A previous Efficio blog covered how companies can get ‘an edge’ on the competition through collaborating with their supply base. Whilst I agree that collaboration could well give your business an edge, I don’t think it’s forward-looking enough to bring in everything that innovation has to offer.
I think that true innovation lies further afield – in novel ideas, surprising solutions, cutting-edge technology and new-fangled operating models. Your existing supply base may have pieces of this, but to find entirely new value streams, you need to address the start-up community.
Organizations everywhere have realized this. They’re setting up corporate innovation teams, whose role is to identify and partner with or invest in promising start-ups that are trying to disrupt their suppliers or compete in their industry. This is where innovation will give companies more than just an edge.
In most cases, I would argue that procurement is currently a blocker in this area. Not intentionally, but a blocker all the same. It’s going to take a different approach to shift to be become an enabler or even a pioneer. But it’s possible.
How procurement is a blocker?
Imagine you’re a start-up founder. You get interest from a large potential customer and work with them to design a joint proof of concept which, if successful, could secure the long-term future of your business. You’re then contacted by someone in the corporate procurement team.
You’re asked for policies, processes, proof of insurance, certifications & accreditations and to complete several questionnaires. Some of these things just don’t exist and you don’t have the resources to respond, let alone get any accreditation. Next, you’re handed the ‘standard’ terms and conditions and payment terms. This burdens you with so much risk that if any of the clauses were to be enacted, it would mean certain financial ruin. Finally, procurement requests a negotiation on price.
Do you fight through this process for weeks (or even months), or do you walk away and contact their competitors knowing that you’ll likely have to go through the same process again?
The approach that procurement teams take come from carefully designed processes meant to protect large organizations but are often unreasonable and inflexible for anyone other than the existing supply base.
An innovation lead from a FTSE100 company said ‘procurement’s traditional approaches and processes are not appropriate for what we are trying to achieve. One start-up I worked with was told they were too high risk because the contract value was a significant proportion of their total revenue. Another was blocked because they could not produce three years of audited accounts – they had been in business less than a year.’
Becoming an enabler
It definitely does not have to be this way. A good procurement consultancy can (and should) recognize that start-ups require both flexibility and support to form a viable partnership. When dealing with start-ups, procurement needs to determine where the process is essential, and where there’s room for flex. I am not suggesting organizations should expose themselves to undue risks but rather they should identify the specific risks that apply and be willing to find workarounds.
For example, one FTSE100 organization I spoke to worked with their innovation team to set up a new supplier onboarding process designed especially for ‘micro-SMEs’. This involved no insistence for certification and audit around data security. Instead, they created a virtual test environment with anonymized data to mitigate the potential risk. The result was a reputation as a ‘partner of choice’ to eager start-ups looking to demonstrate capabilities.
Leading as a pioneer
Everything I’ve talked about so far is just the starting point. Procurement has the latest knowledge on the categories and markets. If they are given the objective of understanding the start-up segment of their markets and begin to actively engage start-ups, they can become the catalyst for innovation around the rest of the business.
Yes, everyone is busy, but this activity can provide real business value and sounds a lot like what strategic procurement should be about. But if you won’t listen to me, what about Michelle Baker (CPO at KPN), who said ‘[start-ups] are developing and refining products which are much more consumer centric and customer focused. This in turn gives us an accelerated focus and competitive advantage and if we can tap into that in the market it can put us ahead of the competitors.’
I believe that most procurement teams out there are unwittingly blocking innovation. It’s time to change that. Procurement can further enhance its value proposition to the business by moving to enable the future… and then pioneering it.