Supply Chain Summit – Innovation Driven Procurement
04-10-2010
2Copyright © 2010 Capgemini. All rights reserved.
Agenda
 Innovation
- Example of Open Innovation
- Open Innovation conce...
Innovation
4Copyright © 2010 Capgemini. All rights reserved.
Example of Open Innovation – Nintendo Wii
 ST Microelectronics was look...
5Copyright © 2010 Capgemini. All rights reserved.
Example of Open Innovation – Nintendo Wii
16 months later…
 Nintendo la...
6Copyright © 2010 Capgemini. All rights reserved.
Open Innovation
 Innovation is becoming more open:
- Growth rates canno...
7Copyright © 2010 Capgemini. All rights reserved.
 The idea and concept stages have the greatest
impact on the future val...
8Copyright © 2010 Capgemini. All rights reserved.
Select Contract Order Monitor
Cost reduction
opportunities
Specify Servi...
Innovation Driven Procurement (IDP)
10Copyright © 2010 Capgemini. All rights reserved.
The shift away from the ‘comfortable’ managing phase towards leading th...
11Copyright © 2010 Capgemini. All rights reserved.
 Idea and concept stages
• Merging with R&D/Marketing
• Managing a net...
12Copyright © 2010 Capgemini. All rights reserved.
• Leverage capabilities and supplier market
know-how of procurement
• O...
13Copyright © 2010 Capgemini. All rights reserved.
• Focus by Procurement on narrow internal
customer demands (savings, se...
14Copyright © 2010 Capgemini. All rights reserved.
The Business Model is the embodiment of a strategy, which we will apply...
15Copyright © 2010 Capgemini. All rights reserved.
Traditional Business Model of Procurement – this model will
never allow...
16Copyright © 2010 Capgemini. All rights reserved.
The basis of Innovation Driven Procurement is a changing definition of
...
17Copyright © 2010 Capgemini. All rights reserved.
Innovation Driven Procurement Business Model – this example of a Busine...
18Copyright © 2010 Capgemini. All rights reserved.
What is needed for Innovation Driven Procurement?
• Share IDP strategy ...
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Supply Chain Summit on Innovation Driven Procurement Business Model

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Presentation given on the Global SC Summit @ October 4 in Venlo, The Netherlands

It shows the change in Procurement business model required to contribute to innovation

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Transcript of "Supply Chain Summit on Innovation Driven Procurement Business Model"

