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The 11 modules of the SEI methodology focus on the key processes that enable the successful rollout of SEI

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In-depth explorations of the approaches and techniques used by leading organizations in the field of SEI today

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Useful downloads, from unique research to practical templates, frameworks and tools being used by SEI leaders

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New purpose, new direction: Managing change in SEI

Old ways of thinking rarely produce new ideas, but can the old ways be reinvented? In procurement’s case, they must.

 

Supplier-Enabled Innovation (SEI) fundamentally reshapes what companies expect from relationships with their suppliers. CPOs who fail to make wholesale changes to the structure of their functions do not see SEI’s impact on company revenues, according to the Supplier-Enabled Innovation Center’s latest research. By contrast, those that do invariably get a better ‘bang for their buck’ and can track the positive financial effects of collaborating with the supply base.

 

A formal, strategic SEI program entails the rethinking of deeply embedded procurement processes, from category management to stakeholder engagement and everything in between. Identifying the areas in need of adjustment and taking appropriate action will have a direct bearing on the success of the scheme.

 

Treat suppliers right

 

SEI requires that procurement interact with suppliers in a different way, with contracts, KPIs, and incentivization methods all in the firing line. The path to achieving this change will not necessarily be a smooth one, however.

 

“We used to deal with suppliers differently to how, for example, R&D did,” explains Luis Allo, Global Innovation Sourcing Director at Johnson & Johnson.

 

SEI is implicitly more collaborative than traditional buyer-supplier relationships, with gain share a key objective in more mature relationships. CPOs should ensure current and potential SEI partners are known across procurement, so that they are managed in a way that places an emphasis on cooperation and co-creation – not hard-line bargaining.

 

“The supplier would be supporting R&D’s product development by providing new technology, while procurement was knocking on the supplier’s door over relatively small savings,” says Allo.

 

It is a story that will undoubtedly resonate with any CPO in the midst of implementing an SEI strategy.

 

Allo’s example highlights how, by not quickly adapting its approach for SEI, procurement can damage its relationship with those suppliers it wants to draw investment from and collaborate closely with. CPOs must consequently create structures that prevent this from happening.

 

Altered images

Procurement’s strategy for engaging with suppliers is not the only thing that it must evolve to foster SEI, however. Allo’s story also shows how an unchanged procurement function can fracture its relationship with internal stakeholders.

 

“Procurement’s traditional reputation is as a cost-saving function,” says Yvan Davoust, Senior Director of Procurement at Philips. Chasing strategic suppliers for small savings is an apt example of how this reputation can be reinforced, making the proposition of working with procurement unappealing for functions such as R&D.

 

A CPO should then look to transform procurement’s image from a function that chases cost savings to one that can deliver real value through partnering with third parties. A common means of achieving this is through developing a key supplier relationship to the point that it yields results, and then holding it up as an example of procurement driving new knowledge and intellectual capital from the supply base.

 

The importance of demonstrating this value and making this change cannot be overstated. Working with and enjoying the support of other internal functions is an essential ingredient to the success of SEI, as these functions will naturally have a firmer knowledge of the organization’s specific innovation needs. Moreover, having them on-board will ensure no wires are crossed or blind spots opened when reaching out to collaborate with suppliers.

 

Balance your team’s skillset

 

All of this, of course, brings another challenge – CPOs must cultivate new skills and capabilities that complement the innovations that SEI strives to dig out of the supply base.

 

Sandro Scharlibbe, CPO at Brose, recognises that the old ways of working need to be evaluated. “Crunching numbers and old school bargaining, on their own, are not good enough anymore,” he says. “They remain relevant, but need to be expanded upon.”

 

SEI dictates that procurement facilitates the work between suppliers and stakeholders on advanced technology solutions and/or processes, so there is a natural case to be made for developing relevant technical expertise in the team.

 

This view is gaining traction. As recently as a few years ago, CPOs were hiring staff with an exclusive focus on commercial acumen and entrepreneurial experience. But while these skills remain relevant, businesses are now placing a greater emphasis on project management, consultative skills and technical knowledge.

 

The reason for this shift is twofold. First, with supplier innovation increasingly becoming a strategic priority in supply chain management, there is a corresponding need for teams engaged in SEI to understand the technology capabilities they are trying to access. This need only heightens as the company’s innovation demands become more sophisticated.

 

Second, teams must diversify their skills if they are to remain relevant in the mid- to long-term. Over the next five to 10 years, SEIC member companies agree that certain jobs and tasks will be lost to new technology, creating a need for procurement provide new capabilities and manage talent differently.

 

Set targets

 

To ensure that these changes are deep-rooted and do not take place at only an opportunistic level, a CPO will need to set targets to gauge progress.

 

These targets can initially revolve around the structural changes discussed above – identifying and securing ‘X’ number of suppliers to collaborate with; gaining the support of ‘Y’ number of internal stakeholders; and recruiting ‘Z’ number of new skills and capabilities. Timeframes should also be determined that consider internal factors, such as procurement’s current relationship with suppliers; and external issues, such as industry competition and technological change.

 

Eventually, however, performance targets will also need to be set that illustrate how these changes deliver value. “I have to show [my stakeholders] what impact SEI is having,” says Yvan Davoust. This is a consistent issue for CPOs, as the measures of SEI’s success are intrinsically different to those in traditional procurement.

 

There are a number of ways this can be achieved. Several CPOs have introduced Net Promoter Score surveys, in which both buyer and supplier rate their level of satisfaction with the collaboration. Many track the amount of ideas proposed and implemented, while others look to pipeline impact and hard financial metrics.

 

But ultimately, there is no ‘one-size-fits-all’ metrics model for supplier innovation. Prematurely committing to rigorous targets can clip SEI’s wings, while being too loose can be damaging for a company that is further along its SEI journey.

 

CPOs must therefore formulate their metrics according to maturity and their own individual business needs. What is critical is agreeing realistic targets that fit an organisation and then, as Scharlibbe points out, “making tangible progress towards achieving them.” It is only by doing this that a CPO will effectively manage these myriad changes and establish SEI as a perpetual value driver for the business.

 

Samuel Wrest

 

This article was first featured in Monitor, now available to members on the Procurement Leaders app, ready to download here from iTunes and Google Play.

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