, while others are better at organic grass roots efforts. True innovation lies in the ability to lift and shift from other industries that are not thinking in your way.”

For the supplier base, their range of deliverables is consistently evolving, and until the client asks, “Can you help me reach my new goal or objective?” their extended abilities and their opportunity to “innovate” may remain unknown.

Is the RFP process to blame?

If supplier innovation is paramount to competitive advantage, then a change in communication is necessary. As procurement continues to play a significant role in company growth, acting as the gatekeeper to stakeholders and decision makers, they must find a new method of communication with suppliers and even agencies.

At the 2019 Procurecon Indirect East event in Philadelphia, Patrick Fogarty from Tag spoke on a panel addressing the topic “Is it RIP for the RFP?” The short answer:  the RFP is not dead (although most agencies, suppliers and CPOs would like it be). The long answer:  the RFP needs to change. The RFP was initially developed as a way to capture company data – to know exactly with whom you were working. Today, most of this is public knowledge.  One CPO on the panel stated, “Company statistics, company health, reputation, footprint, revenue, current clients – it is all easily accessible and researchable information. It is now the cut and paste portion of the RFP.”

Based on our place in the industry as the connection between client and supplier, Tag has identified three pitfalls of a traditional RFP and what they mean for supplier innovation.

#1 Today’s RFP doesn’t start with a conversation and it should. At Procurecon Indirect West, two procurement experts addressed the importance of bringing the right people into the discussion for an RFP.  We heard one procurement expert explain, “The RFP process needs to have all the right people in the room. The key stakeholders and the key suppliers. Together they identify the problem and the goals. In an ideal scenario, the RFP happens in real-time rather than in writing. This allows you to expose more and follow up with immediate answers or solutions.”

#2 Continuing to use today’s traditional RFP stifles innovation. Understanding that the best product or process at the best value is at the core of procurement’s responsibility means that there may always be a need for a traditional RFP. Simple product procurement doesn’t always need innovation, and some suppliers will remain transactional instead of relational or vested.  Sometimes a pen is just a pen. However, at Tag we look at time spent on internal process, as well as the sourcing and supplier piece. How time consuming is the RFP process for a pen? How much time is a procurement officer spending reading an RFP response when they could be focused on growth? How can we do things differently?

#3 Today’s RFP does not always address needs or goals. The current RFP process is still based on existing practice:  a request for the solution to an immediate problem. “We all tend to fall into the same pattern,” explains the project manager of a New York based manufacturer. “If you ask for 250,000 branded pens, we are going to give you 250,000 branded pens. When instead, we should be asking you why you need the pen and who is doing all of this writing.” In order to enable supplier innovation, procurement must rethink and restructure the RFP to include their goals.

So, what is the solution?

Is it possible that a slight shift in the existing RFP process will open the door to supplier innovation? We think so. We are seeing more and more clients move from RFP to RFS (request for solution). The purpose of the RFS: drive innovation while solving a complex business problem.

Here’s how it works:

  1. Begin internally with key stakeholders to identify immediate needs and longer-term goals
  2. Engage a small pool of trusted suppliers in an initial, face-to-face conversation where you present a business problem along with long term outcomes
  3. Allow suppliers to ask questions and further clarify needs and solutions
  4. Suppliers submit a written response (no more than 3 pages)
  5. Based on response, the final supplier is selected

Find out how Tag works with clients and suppliers to fuel innovation and topline growth. Learn more about our experience with RFS and see how it brings about greater outcomes for our clients.

 

 

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