  1. 1. Supply Chain Summit – Innovation Driven Procurement 04-10-2010
  2. 2. 2Copyright © 2010 Capgemini. All rights reserved. Agenda  Innovation - Example of Open Innovation - Open Innovation concept - Innovation process  Innovation Driven Procurement (IDP) - Procurement maturity - Procurement involvement in innovation - The changing Business Model of Procurement - Example of IDP Business Model
  3. 3. Innovation
  4. 4. 4Copyright © 2010 Capgemini. All rights reserved. Example of Open Innovation – Nintendo Wii  ST Microelectronics was looking for a new application that would squeeze more dollars out of an obsolescent chip-making plant  They were developing motion detection technology made a breakthrough: a small chip that could detect 3D motion  However, there was hardly a market for it...  Meanwhile, Nintendo was scanning the market for solutions to physically involve the game player in the game  ST and Nintendo saw potential for an application in game controllers and delivered a prototype sensor for the Wii in 2 months
  5. 5. 5Copyright © 2010 Capgemini. All rights reserved. Example of Open Innovation – Nintendo Wii 16 months later…  Nintendo launched world-wide sales  Wii is was the hottest computer game console in 2007-2008  Last Christmas, it outsold the PS3 and XBOX combined in the USA  Now over 70 million consoles are sold You must connect and develop – playing it alone is not a sustainable model Observations  You have to know what to look for  R&D knowledge of - and access to - the supply market is crucial  Nintendo's strategy is to outsource much R&D, which requires a strong supplier involvement strategy & execution  The short time-to-market and sales success would have been an impossible achievement in a closed innovation setting
  6. 6. 6Copyright © 2010 Capgemini. All rights reserved. Open Innovation  Innovation is becoming more open: - Growth rates cannot be maintained by internal R&D alone - Stronger focus on core capabilities - The innovation funnel is open to outside ideas and concepts and focuses on current and future markets  Sources of innovation become diversified: - A network of (potential) suppliers of innovation is available - Previously unrelated technologies may merge - No longer fully dependent on a select group of partners  Innovation is a process: - From idea generation / validation to market introduction - Stage gates are in place to structurally increase the definition of an innovation - Each step has different characteristics; it ranges from the chaos in idea generation to the structure in up-scaling R&D Labs Consumer Insights Customer Teams Employees Suppliers Research Institutions Contract Labs Venture Capitals Trade Suppliers
  7. 7. 7Copyright © 2010 Capgemini. All rights reserved.  The idea and concept stages have the greatest impact on the future value and cost - Granularity is limited - Uncertainty is high - Options appear limitless  Prototype and revision stages define the make- ability of the innovation - Product market potential is reviewed - Sourcing and production potential is analyzed and tested - The final product and cost structure becomes clear  The product stage hands the innovation over to line functions - Security of supply is important - Incremental and continuous improvement (value engineering) starts Key characteristics of the stages Concept stage Prototype stage Revision stage Product stage Cost reduction opportunities Value determination Idea stage Value creation in the innovation process The innovation process ranges from chaotic idea generation to structured value engineering Innovation stages
  8. 8. 8Copyright © 2010 Capgemini. All rights reserved. Select Contract Order Monitor Cost reduction opportunities Specify Service Procurement involvement usually starts when specifications and supplier selection are already heavily influenced in the innovation process For Procurement to make a contribution (broader than cost reduction), it needs to be involved earlier Concept stage Prototype stage Revision stage Product stage Cost reduction opportunities Value determination Idea stage Supplier Involvement Traditional Procurement Involvement Typical timing of involvement Procurement’s view on impact
  9. 9. Innovation Driven Procurement (IDP)
  10. 10. 10Copyright © 2010 Capgemini. All rights reserved. The shift away from the ‘comfortable’ managing phase towards leading the value chain is a big change in the Procurement business model  More focus on value drivers, less focus on procedures and compliance  More pro-active management of projects, less re-active management of spend categories  More collaboration, less organizational and functional boundaries Radical change in maturity Procurement Strategy Core Activities • Non-existing • Objectives and plans limited to departmental actions • Savings realization • Procurement strategy aligned with overall business strategy • Functional optimization • Strategy co-developed with internal customers • X-functional integration • Integrated strategy for the E2E value chain • External integration • Sourcing • Negotiating • Analysing spend • Managing P2P process • Manage internal & external compliance • Align internal & external parties • Network, connect and manage value extraction Focus Recognizing Understanding Managing Mastering Leading Price Spend Performance TCO Value
  11. 11. 11Copyright © 2010 Capgemini. All rights reserved.  Idea and concept stages • Merging with R&D/Marketing • Managing a network of potential partners • Scouting innovation  Prototype and revision stages • Managing co-development with strategic partners • Managing supplier involvement • Defining supplier strategy  Product stage • Managing incremental improvement • Managing supplier performance • Ensuring security of supply Required actions in innovation processes Required Procurement maturity Concept stage Prototype stage Revision stage Product stage Cost reduction opportunities Value determination Idea stage Earlier Procurement involvement in Innovation requires a higher level of maturity Procurement needs to run different business models to support the full spectrum of innovation Increase in required Procurement maturity
