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How to build innovation into the procurement process

How to build innovation into the procurement process

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Competition is the mother of innovation, in today’s highly competitive world! This is especially true in procurement, where innovation is all about improving the internal procurement process and turning ideas into reality.

Competition is the one factor driving innovation, as most businesses need to continuously improve to survive. In procurement too, the competitive market makes it possible to gain valuable experience and expertise that paves the way for coming up with new and innovative ways to achieve desired outcomes.

Integrating innovation in the procurement process involves a four-pronged approach, across the following areas:

Organizational alignment

While its' important that innovation should be considered throughout the procurement process from policy/program development and project definition through to contract management, the greatest potential for innovation occurs at the beginning of the procurement process – by aligning it with organizational goals. Often, the potential for innovation is constrained by the conditions of the contract, but one must look for opportunities for innovation – especially when driving continuous improvement is part of the contract structure.

Looking for innovation is the first step to integrating it into the procurement process. Begin by
  • Identifying organisational programs, deliverables and key procurement categories;
  • Drafting your organisation’s procurement strategy (innovation is part of the procurement planning and vendor/supplier analysis sections);
  • Developing your contract management planning strategy to identify categories of procurement that lend themselves to flexibility in supplier engagement; and
  • Developing your organisation’s supplier engagement plan.

Early market engagement

This involves interacting with the market to gain an understanding of market dynamics and whether there is potential to improve the delivery of your desired outcomes. The following illustration explains how this can be done.

Early market engagement (EME) can be systematically woven into the procurement process, to review developments and trends and to carry out regular strategic market sector scanning.

Thus early market engagement can help you:
  • refine procurement requirements within a category of goods and services;
  • provide a better understanding of the capability of market sectors relevant to the category;
  • assess the capacity of the market and structure of the relevant market sector;
  • assess the scope for small and medium enterprise (SME) participation;
  • identify issues and risks; and
  • clarify optimal path to market strategies.

As your strategic market scanning influences market engagement strategies, this should be specified in your procurement activity plan. Disclosing how you will conduct your engagement with the market will reduce ad hoc responses from suppliers.

Early supplier engagement

This occurs at the sourcing stages of the procurement process and builds on information gained from the early market engagement activity.

Key steps to foster innovation in the sourcing stage include:
  • Providing the market with sufficient time to scope and respond to the procurement requirement.
  • Adopting a multi stage approach to the market - to help suppliers understand the specifics of the procurement requirement.
  • Being flexible in sourcing—wherever appropriate, adopt the practice of permitting alternative bids and variants to stated requirements in the specifications.
  • Structuring specifications—adopting text, clauses and conditions that are understood by the relevant market. The focus should be on outcome and output statements and generic performance requirements that are aligned with the findings of the market engagement phase.
  • Engaging with suppliers in an open and transparent manner to promote competition and maximise innovative solutions.

Activities that support innovation

Among the factors that work against innovation is the fear that innovative solutions can be risky, and the limitations imposed when an organization is bound by regulatory or legislative obligations. But innovation can be supported and encouraged through

Pilot Projects -to demonstrate the suitability of a proposal before fully committing, with clear parameters for management of intellectual property (IP), eventual ownership and other details.

Inducements and rewards – like sharing the potential savings with suppliers for e.g.

Risk-sharing - moving from the position that the supplier bears all risks can offer cost savings to your organisation from lower insurance and risk premiums arranged by the supplier.

Briefings, seminars and workshops – should be integral to your organisation's ongoing supplier engagement strategy to keep the market informed of core government policy directions and departmental processes.

Partnership arrangements – must involve an element of joint benefit and embody consideration of inducement, reward and risk sharing.

Build innovation into the procurement process by

  • Designating people in your organisation as 'innovation sponsors' who can help others to encourage innovation when engaging with the market and developing the optimal path to market strategy
  • Considering innovation as a value for money component
  • Monitoring supplier performance wherever relevant, to ensure that benefits of any innovation have been delivered.

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