Jeremy Ferrer
Webinar :
Lille Procurement Event
Friday 17 October from 9:00 a.m. to 12:30 p.m.
A term that appeared in the early 90s, disruptive innovation, also called disruptive innovation, is a trendy phenomenon. While it referred in particular to technologies and economic models, by completely transforming existing models, this concept is also revolutionizing the purchasing function today. Like any strategic function within companies, the latter has not been able to escape this phenomenon. Driven by digitalization and the various economic and health crises, disruption can help reinvent and transform the purchasing function in business. How is disruption a driver of transformation for the purchasing and procurement function?
Disruption has profoundly transformed many industries, and procurement is no exception to this trend. Indeed, with the advent of digitalization, new horizons are opening up for Purchasing professionals, who must adapt to this new reality in order to remain competitive. First of all, it is worth emphasizing the importance Purchasing department strategy. Indeed, Purchasing has become a real lever for creating added value for companies, by allowing them to optimize their costs while guaranteeing the quality of the products or services purchased. Purchasing thus has a key role in the overall performance of the company. In this perspective, digitalization offers new possibilities and directions for Purchasing.
Digital tools allow Purchasing Managers to manage their activity more effectively, by automating certain operational tasks and by optimizing supplier sourcing. The dematerialization of purchasing processes is also a major challenge, making it possible to simplify and accelerate exchanges with suppliers.
Disruption or disruptive innovation is a concept introduced by the economist Clayton Christensen in the 90s. He talked about it in his two books “The Innovator's Dilemma” published in 1997 and “The Innovator's Solution” published in 2003.
This term refers to innovations or business models that cause a break in the way an existing business sector operates or in usual practices. Disruption is primarily about products and services. It will introduce new products or services to a new market. It will therefore create a new market and make the old one obsolete. This is where it differentiates itself from incremental innovation that does not upset its market. Incremental innovation is only about improving an existing product or service. Disruptive innovation, on the other hand, causes a real break with what has existed. In other words, it makes the old system disappear. This is no longer about adding value, but about creating new value.
Disruptive innovation can also affect business models. When these no longer make it possible to earn money or create value for the company, disruption can be introduced to breathe new life into the future. This concept brings new growth opportunities for businesses. Among the functions of the company that can benefit from the contributions of disruptive innovation is the purchasing and procurement function.
In a world in turmoil, standing out through innovation has become imperative for businesses. This means adopting a constructive approach in which all stakeholders inside or outside the company must be involved. The purchasing function plays a decisive role in the midst of this creative and innovative dynamic by ensuring business continuity and the disruption of the already established system.
Far from the cost-killer image that has been attached to him in recent years, the buyer has become a pioneer in the sourcing of innovation for companies. He can help him turn to breakthrough offers, synonymous with greater value creation, through the search for strategic partnerships for which he is the manager. This new mission of the purchasing and logistics function aims to promote the development of win-win contracts with suppliers.
This type of approach seems to be becoming widespread in large firms today. This is the case of the Start-and-Stop system, which is an innovation resulting from a win-win partnership between PSA and Valeo. The PSA Purchasing Department played a central role in this collaboration.
Developing this new concept and adopting change within the Purchasing Department require reviewing the organization of the latter, seeking agility and investing more in the digitalization of procurement processes. Thus, in its quest for innovation, the purchasing and procurement function has been given new missions. Its role is no longer confined to cost control. It actively participates in the emergence of new uses, in improving the customer experience and in the launch of new products. In short, it has become one of the pillars of the company's performance.
Here is a potpourri of recommendations from the firm for integrating disruptive innovation in the procurement function:
While the global approach — called the “Disruptive Procurement Framework” — is clearly aimed at multinationals or very large accounts, it is possible to draw useful lessons for SMEs by knowing:
ATKearney explains that many companies are still in the “desktop procurement” stage — using office tools to seek cost reduction — because they are operating in a globalized economy in crisis. However, suppliers are an important source of innovation that should not be overlooked.
This is why the firm suggests moving to a “supplier agility program”, consisting in ensuring the compatibility between their operating mode and the contractor's manufacturing process, the aim being to analyze the value creation process.
The digitalization of the Purchasing function also allows better collaboration between the various players in the supply chain. Purchasing departments can thus work more collaboratively with internal customers, prescribers and logistics departments, in order to optimize inventory management and ensure a smooth customer experience. In addition, digital transformation offers new perspectives in terms of supplier relationships.
Digitalization as a Key Lever for Sustainable Supplier Relationships and Effective Process Optimization.
