Innovation Driven Procurement (IDP) enables purchasing organisations to actively contribute to the strength of a company's innovation, an important strategic objective of many companies

1. Innovation Driven Procurement (IDP)
December 2009

2. Corporate mission, vision and strategy statements stress the importance of
innovation as the engine for growth
We deliver innovation by investing in world
class strengths in end-user insights,
technology, design and superior supplier
networks
Philips
Source: corporate websites
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3. An example of an innovative company: Procter & Gamble Open Innovation initiatives
connect external parties to contribute to new product development
Open Innovation with P&G
P&G’s Innovation Net
Mechanisms
Consumer  An internal network of 70 technology
Insights
entrepreneurs who think up scenarios and write
technology briefs
R&D Customer  Suppliers’ research teams work in P&G labs
Labs Teams and P&G researchers work in supplier labs
 Interactive prototyping tools to co-invent new
product packaging with consumers.
 Networks connect companies that have a
science or technology problem.
Employees
Trade  A network that links over 800 retired but high
Suppliers
performing scientists and engineers from over
150 companies.
Results
 Since 2000, share price has doubled and R&D
investment as a percentage of sales is down
Venture Suppliers from 4.8% in 2000 to 3.4% in 2006
Capitals
 Launched 100 new products, 35% of which
originate externally, up from about 15% in 2000
 45% of the initiatives in product development
Contract Labs Research have key elements discovered externally
Institutions  Increased product hit rate to more than 90%,
from 70% in 2001 through open innovation
Source: (a) “Why companies should have open Innovation”, HW Chesbrough, (2007); (b) “Connect and Develop: Inside P&G’s new model for Innovation”, HBS 58 (2006); (c) Company website
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4. The Innovation Driven Procurement (IDP) Strategy based on the Corporate and
Procurement Strategy will transform procurement into a true business partner
From Strategy to IDP
Corporate level Procurement level
It is essential to align the Procurement Strategy
with the overall Corporate Strategy to ensure
Procurement’s efforts are focused appropriately
and are consistent with the fundamental direction
of the business. This is what makes Procurement
Strategy
a service provider for the business.
Corporate Procurement Whereas innovation is often stressed in Corporate
Strategy Strategy Strategy and open innovation is embraced by
many successful companies, many struggle to
translate this into the Procurement Strategy. Let
alone providing procurement services satisfying
the business’ innovation needs.
The translation of the Corporate Innovation
Strategy into a Innovation Driven Procurement
(IDP) Strategy provides focus for procurement.
Mechanisms such as those shown in the P&G
Innovation
case need to be formalised and embedded in the
organization. IDP will transform Procurement from
Innovation
Innovation Driven
a service provider into a business partner.
programs Depending on the IDP strategy, new roles and
Procurement services will be provided by procurement. This can
have an effect on the entire procurement function,
mainly impacting tactical procurement operations
such as sourcing, demand management and
supplier relationship management.
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5. Innovation Driven Procurement is one of the crucial aspects in adding value to your
business if innovation is part of your Corporate Strategy
IDP in procurement development
Over the past decades, the increased importance
of the procurement function has set a
development in motion. Nowadays, most
•Value extraction companies have spend management strategies,
Value focus
and creation allowing them to leverage economies of scale and
managing demand in the organization.
Procurement maturity level
IDP
Most have gone further with involvement of the
•Performance enhancement business in the procurement processes. This
Product focus process focus makes procurement a reliable
•Supplier involvement service provider responding to business demand
and mitigating risk and costs.
•Eliminating deficiencies Some have successfully gone further recognizing
suppliers as a key actor of the end product. This
Process focus
goes beyond responding to business demand with
•Business involvement procurement services, mitigating risk and costs. It
means pro-actively providing value added services
that will help the business reach the corporate
•Consolidation goals.
Spend focus
•Compliance IDP services are focused on future client demand
and (potential) markets. It encompasses a
procurement function which is embedded in new
product development, which uses its extensive
market knowledge to scout for new opportunities
Transactional focus •Negotiation beyond direct business demand, and may even
spur new directions for the company.
