Areas of Application for Innovation in Procurement

It has been shown time and again that firms that invest in and sustain innovation have more benefits in the long term. To give you an example, Antler, an early-stage investor based in Singapore, reminds us that in the 2008-2010 economic crisis, the leading firms that had invested in innovation performed better than the market by 10% and 30% years after the said crisis. 

Those businesses not only survived but prospered, in the end, because they were willing to evolve to new realms of expansion, whether new technologies or new alliances, rather than taking the easy route and sitting back to ride out the storm. 

Now that you know the benefits of innovation, let’s take a quick look at the three main areas where innovation is making an impact in procurement:

1. Operational Procurement Innovation
2. Strategic Procurement Innovation
3. Supplier Procurement Innovation

We’ll explore each of these in more detail throughout the article. Let’s get started!

The 3 Areas of Application For Innovation in Procurement

1. Operational Procurement Innovation

Operational procurement Innovation aims to make procurement activities done daily more efficient through innovative solutions to approach them. We know that you already experienced doing repetitive tasks that take up most of your time and wonder when you will have more exciting roles. Fortunately, innovation comes in to take those repetitive tasks so you have more time to do strategic tasks. 

Take Johnson & Johnson, for example. They implemented an automated procurement platform that digitized purchase order management and invoice handling. With the help of robotic process automation (RPA), the company minimized manual paperwork and data entry, reducing the time taken to process invoices by 40%. This freed procurement teams from spending most of their time on routine tasks and allowed them to focus more on strategic tasks.

2. Strategic Procurement Innovation

Strategic procurement innovation is focused on aligning procurement strategies to the organization’s business goals to gain a competitive advantage in the market. This area of innovation goes beyond improving individual tasks — it transforms the entire procurement process to have a greater impact on the company. 

An example of this is the European Organization for Nuclear Research (CERN). To support its research, it has adopted a procurement strategy that focuses on innovation sourcing. To do this, CERN actively searches for cutting-edge technologies from various suppliers globally to improve their research capabilities which has reshaped their procurement process for the better. Because of this, they are able to procure advanced materials and technologies that are yet to be widely available in the market. Furthermore, this strategy also encouraged its suppliers to innovate and raise their standards, driving broader industry advancements.

3. Supplier Procurement Innovation

Supplier Procurement Innovation is a new concept that aims to strengthen the links between suppliers and buyers to foster mutual profits through close collaboration and integration. This strategy puts emphasis on the suppliers and buyers working together for the improvement of overall supply chain performance.

Klaas Stek highlights this concept in “Purchasing Skills Leading to Success,” emphasizing that “suppliers’ early involvement in the purchasing function is vital.” He further stresses the importance of purchasers, including you and your procurement team, to “engage effectively with outsiders and new players.” This perspective underscores why fostering strong supplier relationships is a key aspect of procurement innovation.

In the automotive sector, major companies like Ford and Toyota have adjusted their procurement strategies to emphasize collaborative innovation with their suppliers. This means they actively engage suppliers in the product development process from the early stages. It’s a significant shift. But how did Ford implement this approach in practice?

Ford has introduced an interactive software tool to share its best practices with suppliers. The tool allows suppliers to input details such as their size, current environmental impact, and future goals, like reducing energy consumption by 5% over five years. 

Using this data, the software suggests actions from Ford’s best practices list, highlighting which choices will help suppliers achieve their objectives. While there are no direct incentives or penalties, 

Ford emphasizes the environmental and financial advantages of these actions. For example, the company’s transition to LED lighting in its U.S. facilities resulted in $7 million in energy savings. This initiative highlights Ford’s dedication to both sustainability and fostering collaborative supplier relationships.