Procurement as a differentiator – Part 1

May 2, 2014

“In 2020, company leadership will likely look at procurement not as a group that focuses on sourcing raw materials, goods and services, but rather as one that sources ideas. Creativity will involve engaging stakeholders in new, innovative ways” -Deloitte, Charting the Course, Why Procurement must transform itself by 2020
Over the recent years, the procurement profession has started going through a transformation from a clerically oriented function to becoming a strategic contributor, embracing supply chain management principles.
Organisations slowly but surely have started investing in procurement, acknowledging the importance of strategic cost management.

So, what would be the next step Procurement should aim for? Moving beyond Cost Cutting, can Procurement become a core differentiator for every Organization? I believe the answer is yes. Let’s have a closer look.

Royce Blair - Starfish - Different

PROCUREMENT DEFINITIONS

Discussing Procurement, there is a variety of different elements to it: Direct, Indirect, Sourcing, Category Management, Contract Management, Supplier Relationship Management, Procurement Excellence, the list goes on.

In the traditional way of looking at Procurement (see below definition) it can be argued that not all these elements can be considered core.

However, if we expand our definition of Procurement from the more traditional approach of:

Procurement is “the overarching function that describes the activities and processes to acquire goods and services involving establishment of fundamental requirements, market research and vendor evaluation and negotiation of contracts including the purchasing activities required to order and receive goods” – purchasinginsight

to also engulf activities such as:

“make-versus-buy decisions, outsourcing and in-sourcing, supply chain management, inter-firm communication, strategy formulation, relationship management, performance assessment, inter-firm networking and innovation scanning” (Cousins P. et al, 2008, Strategic Supply Management)

then it becomes apparent that Procurement has the potential, if viewed strategically, to effectively link customer demand with supplier innovation and thus, change the way we view Procurement’s core elements.

In a practical sense though how Procurement fits in organizational Strategy and why should it be there?

Some thoughts are summarized below:

A) THE LINK BETWEEN CUSTOMER DEMAND AND SUPPLIER INNOVATION

a) Firstly, it is evident that Procurement is the function that forms the contract framework and the supplier relationship.

Hence, provided that the business outlook, targets and organizational vision allows, Procurement is responsible for defining the scope and setting the framework within which the supplier relationship will evolve.

In recent times, the requirement for suppliers to work with the business into strategic relationships (especially, discussing categories of high spend and/or high risk) is slowly becoming the norm.

Contract clauses that require continuous improvement and innovation as part of the contract are implemented more and more.

b) Procurement is also the function that has direct contact with new suppliers.

The business is well aware of what the current suppliers can do (although there may some gaps especially when the contract doesn’t promote sharing of new ideas and incentives for continuous improvement). However, the business does not know what it doesn’t know.

Hence, unless Procurement through its contacts re-assesses the supplier market and re-evaluates of what can be done e.g. what the suppliers’ new processes are and how innovation affects the market landscape, then the fast-paced market space we operate in may constitute the business activities too expensive and/or irrelevant by today’s standards.

It thus becomes evident that it would be very useful, if not essential, for the Organization to make Procurement the focal point of collective knowledge between internal functions and external sources.

Procurement can thus, be placed as the liaison between R&D, Sales and Operations on one hand and Suppliers on the others.

Furthermore, in pursuit of establishing the “fundamental requirements” or specifications for Sourcing the right products and services, Procurement has to assess supplier capabilities and can and should collect and communicate market intelligence back to the business in order for best practices and product development to be fine-tuned.

 

In the next two posts (part 2 and part 3) of this three part series, I will explore how Procurement’s potential through could reinforce the basic Strategies of Organizational differentiation and what this differentiation could look like.

 

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Image courtesy of Royce Bair / www.flickr.com

 

Filed under Category Management, Future Trends, Innovation, Leadership, Procurement Tagged with , , , , , ,

Innovation: SCAMPER – A Practical Guide – Part 2

August 13, 2013

In the previous blog I discussed the different facets of innovation and introduced SCAMPER as a great creative thinking tool for everyday use by all of us. I also looked at the first two of SCAMPER’s methods. Substitution and Combination. Now, let’s look at the rest – SCAMPER.

