THE BUSINESS REVIEW FOR PROCUREMENT LEADERS
Words like “sustainability” and “value” are commonly used in business and political life these days, but they mean different things to different people. To many, including CEO Lindsey Parnell writing in this issue, sustainability has a strong environmental flavour; it’s about using the world’s natural resources in a more responsible way. The value generated by such initiatives comes primarily in the form of long-term human well-being, but also in access to raw materials and enhanced corporate reputation.
Belgian consultants Roel Bellens and Karel Volckaert, on the other hand, are interested in sustainability as an economic concept. According to their definition, a “sustainable value chain” is one where all parties have enough free cash flow to satisfy their stakeholders now and to invest for the future.
Sustainability is an issue for strategic procurement, they argue, because while squeezing the margins of your key suppliers can produce short-term gains, longer term it risks pushing them into bankruptcy and, potentially, threatening your own survival – as the ongoing case of US automotive firms General Motors and Delphi starkly illustrates.
With companies increasingly looking to suppliers for product and service innovations, ensuring that they are able to finance research and development, training, and so on assumes an added dimension. A recent survey on global innovation by Booz Allen Hamilton and the business school Insead found that R&D activity is becoming much more widely dispersed. Although many firms are more comfortable collaborating with external partners such as universities and customers, rather than suppliers, this is changing. In another survey, this time by the UK-based Economist Intelligence Unit, a clear majority of business executives said that, over the next 15 years, they expected to involve suppliers more closely in product development and to incentivise their own employees to collaborate more effectively with them (see pages 9-10 for details of both reports).
Professor John Bessant, who has spent most of his career researching innovation, describes how Procter & Gamble “has set itself the ambitious target of sourcing half of its innovations from outside the company”. The shift towards what is termed “open innovation” means that companies – and their procurement specialists – need to become much more adept at managing both knowledge and complex networks of internal and external parties, he says.
In a follow-up to their article in the spring issue of CPO Agenda, Corey Billington and Tom Vollmann, along with fellow American Joe Sandor, argue that for collaborative relationships of this kind to be successful, purchasers need to start by changing the language they use to describe them. Why? Because our choice of words sends a powerful message about what we value.
Geraint John
geraint.john@cpoagenda.com