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6. Innovation Driven Procurement ( IDP ) demands early involvement, when potential
impact on costs is greatest
Typical involvement
Life Cycle • Product Development (R&D, marketing,
Typical involvement
cost
Procurement avoidance etc.) tends to involve suppliers early on
determined
involvement
• Procurement is involved once
Manufacturing specifications are nearly fixed and effects
involvement on costs are limited to negotiation gains
Supplier • Sequential involvement of departments
involvement may speed up initial design phases, but
Cost will require additional effort and time in
reduction
opportunities later stages to involve new parties
Conceptual design Detailed design Production Operations & support
IDP involvement
IDP based involvement
Life Cycle
cost
• Innovation teams including early
avoidance Procurement involvement are critical to
determined
Procurement leverage early cost reduction
involvement opportunities
Manufacturing • A shared value proposition focused on the
involvement external client will allow all involved
departments to focus on the right targets
Supplier
involvement Cost
reduction
• Supplier involvement is a careful balance
opportunities in risk management
Conceptual design Detailed design Production Operations & support
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7. Innovation Driven Procurement ensures alignment of one single value proposition,
filled in from each department's perspective
Typical involvement
• Sequential involvement of departments
results in handover moments and
Typical involvement
• Engineering • Engineering • Engineering • Engineering
• Suppliers. • Suppliers • Suppliers iterations
• Manufact. • Manufact.
• Procurement
• Newly involved parties are often
√ √ √
perceived as disruptive to the process; it
Phase 1 Phase 2 Phase 3 Phase 4 X requires understanding of and access to
materials
Phase 1 √ Phase 2 √ …
• Issues from the Procurement process can
result in major set-backs and iterations in
the process, which is harmful to the time-
to-market
IDP involvement
• A team effort from the start will set the
directions for all internal parties involved
IDP involvement
• Engineering
• Manufact.
•
•
Engineering
Suppliers
•
•
Engineering
Suppliers
•
•
Engineering
Suppliers
• The team decides on supplier
• Procurement • Manufact. • Manufact. • Manufact. involvement, based on procurement and
• Procurement • Procurement • Procurement
engineering market expertise and a
√ √ √ √
common understanding of contents
Phase 1 Phase 2 Phase 3 Phase 4
• Every involved party is targeted on the
same value proposition and is able to
work both individually and as a team,
reducing time-to-market
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8. The business models of all parties involved must be aligned for
them to collaborate effectively
Resources Offer Customer
Co-creation
Partner Customer
Network Relationship
Core Value Value Distribution Customer
Capabilities Configuration Proposition Channels Segment
Cost Revenue
PROFIT
Structure Streams
Financial Performance
Source: Adapted from Alexander Osterwalder, Business Model Generation
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9. Bringing a shared value proposition through the value chain to the
customer, requires aligned business models
What businesses must do to organise for IDP:
• Create enforced platforms with shared value propositions focused on
external customers
• Create transparency of the value proposition throughout the value chain
• Map required and existing capabilities and divide roles
• Develop and balance the capabilities between purchasing and business
departments
• Seek external partners with compatible business models
• Recruit entrepreneurial skills
• Get the basics (operational and tactical purchasing) right
• Ensure IT that supports integration between engineering and
procurement, lowering barriers of collaboration
IDP requires a dedicated organisation of innovation
by all parties involved
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10. Capgemini has extensive experience in IDP, including outsourcing
R&D and managing supplier relationships and aligning procurement
with other business functions
Outsourcing
Piloted appropriate methods & tools
transition
Set up supplier mgt organisation
R&D
Supported R&D transition to suppliers
Increased supplier R&D capability
management
Capgemini conducts R&D activities for
Supplier
Airbus in a long standing partnership
Collaboration methods and tools are set
up for management of R&D by Airbus
Supply chain control for Siemens
credentials
Other
Supplier mgt optimisation for Basell
Supplier R&D mgt for Snecma
Co-innovation process for Faurecia
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11. Contacts
ir. Robbert den Braber
Senior Consultant
Capgemini Nederland B.V.
Papendorpseweg 100
P.O. Box 2575 - 3500 GN Utrecht
The Netherlands
Tel. : +31(0)30 689 50 56
Mob : +31(0)6 15 03 09 01
robbert.den.braber@capgemini.com
www.nl.capgemini.com
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