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Adapt something to it

As part of my team’s practices we are developing a tradition of making small presentations about our successes and projects to the rest of the team. These presentations have been adapted to have different uses. We use those for:

a) sharing successful stories, best practices and knowledge on complex projects with the rest of the team,

b) as training, after the presentation I provide feedback to the presenter on how well the presentation went and what could be improved in the future based on a specific checklist developed.

Hence, one simple event can have multiple uses and have value on a 360 degree ankle. At a later post I will share the list put together for assessing the presentation in a quantifiable and very straight forward way.

Back to SCAMPER though and Adaptation: You can extend the thinking by asking questions like: What other contexts can I put my concept on? What can I emulate?

Modify or Magnify it.

Think about cappuccinos and lattes (the coffee lovers in Melbourne will understand). On one hand, a Cappuccino is 1/3 coffee, 1/3 milk and 1/3 froth. On the other, the latte is 1/3 coffee, 2/3 milk. Not much of a difference but, some people are avid supporters of one or the other. I am sure the person that came up with the idea is feeling quite proud about the effect a bit more milk (or a bit less froth) has.

In this context you can also think of what else could be added, extra features, extra functions, frequency, what can be exaggerated and so on!

Put it to some other use

An interesting example could be the use of a T-shirt as a personal message board – I am sure you have seen them around. Another familiar one would be the use of Facebook for company marketing whereas the platform was first conceived for personal interaction.

Eliminate something

I guess over time we all start to get full calendars, filled with meetings and “urgent” projects. A good exercise is the following: Every 3 or 6 months go through the list of meetings and standard reports and establish a) what adds value b) what is absolutely necessary c) what can be consolidated or merged into another report or process and d) what can be delegated? Then modify, scrap, merge and delegate what is necessary. Repeat after a set period as a matter of process.

In this context you can also think of what else could be omitted, subtracted, what rules could be eliminated/consolidated / made simpler, what is not necessary, what can be delegated.

Reverse of Rearrange it

Michalko, in Thinkertoys, mentions a great example worth repeating:

“Consider the alphabet: ABCDEFGHIJKLMNOPQRSTUVWXYZ. These twenty six marks have been arranged in countless ways to make you laugh, cry, worry, wonder, question, love, hate, and ponder. They’ve been rearranged to form the words in Hamlet, Tom Sawyer….and the general theory of relativity”.

I think the above example says it all. When you think about how 26 marks are used and the diversity they provide, this truly provides perspective that as the saying goes:

“You are only limited by your own imagination”

In this context you can also think if we can change the sequence, the pace, the schedule, the pattern.

Well, that is SCAMPER. For inspiration, please also have a look at a great compilation of quotes about innovation here. You can also look at a range of questions and thoughts on SCAMPER here.

Happy SCAMPERing!!

[Image credit: 123rf.com]

Filed under Future Trends, Innovation, Leadership Tagged with , , ,

Innovation: SCAMPER – A Practical Guide – Part 1

August 11, 2013

Nowadays, when we think about innovation we mainly think revolutionary products with Apple or Samsung dominating the conversation. Innovation though is more common than some people believe.

The question is, how can we learn to tamper into our creativity and become ourselves innovators and change agents.

SCAMPER is a great creative thinking tool that can enable us to do just this. Let’s look at how.

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First of all, let’s define “innovation”. According to Ulwick, from his book “What customers want“:

“Innovation is not the result of thinking differently. It is the result of thinking deliberately (in specific ways) about existing problems and unmet needs.”

Innovation is all around us, in processes, in products, in ways of expression.

Below are some examples of innovation that is changing the world:

  • Key Wi Fi patents (developed by CSIRO – go Australia!!)
  • The Internet
  • GM food technology
  • Vaccines
  • DNA
  • Self-Managed teams
  • Kaizen
  • Personal Computers
  • Democracy

In a previous blog I highlighted the importance Innovation will have as a key ingredient of success in the very near future.

