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Innovation Driven Procurement Business Model

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This presentation shows the mismatch of Procurement with innovation processes, and how to change the focus of Procurement in order to successfully contribute to innovation

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Innovation Driven Procurement Business Model

  1. 1. Procurement Innovation Business Model How to organize Procurement for a strong contribution to innovation - An IDP offering - 13 August 2010
  2. 2. As the economy emerges from recession, Innovation Leaders seek opportunities to accelerate performance What Innovation Leaders do  Create unique customer experiences  Transform business processes with partners  Utilize new governance and management methods  Apply new technologies Copyright © 2010 Capgemini. All rights reserved. 2
  3. 3. Procurement has developed towards a more value driven department, but has major obstacles to overcome before it can contribute to innovation Procurement developments improved … but the traditional Business Model the focus on value… holds back a contribution to innovation  Strong functional silos result in a translation of  Focus moved from internal cost savings and risk external customer targets to specific targets for reduction targets towards the internal client Procurement, which makes it difficult to oversee targets end product requirements  More cross-functional teaming and category  Procurement is involved in the later stages of management has increased Procurement’s innovation, where fixed specs only allow for understanding of the internal client traditional procurement savings  Stronger separation of tasks and outsourcing of  Procurement capabilities lag behind; they are operational procurement has brought stronger limited to traditional contracting, delivery of focus on tactical and strategic procurement savings and security of supply The value added role of Procurement is limited to a thorough understanding of the internal client, instead of a substantive contribution to the external client’s demands Copyright © 2010 Capgemini. All rights reserved. 3
  4. 4. Early involvement will enable Procurement to add value when the potential impact is greatest Traditional Involvement Procurement involvement in innovation • Product Development (R&D, marketing, etc.) tends Cost reduction to involve suppliers early on opportunities • Procurement is involved once specifications are (nearly) fixed and the potential impact on costs is limited to negotiation gains Innovation Driven Traditional • Late involvement of Procurement may speed up Procurement Procurement initial design phases, but will require additional effort Involvement Involvement in later stages and it may cause conflicts Innovation Driven Involvement • Innovation teams including early Procurement Supplier Involvement involvement are critical to leverage supply market capabilities from the start • A shared value proposition for the external client will Life cycle allow Procurement to focus on the right targets value determined • Supplier involvement is based on the full life cycle and is a based on a strategy balancing R&D and Concept stage Project stage Prototype stage Revision stage Product stage Procurement interests Copyright © 2010 Capgemini. All rights reserved. 4
  5. 5. The timing of Procurement Involvement must be matched by the appropriate Business Model for an optimal contribution to innovation Transactional Value added contribution contribution • Fit of the Procurement Value added Procurement Involvement Early • Fit for late innovation Mismatch business model with stages contribution the early innovation stage characteristics • Linear process with handovers, focus on • All team members internal client targets focus on the external value proposition • Cost reduction is in scope during early • Cost control Transactional Late stages, but a core Mismatch becomes integral Procurement target contribution target of the innovation later on team • Ad hoc supplier • Supplier involvement involvement Traditional Innovation Driven strategy becomes balanced Procurement Business Model Copyright © 2010 Capgemini. All rights reserved. 5
  6. 6. Early involvement of Procurement with an Innovation Driven Procurement Business Model ensures benefits for both R&D/Marketing and Procurement Benefits for R&D / Marketing Benefits for Procurement • Leverage capabilities and supplier market • Closer to the core of the requirements of know-how of procurement the business (R&D/Marketing); access to end • One supplier interface: organized entry and customer demands filtering of ideas from (potential) suppliers • Influence policy and decision making where it • No need to develop Procurement impacts the bottom line the most competences such as supplier management • More a business partner, less a police • More efficient innovation projects, fewer officer or mere negotiator setbacks due to conflicting procurement • Get in control of all spend and suppliers perspectives in later stages • Full scope supplier involvement strategy • Full scope supplier involvement strategy To deliver these benefits, companies must review the Procurement Innovation Business Model Copyright © 2010 Capgemini. All rights reserved. 6
