Why Procurement Needs to Commit to Continuous Improvement and Innovation

If you’ve been following the New Rules of Procurement Engagement for a while, you’ll know we’ve recently launched Rule 4: Redefine Value Creation.

The overall message of Rule 4 is to step back, take stock, and see the bigger picture. We need to shift our focus from minor details and improvements to the broader perspective. To catch up on related blogs, read the Rule 4 intro and Beyond savings: why it’s time for procurement to redefine value creation.

In this latest blog, we pull out and examine a key ingredient in delivering more value, namely procurement’s ability for continuous improvement and innovation.

Why is continuous improvement & innovation important

Procurement can no longer be solely focused on cost-cutting and reactive, back-office tasks. Instead, it must evolve into a proactive, strategic force that drives continual improvement and innovation.

This shift requires moving beyond traditional practices to embrace a more forward-thinking approach that emphasises strategic value and ongoing enhancement.

But don’t take our word for it. Here’s why leading procurement and tech changemakers consider this critical.

“How does procurement bring greater value? Continuing to expand the value proposition that procurement brings to an organisation, to the company, to the stakeholders. It’s about the total cost of ownership”which is much more than, ‘How much can I reduce the purchase price on an individual item or on an individual order’”it’s really about total value.” Canda Rozier, ex-CPO and Procurement Evangelist, Rule 1

“Focus on value creation. Shift your focus from transactional interactions to value creation opportunities.” Temeena Hussain, Specialist in Strategic Partnerships & Collaboration, Rule 3

“You cannot work alone, not anymore. It’s not about negotiating on price and being a cost killer”not anymore” it’s not like this. The key is to work together to have clearer guidelines, to have a really strong sponsorship, to always communicate internally, and to communicate all the success stories that you have.” Caroline Huberdeau, Global Procurement Strategist, Rule 1

“Traditional approaches tend to lack agility and fail to address complex challenges businesses face today. These approaches predominantly focus on transactional interactions rather than collaborative relationships and they tend to neglect the broadest strategic considerations that encourage long term partnership.” Temeena Hussain, Specialist in Strategic Partnerships & Collaboration, Rule 3

In terms of value creation, Procurement can actively drive continual improvement and innovation within an organisation in many ways; read on for six key areas of where to start.

In terms of value creation, Procurement plays a key role in driving continuous improvement and innovation across an organisation. Let’s look at six key areas to focus on.

1. Foster supplier innovation and agility

Collaborate with suppliers to unlock their intellectual knowledge and identify new solutions and opportunities. Embracing new sources of supply, fostering supplier diversity, and building strong supplier relationships are crucial for driving innovation. Moreover, procurement needs to adopt an agile approach, constantly adapting to changing market conditions and business needs to create value.

“We’re going to need to find different ways to meet value targets because the traditional category managed approach to driving performance is going to struggle. As recession hits, business shrinks, and as business shrinks those predefined, pre-negotiated margins shrink too. The only thing that doesn’t shrink is value targets. So with that, we need to find different ways to meet the value targets.” Sheldon Mydatt, Procurement and Supplier Relationship Evangelist, Rule 3

“Go outside of your own building. Procurement is an interface between the internal needs of the company and the market, so go and talk to your suppliers.” Pierre Laprée, Procurement Tech Strategist, Rule 3

2. Embrace technology for enhanced efficiency

Procurement professionals can leverage technology to automate repetitive tasks, freeing up time for strategic activities such as relationship building and market analysis. Technology enables data-driven decision-making, providing greater visibility into spend analysis, supplier performance, and market trends. By embracing tools for spend analytics, e-sourcing, and supplier relationship management, procurement can streamline processes, improve efficiency, and demonstrate tangible ROI to stakeholders.

“We have to adapt and adopt the new technologies or else we’ll never become the true business partner that I think most procurement functions are striving for.” Jacob Gorm Larsen, Digital Procurement Evangelist, Rule 2

“In really simple terms, technology has the ability to completely change the role of procurement and transform the way we do things and how we think about them.” Richard Nixon, Management & Tech Consultant, Rule 1

3. Align procurement with business goals

Procurement must move beyond a siloed function to become strategically aligned with the overall goals and values of the organisation.

By aligning procurement activities with broader business objectives such as ESG compliance, risk mitigation, and innovation, procurement can demonstrate its strategic value and contribute to the long-term success of the organisation.

“You can do any project or the best negotiation ever, but if it’s not aligned with the business and you don’t have a sponsor, you will not be able to go anywhere.” Caroline Huberdeau, Global Procurement Strategist, Rule 1

“You’ve got to constantly engage the business. It’s no good procurement once a year engaging the business, getting their objectives, going away to their Ivory Tower for a year and working on those initiatives in isolation.” Nick Drewe, Procurement Tech COO, Rule 1

4. Successfully engage with stakeholders

To successfully implement procurement strategies and drive change, buy-in from stakeholders at all levels is crucial. This involves understanding the needs and priorities of different departments, communicating the value proposition of procurement initiatives, and addressing any concerns or resistance to change.

“What the pandemic did was it made people aware of how deeply embedded supply chains are in our daily living… and what’s coming down are the silos between Finance, Procurement, IT, Marketing. We’re now dealing in a world where pieces no longer are islands unto themselves but have to cohesively work together.” Jon Hansen, Procurement Commentator, Rule 2

“Look out for how procurement is promoted internally within the business and encourage people to use procurement as a way to add value, rather than as a blocker.” Alun Rafique, Procurement Tech CEO, Rule 2

5. Strengthen collaboration with Finance

Often siloed, Procurement and Finance should work closely together to achieve shared goals, such as cost optimisation, risk management, and value creation. Collaboration can be about sharing data, and aligning on strategic priorities, or fully integrating tech stacks with a Source-to-Pay suite.

“It’s true that there’s not a natural link between Finance and Procurement which is strange in a way because both are trying to improve the performance of the company, trying to improve the profitability of the company they work for. But the reality is the collaboration is weak.” Emmanuel Olivier, FinTech, Automation and AI COO, Rule 2

6. Develop talent and skills

To become more strategic and technology-driven, it is crucial to attract and retain talent with the right skills and mindset. Rule 1 and Rule 3 covered this topic in detail, please see marketdojo.com/new-rules.

In short, to attract a new generation of professionals, procurement needs to

• Equip teams with the right tools and technology, not just spreadsheets and emails
• Provide training on new technologies, such as AI and autonomous sourcing
• Foster a culture of continuous learning through mentoring and skills development
• Create a work environment that empowers individuals to thrive by improving procurement’s recognition at board level

There is more on building future-proof teams in the Rule 4 eBook, download your copy here or… listen to an audio deep dive*

* Generated with Google NotebookLM

In the next blog, we’ll step back and explore how to normalise a data-driven approach in procurement.

Can’t wait…? Download your copy of the Redefine Value Creation eBook now!