The rhythm by which we innovate is accelerating. Innovation is becoming so inherent to everyday life that we do not seem to recognize it anymore. It has become routine, second nature.

On the other hand, we see that some people still consider the “Innovators” as “other-people” and fail to fully appreciate the power all of us have when we introduce innovation as an inherent part of our daily lives.

I think that a practical tool that we can all use daily can go a long way. Over time, I have come across a few models that can stimulate creative thinking.

One of the best ones is SCAMPER (referred in Michalko’s book: Thinkertoys).

Michalko contends that:

Everything new is just an addition or modification to something that already existed.

SCAMPER is a technique for creative thinking. The acronym stands for:

  • Substitute something
  • Combine it with something else
  • Adapt something to it
  • Modify or Magnify it.
  • Put it to some other use
  • Eliminate something
  • Reverse or Rearrange it

I will not go into an elaborate analysis as there are plenty of resources here and here you can refer to learn more. I will just give some examples to highlight how this model has been used.

Substitute something

We all love music. During the last 10-15 years we saw LPs substituted by CDs, then CDs were substituted by iTunes (and other such services). Now, iTunes is in the process of being substituted by services like Spotify and Pandora. In this case the channels used for acquiring and “consuming” music have been substituted.

A useful way to think about substitution is by asking questions like: What can be substituted or Who e.g. ingredients, materials, process or procedure, place, approach are all candidates for substitutions and so on.

Combine it with something else

A simple example are the multipurpose tools e.g. the Swiss knife. This is an item that has a very diverse use, it can become a spoon, a knife, a can opener etc

You can also think of combining ideas, materials, purposes, people, uses and so on.

In the next blog I am detailing how the A, M, P, E and R can be viewed and put into practice.

[Image credit: 123rf.com]

Filed under Future Trends, Innovation, Leadership Tagged with , ,

How to conquer tomorrow?

July 30, 2013 3 Comments

The accelerating nature of progress in our era makes the challenges and tools required for achieving success quite different from what was relevant 10 or even 5 years ago.

Generic Core Tools for the Future

In general terms, the two core tools that will be essential to individuals and organisations, for attaining success, in the 21st century seem to be:

  1. The ability to continuously learn, connect and adapt.
  2. The ability to nurture a culture of Creativity and Innovation that keeps the value proposition ahead of the competition.

Talent, Tools and Expectations Redefined.

It is apparent that the competitive landscape is changing very fast (e.g. see what happened to Nokia among others, even Apple is starting to show weariness).

It is also becoming apparent that the Customer is not interested anymore in Customer satisfaction as, this is considered a minimum standard “everyone” delivers. As Tom Peters observed, the Customers are now interested in who can guarantee their Success instead.

As a consequence, we are witnessing the Product life cycles dwindling and companies that were thought invincible to wax and wane at a faster pace than ever before.

As the markets evolve allowing, more or less, uninterrupted access to labour and materials, the changing landscape also forces:

  1. Individuals to compete in the talent market on a global scale. Each professional is now competing to be successful in the Talent pool, competing against highly skilled and highly qualified professionals from the developed and the developing world. Furthermore, competition is also against the automation of processes that is eliminating tasks that until now were done by blue or white-collar workers.
  2. Organisations to continuously compete on three fronts: R&D / Innovation and Strategic Cost Management.

Talent

The Talent pool is expanding with ample numbers of highly skilled professionals joining it especially coming from the developing world. Moreover, due to enabling technologies, these professionals are now able to compete on global platforms (see www.elance.com and plenty of other such services).

Moreover, the outsourcing or automation of blue-collar work we have been witnessing for a while is followed fast by automation and outsourcing of white-collar work as well. Outsourcing to developing countries that have lower labour costs is only one example.

Another fast evolving trend is the development of Artificial Intelligence which in its most simplified form consists of the programs we now use and in its most complicated the conceptual models of Ray Kurzweil (now Google’s New Director of Engineering) and others, as suggested by various futurists and thinkers e.g. Juan Enriquez, Andrew McAfee, Rodney Brooks. These new models will most probably shape the paradigm in the years to come.