  7. 7. The Business Model Framework is a simplified representation of a system’s or service’s logic, which we will apply to review Procurement in innovation Business Model Framework KEY KEY VALUE CUSTOMER CUSTOMER PARTNERS ACTIVITIES PROPOSITION RELATION SEGMENTS What key activities do What kind of relations you need to perform do your client expect and how easily can and which kind do you What can partners do you do this? Which of your maintain? Who are your to leverage your customer’s problems customers and what business model do you solve and are your customer’s (better, at lower cost)? KEY which needs are needs, problems, RESOURCES satisfied? CHANNELS desires, and ambitions? What key resources Through which means does your business do your clients want to model require? be reached and which means do you utilize? COST REVENUE STRUCTURE STREAMS What is the cost structure of your What value are your customers willing to business model and is this in line with pay for and what is the preferred the core values of the business model? payment mechanism? Source: Adapted from “Business Model Generation”, Alexander Osterwalder & Yves Pigneur, 2009; Capgemini Consulting Business Innovation Copyright © 2010 Capgemini. All rights reserved. 7
  8. 8. Changing the definition of the “customer” of Procurement in innovation is the basis of Innovation Driven Procurement Traditional Procurement • Procurement works for “internal clients” such as CUSTOMER CUSTOMER marketing RELATION SEGMENTS • These departments typically give targets such as a required percentage of savings on the COGS, full contract coverage and security of supply What kind of relations • Procurement typically reacts to client demand in do your client expect later stages of development and which kind do you maintain? Who are your customers and what Innovation Driven Procurement are your customer’s needs, problems, CHANNELS desires, and • What happens when Procurement focuses on the ambitions? external client? Through which means • What kind of structures are in place to connect do your clients want to customers with Procurement? be reached and which • What kind of relationship can Procurement have means do you utilize? with external customers? Copyright © 2010 Capgemini. All rights reserved. 8
  9. 9. The changed focus broadens the product of Procurement from narrow cost- focused achievements to a contribution to customer-focused goals Traditional Procurement • Procurement delivers: VALUE PROPOSITION • Contracted savings • Supply secured • Operational procurement process in place • Supplier performance managed Which of your customer’s problems do you solve and which Innovation Driven Procurement needs are satisfied? • Procurement, as part of a client centric team, contributes to end customer targets such as: • Short time-to-market • Better quality • New features • Lower cost • More customization Copyright © 2010 Capgemini. All rights reserved. 9
  10. 10. Contributing to overall goals changes the way in which Procurement is organized, works together with its partners and deploys its capabilities Traditional Procurement • Procurement conducts tactical and operational activities to deliver contracts, savings, etc., usually KEY KEY in the later stages of innovation (revision / product stage) PARTNERS ACTIVITIES • Required skills include demand management negotiation, contracting, basic supplier What key activities do management you need to perform • Suppliers are partners required to supply the value and how easily can proposition What can partners do you do this? to leverage your Innovation Driven Procurement business model (better, at lower cost)? KEY • What will Procurement’s contribution be in early RESOURCES innovation stages and with different types of innovation? What key resources • Who are Procurement’s partners internally and does your business externally? model require? • What kind of competences are required in the different innovation stages and with different types of innovation? Copyright © 2010 Capgemini. All rights reserved. 10
  11. 11. Interested in how to go forward? Robbert den Braber | Capgemini Consulting Senior Consultant Procurement Transformation Robbert.den.Braber@Capgemini.com +31 (0) 6 15 03 09 01 @InnoProc | Innovationdrivenprocurement.blogspot.com www.capgemini.com/consulting Capgemini Consulting is the strategy and transformation consulting brand of Capgemini Group Copyright © 2009 Capgemini. All rights reserved.