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

1. Supply Chain Summit – Innovation Driven Procurement
04-10-2010

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. Innovation

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. 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. 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. 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. 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. Innovation Driven Procurement (IDP)

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. 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. 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. 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. 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. 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. 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. 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. 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
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