Moreover, it is viewed that in the future we will not be discussing about the competition between individual companies but about the competition between Supply Chains. This is a trend that in a form was employed e.g by Toyota, already. The integration of Supply Chains as a strategic competitive advantage for an Organisation will only strengthen and new alliances will be formed with focus on efficiency, effectiveness and cost management.

We also now see COO’s such as Tim Cook becoming CEOs (interestingly Tim Cook also headed Compaq’s Procurement before). It becomes apparent that the growing need to manage cost is fast developing. The Procurement sector is thriving and its tools and thinking constantly evolving.

Interestingly, the developing collaborative nature of Supply Chain partners focus on management of costs to a large extent. Furthermore, the need to continuously innovate and remove cost in becoming an element of modern RFP’s adding to the now more established demands for Sustainability  and Corporate Social Responsibility.

Porter and Distortive Technologies

The strength of the company’s supply chain will provide the Cost Leadership required for the company to compete. The other two forces from Michael Porter’s famous scheme described in his classic book Competitive Strategy: Techniques for Analysing Industries and Competitors, i.e. differentiation and market segmentation (or focus) are in the process of been redefined as well.

Differentiation and standardisation were incompatible trends until now. In the future though, the developing technologies e.g. 3-D printing, will make it possible to highly customise products and, at the same time,  achieve standardisation through materials used, versatile designs, programs used etc. This follows the markets demand for having unique products of high quality at the lowest price, instantly. Additionally, the consumption styles are evolving with the definition of success now becoming the creation of a platform e.g. Google, Apple, youtube, alibaba.com This new paradigm expands the market expectation and allows for maximum differentiation within limits e.g. smart phone technologies and apps.

Evidently we also view the rise of a growing number of SMEs that through technological advances are now empowered to compete with the status quo. The playing field has been levelled as Thomas Friedman suggested some years ago. New niches are being created every day. This century may become eventually the century of the SMEs. Considering that technology enables SMEs to enter previously capital intensive industries e.g. manufacturing, and enable individuals to become Home CEOs, the number of industries that will remain with high barriers to entry will most certainly lessen over time. Eventually, as Thomas Friedman eloquently put it:

“When the world is flat, whatever can be done WILL be done.  The only question is whether it will be done BY you or TO you”.

In support of these trends we are witnessing two disruptive technologies that will again revolutionise the way we think and act. These are:

  1. IBM’s Watson which is a cognitive system that is learning through interactions and delivers evidence based responses. This development could well revolutionize the way we think about medicine, legal as well as, a variety of other specialist services which we until now thought that would be immune to the evolution of technological change.
  2. 3-D Printing which is fastly becoming accessible to a wider customer base. Actually, the news now is the concept of “4D printing, where the fourth dimension is time. This emerging technology will allow us to print objects that then reshape themselves or self-assemble over time”.

Conclusion

Nobody can accurately predict the future. I think though that Peter Drucker describe it best when he declared that:

“The best way to predict the future is to create it” – Peter Drucker

It seems that the only way to navigate the uncertainty of what is to come is to seize the opportunity of change.

Hence, through the two core tools i.e. a) constant learning and adaptation and b) creativity and innovation, to create the future as we dream of it.

In future posts, I will be discussing about specific tools that can be used to better organise learning, continuous improvement and innovation.

Below are some of my favourite quotations from visionaries contemplating the same concepts:

“The illiterate of the 21st century will not be those who cannot read and write, but those who cannot learn, unlearn, and relearn.” — Alvin Toffler

“The job isn’t to catch up to the status quo; the job is to invent the status quo.” – Seth Godin

“People can be divided into three groups: Those who make things happen, those who watch things happen and those who wonder what happened.” – Anonymous

What are your thoughts about what the future brings?

What additional skills have you learned or plan to learn this year?

 

[Image credit: shutterstock.com]

Filed under Future Trends, General, Innovation, Procurement Tagged with , , , , , , , , ,

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