Responsible purchasing and taking into account CSR criteria. Corporate Social Responsibility are now key issues in the selection of suppliers. Digital tools make it possible to better map and assess supplier practices, in order to promote sustainable and ethical relationships. The digitization of Purchasing also offers opportunities for optimizing processes. The automation of certain tasks makes it possible to gain in efficiency and productivity, while reducing the risk of errors.
The current context, marked by a completely unprecedented disruption, is pushing companies to change the way they manage their activities, including Purchasing function. Here are some examples of changes induced by disruptive innovation within the purchasing and logistics function:
One of the major changes brought about by disruptive innovation in the economy in general, and the world of work in particular, is the emergence of remote work. The Covid-19 pandemic has shown the importance of this new way of working to ensure the safety of workers. Those in the procurement department are no exception. According to a Hackett Group survey, 87% of purchasing departments expect an increase in remote work. The number has continued to increase since the crisis. Before the crisis, 13% of employees worked from home. This figure has now risen to 33%.
Remote work is facilitated by new technologies that allow data to be accessed from anywhere and to collaborate with all stakeholders, including suppliers, customers, and colleagues. However, purchasing departments are concerned about one question: will the teams remain as productive when working from home as they are on the premises? The survey showed that remote working offers significant benefits in terms of productivity, security, and cost. It reduces fixed costs, including office rental, maintenance of premises, etc. without impacting productivity.
Remote work would not be possible without digitalization. The transition to the digital age is not only revolutionizing the world of communication. It also allows businesses to remain competitive regardless of the economic situation. You only have to imagine the last health crisis to realize this. Companies that have deployed digital transformation in their global strategy have been able to adapt quickly to the situation and continue their activities.
This digital revolution has led every function within the company to ask questions about its practices. The purchasing and supply function is obviously no exception to this upheaval. The digitalization of purchasing processes has allowed it to respond quickly to the requests of the various stakeholders in terms of managing purchase requests, paying invoices, monitoring suppliers, etc.
In addition to improving data visibility, digitalization also simplifies purchasing processes. Concretely, procurement departments that rely on digital solutions, such as Sourcing Force, can be more agile and face the challenges of the current context.
Exacerbated by the health crisis, the purchasing and logistics functions also sought disruptive solutions to overcome supplier risks due to late deliveries, poor product quality, etc. One of the big challenges that procurement managers had to face during this crisis is supplier risk. Disruption in the relationship with suppliers makes it possible to remedy this. This can take different forms:
In addition to its historical missions, which are supplier risk management and cost reduction, the purchasing department now has a new mission: creating value. This is boosted by the digitalization of purchasing processes and innovation. The latter can be drawn in various ways. First of all, innovation can be detected on digital platforms. These connect the purchasing and procurement function with various resources: open innovation platforms (to challenge third parties), hackaton platforms (to challenge a digital solution) and freelance platforms (to challenge talent).
As we saw above, innovation can also be detected among suppliers. It is a question of changing the power relationships between the customer and the suppliers. The objective is no longer to manage the supplier relationship, but to motivate suppliers. One of the ways to achieve this is to streamline collaboration between the customer and the supplier through the use of collaborative tools or the appointment of a supplier coordinator.
The job of buyer or purchasing manager has evolved a lot over the years. In addition to the new skills that are now required of this senior manager, new profiles are also coveted by the purchasing department. Among them, we can mention the supplier relationship manager and the supplier quality manager. These are fast-growing positions in businesses. They fall under SRM or Supplier Relationship Management. For all these positions, transversal skills are required, but also human qualities, such as curiosity... All this marks a disruption with existing systems.
To support all these changes, the procurement function must rely on technology. E-Sourcing, e-procurement, SRM, digitization of purchases, electronic signature, e-invoicing, collaborative space... these are all levers that can be activated to allow the purchasing department to gain in agility. Technology doesn't just streamline the purchasing process. It is also an effective way to build a privileged relationship with strategic suppliers.
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The use of Big Data and artificial intelligence allows a better understanding of markets and the needs of internal customers, thus facilitating decision-making and the implementation of effective purchasing strategies. Finally, it is worth emphasizing the importance of managing supplier risks in a context of disruption.
Digitalization offers new possibilities for monitoring and evaluating strategic suppliers, making it possible to anticipate constraints and prevent possible disputes. Digitalization also makes it possible to strengthen the traceability of products throughout the value chain.
Disruption is reinventing the Purchasing function by placing it at the heart of a company's digital transformation.
Purchasing plays a key role in the competitiveness and performance of the company, by allowing cost optimization, better risk management and the creation of added value. Digitalization offers new perspectives and new levers of action for Purchasing, which must adapt to this reality in order to remain agile and innovative.
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