Creating new and sustainable products with suppliers

Attractive new products are the best way to stay a step ahead of the competition, and to achieve your own growth objectives. This is becoming a priority for managing directors and procurement managers across Europe, as our latest study on procurement transformation reveals, in which 185 companies took part.

The study results show that traditional tools such as sourcing and product group management, processes and policies, and supplier management currently remain at the forefront as action areas in procurement. These instruments ensure the fundamental priorities in procurement are fulfilled: ensuring a reliable supply to satisfy all the company’s needs, achieving savings, and establishing efficient processes. However, the top executives surveyed said that, in future, they will focus on further skill areas: systematic innovation management, conscious design of procurement strategy and team culture, employee development, sustainability, and social responsibility.

As well as assuming the role of cost manager, modern buyers are increasingly taking on cross-sectional tasks for further development. The decisive factor for success is how employees understand and fulfill their own role in day-to-day business and when communicating with suppliers.

Role of procurement under transformation

Procurement’s ability to create and implement innovation, something which is essential for the future, is the most striking change. Yet respondents cited this as one of the lower current priorities.

This development reflects these changes, as well as the perception of external innovation, and is therefore a response to the challenges that companies face in terms of growth, competitiveness, and sustainability. These issues, which respondents find themselves concerned with, call for changes to procurement. Procurement should be looking to expand its contribution to the overall organization beyond its traditional field of competence, which focuses on cost reduction, risk and a reliable supply.

As an intermediary between the internal and external supply chain, procurement is in a unique position to shape this new structure, together with the company’s specialist departments and suppliers.

Cornerstones for new-and-improved procurement

Future supplier relationships will be structured around different, pre-determined type groups. After all, not every provider is a suitable
innovation partner, and not every procurement need requires such close cooperation. The strategy of tomorrow’s buyer towards their suppliers will depend much more than ever before on how important the supplier is to the company. The aim is a close development partnership with suppliers who can drive innovation forward. By contrast, procurement can implement a cost reduction strategy with suppliers of standardized components.

But if this transformation is to be successful, buyers will need to possess different skills than they do today, their managers believe. It is no surprise that the CPO study respondents said that leadership strength (50%), a willingness to work together (47%), and agility (42%) are the most important skills and ways of working. The transformation of procurement involves making the development process dynamic and agile. And equally, employees must be promoted and trained accordingly for them to keep up.

Improving transparency and sustainability

While originally a niche issue, an increasing number of customer groups are now looking to produce goods more sustainably. Fridays for Future is perhaps one of the most recognized public movements, and more and more consumers are basing their purchases on sustainability and social responsibility factors. The number of investors whose investment strategies prominently incorporate these aspects has exceeded a critical mass. Equally, it is becoming more important to take the cost of transporting resources into consideration, typically in the form of a CO2 certificate, the cost of which is already expected to rise.

Customers’ sustainability demands have changed, and many companies have realized this. Nearly 72% of those who responded to our Procurement Transformation Study said that they considered it important to include sustainability goals in their business operations. However, this is not so much the case for global supply chains, with only a handful of companies being able to trace all their primary products back to their origin.

A strategy for sustainability

As with other development strategies, making production more sustainable involves analyzing which sustainability criteria apply in your own supply chain. What is absolutely essential is achieving transparency throughout the chain. The United Nations’ Sustainable Development Goals can be taken as a starting point, in addition to certifications and standards that are specific to your sector.

However you approach it, involving suppliers in the process is vital. Ultimately, innovation and sustainability go hand in hand, as sustainable products require new materials and methods. That is why there is so much pressure on procurement, as the department responsible for finding and evaluating new preliminary products. It is also procurement that needs to ensure that new criteria are also met. To achieve this, procurement needs to set new evaluation standards, which the team must derive from the new specifications. It also needs to investigate new procurement markets and harness the potential of new instruments, such as certificates or monitoring tools.

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