Procurement of Innovation and Innovative Procurement – What’s the Difference?

Innovation is one of the hottest issues in procurement, and probably the one that has moved up the list of hot topics the most in recent years. It was much discussed at ProcureCon Indirect recently, and it’s a big deal for both commercial firms and for the public sector too.

However, it’s fair to say that many procurement organisations and professionals haven’t really got to grips with it, and we wonder whether one reason is that “Innovation” is used as a heading to describe some very different activities and principles.

We’ve previously written about this in the context of public procurement, where there often seemed to be some confusion between “procurement of innovation” and “procuring in an innovative manner”. But what stuck me at ProcureCon was that there are probably at least four quite different aspects to “procurement innovation”. Here they are – two look at procurement in the sense of the function itself and how it operates, while two are outward, market-facing in nature. Firstly, the two “internal” examples.

  1. Innovative Operational Procurement

This means carrying out procurement responsibilities and tasks in an innovative manner. For example, using new and innovative tools and systems as part of the end-to-end procurement process – from sourcing optimisation to crowdsourcing. Or using innovative processes around selecting suppliers, negotiating or putting contracts in place.  We might also include innovative work around staff issues – recruitment, training or development perhaps.

 

  1. Innovation in Procurement Strategy

It was the presentation from Bo Dungle of Danske Bank at the ProcureCon event that took us down this line, and made us consider that is was subtly different from the category above. Danske is offering procurement services, delivered by their in-house team, to the clients of the  bank, to help differentiate the services the bank offers. That is certainly an innovative positioning of the function. In the public sector, Westminster Council is part of a jv to offer procurement services externally, and UBS did something interesting with procurement a few years back – all examples of strategic innovation around the procurement function.

Now the outward-facing examples …

  1. Buying innovative goods and services

This is what the public sector tends to mean when it talks about ‘procurement innovation’ or ‘procurement of innovation’ – how to buy innovative, new and early stage goods (or sometimes services) in areas such as information technology, drones, medical products, or military equipment.  For several reasons, this can be a lot more challenging than buying well-defined and understood products from established suppliers.

 

  1. Encouraging innovation from every and any supplier

Less discussed but arguably even more important than the last topic, this is the principle that in every procurement exercise and contract, suppliers should be encouraged to put forward innovative ideas and plans around how they can supply the goods or services. That can apply whether the purchase is a construction project, cardboard boxes, basic raw materials, a legal services project, or a fleet of delivery vans.

 

Laying out “procurement innovation” like this, with four defined areas, at least might enable us to understand why confusion exists, we feel. And it suggests some further thoughts around each of these in turn, in terms of what procurement organisations and people might want to consider under each heading – we’ll come back to that.

But what do you think? Is this a useful categorisation? Have we missed anything?

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