  12. 12. 12Copyright © 2010 Capgemini. All rights reserved. • Leverage capabilities and supplier market know-how of procurement • One supplier interface: organized entry and filtering of ideas from (potential) suppliers • No need to develop Procurement competences such as supplier management • More efficient innovation projects, fewer setbacks due to conflicting procurement perspectives in later stages Early involvement of Procurement with the appropriate Business Model ensures benefits for both R&D/Marketing and Procurement So, what is holding us back? Benefits for R&D / Marketing • Closer to the core of the requirements of the business (R&D/Marketing); access to end customer demands • Influence policy and decision making where it impacts the bottom line the most • More a business partner, less a police officer or mere negotiator • Get in control of all spend and suppliers • Full scope supplier involvement strategy Benefits for Procurement
  13. 13. 13Copyright © 2010 Capgemini. All rights reserved. • Focus by Procurement on narrow internal customer demands (savings, security of supply, etc..) • Procurement is perceived as a hurdle and a source of delays and setbacks • DIY mentality in innovation teams • Conflicting targets among Procurement and the other departments • Difficulty for Procurement to know what to look for (no understanding of external customer needs) There are persistent issues with early Procurement involvement To deliver the benefits presented, Procurement must find a new way to work WITH R&D/Marketing Issues with Procurement involvement Persistent functional silos
  14. 14. 14Copyright © 2010 Capgemini. All rights reserved. The Business Model is the embodiment of a strategy, which we will apply to review Procurement’s position in innovation teams KEY PARTNERS KEY ACTIVITIES VALUE PROPOSITION CUSTOMER RELATION CUSTOMER SEGMENTS CHANNELS KEY RESOURCES COST STRUCTURE REVENUE STREAMS What can partners do to leverage your business model (better, at lower cost)? What key activities do you need to perform and how easily can you do this? What key resources does your business model require? Which of your customer’s problems do you solve and which needs are satisfied? What kind of relations do your client expect and which kind do you maintain? Through which means do your clients want to be reached and which means do you utilize? Who are your customers and what are your customer’s needs, problems, desires, and ambitions? What is the cost structure of your business model and is this in line with the core values of the business model? What value are your customers willing to pay for and what is the preferred payment mechanism? Business Model Framework Source: Adapted from “Business Model Generation”, Alexander Osterwalder & Yves Pigneur, 2009; Capgemini Consulting Business Innovation
  15. 15. 15Copyright © 2010 Capgemini. All rights reserved. Traditional Business Model of Procurement – this model will never allow Procurement to deliver a contribution to innovation Source: Adapted from “Business Model Generation”, Alexander Osterwalder & Yves Pigneur, 2009; Capgemini Consulting KEY PARTNERS KEY ACTIVITIES VALUE PROPOSITION CUSTOMER RELATION CUSTOMER SEGMENTS CHANNELS KEY RESOURCES COST STRUCTURE REVENUE STREAMS Internal customers: Security of supply Contract coverage Price reductions Sourcing teams Procedures & processes Transactional Re-active Analyzing spend Sourcing Analytical tools Mandate for sourcing Core Procurement skills Optimize operational performance Suppliers Deliver according to specifications Manage 2nd tier suppliers Contracts Savings Operational process Mandatory Managing supplier performance Procurement system Out of scope for the workshop Out of scope for the workshop
  16. 16. 16Copyright © 2010 Capgemini. All rights reserved. The basis of Innovation Driven Procurement is a changing definition of "Customer", the effect is a completely different way of working Procurement that has merged with business processes, has a completely different Business Model • Focuses on “internal clients” • Typical targets are savings, contract coverage and security of supply • Is a link in the value chain • Is re-active to client demand in late stages of development • Treats suppliers as mere contractors Traditional Procurement • Works with the “(internal) partners” for the “external clients” • Contributes to the whole spectrum of needs • Is part of a customer centric team in which it is the interface to the supply base • Connects supplier capabilities to future and existing customer needs • Manages suppliers as part of the team Benefits for Procurement
  17. 17. 17Copyright © 2010 Capgemini. All rights reserved. Innovation Driven Procurement Business Model – this example of a Busines Model embeds Procurement involvement in business process and structure Source: Adapted from “Business Model Generation”, Alexander Osterwalder & Yves Pigneur, 2009; Capgemini Consulting KEY PARTNERS KEY ACTIVITIES VALUE PROPOSITION CUSTOMER RELATION CUSTOMER SEGMENTS CHANNELS KEY RESOURCES COST STRUCTURE REVENUE STREAMS External customers: Innovation Cost/Quality Time to market Tech roadmapping workshops RfP Both demand & technology driven Competitive environment Connecting demand and supply Managing supplier involvement TDM / SIM competences embedded Superiority of project targets Two-headed teams Providing access to particular core capabilities Innovation team with R&D, Marketing, Sales, Operations, Suppliers Developing and / or reviewing new technology Co-creation with key partners New technologies from the supply base Increased innovation strength from connected value chain Improved project performance through integral scope CollaborativeOutsourcing R&D Joint improvement programs Out of scope for the workshop Out of scope for the workshop
  18. 18. 18Copyright © 2010 Capgemini. All rights reserved. What is needed for Innovation Driven Procurement? • Share IDP strategy with R&D/Marketing • Define how you can best embed Procurement in the business function and formalize this in a series of business models (different models may be required per innovation stage, degree of supplier involvement, etc) • Define the operating model within each Business Model • Make a competence map • Pilot and embed Basic steps for IDP Robbert den Braber Senior Consultant Robbert.den.Braber@Capgemini.com +31 (0) 6 15 03 09 01 @InnoProc Innovationdrivenprocurement.blogspot.com IDP Presentations on LinkedIn profile Contact

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