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Innovation, the new deal for Purchasing? 7 th Sourcing Monitor | White paper | 2012-2013

Innovation, the new deal for Purchasing? Bearingpoint Sourcing 2012-2013 report

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Innovation, the new deal for Purchasing? Bearingpoint Sourcing 2012-2013 report

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Page 1: Innovation, the new deal for Purchasing? Bearingpoint Sourcing 2012-2013 report

Innovation, the new deal for Purchasing?

7th Sourcing Monitor | White paper | 2012-2013

Page 2: Innovation, the new deal for Purchasing? Bearingpoint Sourcing 2012-2013 report

4 | Editorial

Editorial

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EditorialOctober 4, 2022, Hurricane corporation HQ in Singapore.

In response to the growth of the aerospace market in Southeast Asia the Comex makes the strategic decision to launch a program named "Capacity, Innovation & Suppliers Initiative (C2IS)" able to manage a set of “work packages” on a regional scale.

This initiative was designed as a strategic development around key stakeholders including historical tier 1 and tier 2 suppliers. It has been developed since 2012 when Hurricane decided to settle in Southeast Asia to support the market demand. Potential suppliers were identified and pre-selected by Hurricane business units around the world.

Sonya P.L., corporate manager BoD (Buyer on Demand) based in Bangalore, India, is one of the managers in charge of the program. She has an extensive knowledge of local suppliers as she spent one year at one of them, implementing SAM-2 processes (Supplier Asset Management). She leads the Supply Chain Design e-workshop with all the stakeholders of the extended company landscape: Hurricane internal customers, business unit buyers and representatives of suppliers and customers.

Based on linkin-BoD-3.0 technology, Sonya P.L. states that the C2IS network enables to define and share the strategic vision, its potential economic impact in terms of productivity and value creation and its implementation schedule, thus ramping up the operations.

Back in 2012: for most Purchasing directors, this vision of the Purchasing function’s role may appear somewhat vague ten years from now. However, it defines the new outlines of the function and its positioning at the very center of the extended supply chain. This year's topic has proved to be particularly representative of today’s Purchasing directors' concerns. The increased competition and the uncertain economic environment have placed Innovation at the heart of every European company's growth strategy. How is Purchasing contributing? In a crisis environment where the function is asked to reduce costs and meet objectives within tight deadlines, almost 2/3 of Purchasing directors in the panel continue to focus on Innovation.

The study shows that the contribution of the Purchasing function to Innovation depends on its integration in the company's Innovation process. It appears to be a measure and a trigger of the function's alignment with the company’s Innovation strategy.

Departments in charge of Innovation in the company such as R&D and Marketing, have traditionally worked in a closed environment. The need to associate other functions to the Innovation process is also a challenge for them. How to further increase the integration with internal clients? How to boost Innovation at the supplier level? What skills to bridge between the internal and external environments? How to prepare Purchasing function to meet the challenges ahead?

Yvon Donval Partner BearingPoint

Patrice Pourchet Academic Director ESSEC

Christophe Excoffier Chairman Novamétrie

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6 | Executive Summary

Executive Summary

Looking for a new deal through Innovation

The Purchasing function, going beyond the basicsStable resources, limited ambition? The 2012 results show an overall stagnation in Purchasing operating budget for 44% of the companies interviewed. Trends differ from one region to another: total budget increases for 63% of the Russian companies in the panel while it stagnates for 57% of the French companies.The "specialisation" of the Purchasing function seems to have reached its equilibrium: the Purchasing team distribution pattern of 2/3 specialist to 1/3 generalist appears year after year except in the UK and Ireland where professional organisations certify Purchasing professionals.

Purchasing priorities, back to basics?Improving the top line for organisations in these times is complex and riddled with unpredictability. However, Purchasing can still have a significant impact on the bottom line because this is in its circle of influence.In this context, Purchasing is being asked to go back to basics: reducing costs, developing supplier relationship, improving services and monitoring risks are the expected priorities.

Innovation, an emerging priority for Purchasing?«Contribution to Innovation» ranks only 9th among the priorities of Purchasing directors even though 57% of them evolve in a market driven by Innovation. However, the special attention they are paying to the control of risk and to supplier management dimensions (the latter went up 17 points from 2010 to 2012) would help improving their contribution to Innovation in the coming years.

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Innovation, a must in an uncertain environment

What is Innovation?According to Purchasing directors, Innovation embraces four main dimensions: • New process, product or service;• Contribution to competitive advantage;• Anticipation of trends;• A state of mind.As a result, they think of Innovation as a lever to meet their objectives and a way to support company growth and development.

Where Innovation fits for general managementFaced with this market pressure and current economic climate, Innovation becomes a major challenge for companies and 92% of general management place Innovation within their top 5 priorities.This «urge» for Innovation is relayed all along the value chain, from the Purchasing function's internal clients to suppliers.

When Purchasing directors use Innovation Contributing to Innovation requires an investment from Purchasing directors in terms of resources. An investment that may be disregarded due to current constraints on operational budget. Paradoxically enough, results show that 63% of Purchasing directors continue to concentrate efforts on Innovation to achieve their goals. For those Purchasing directors, the current constrained economic environment represents an opportunity to explore and to prove their ability to contribute to Innovation.According to the study, Germany, UK and Ireland are adopting a conservative position while Scandinavian companies are clearly proactive in this current economic climate. Results per industrial sector show that industry and non-financial services sectors are clearly looking for differentiation to deal with the crisis and boost Innovation consequently.

Companies evolving in a market impacted by Innovation

57%

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8 | Executive Summary

Innovation, a key enabler of integration with the businessWhich organisation to support Innovation?The Innovation process requires close internal and cross-functional collaboration. 54% of companies have a clearly identified structure leading Innovation. Furthermore the study shows that there are three main models for how Innovation is led: • A single department;• A transversal activity;• An atomised organisation between multiple

functions.

The Purchasing function's knowledge of the supply market, its vision of future trends and suppliers innovative solutions and its transversal position are assets to share with the Innovation actors.

The Purchasing Innovation Integration (P2I) modelOur study shows that when dealing with Innovation, Purchasing departments can be categorised in five "classes": 1. The Inactive; 2. The Learners;3. The Legalists;4. The Opportunists;5. The Visionaries.

We have seen through these five classes that contribution of the Purchasing function to Innovation depends highly on the level of

exposure of the company to Innovation and on the integration of the Purchasing function to business.

The contribution of the Purchasing function to Innovation is particularly strong when there is an alignment of the Purchasing strategy with the company's Innovation strategy.

Reaching the right balanceDepending on the dimension to improve, two different solutions exist and can be combined: • Addressing low contribution of Purchasing

to the Innovation process requires a transformation of the Purchasing function itself: broaden its scope in terms of services and coverage to better contribute to company goals and prevent the risk of restricting the function to a transactional approach;

• Addressing low maturity of the Innovation process requires developping the Purchasing function's ability to influence the Innovation strategy of the company.

In any case it calls for a change of mindset of all stakeholders to see Innovation as a Purchasing performance lever.

Competitive advantage as a key driver for delivering Innovation46%

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Innovation, an opportunity to reinforce the Purchasing influenceChoose your battlefieldsToday most companies are driving cross-functional initiatives, creating the opportunity for the Purchasing function to adopt an innovative approach. Purchasing directors can leverage those opportunities through three categories of issues:• Risk and regulation;• Operational excellence; • Differentiation.

Throughout Europe, all Purchasing directors got to the same conclusion: improving Innovation is closely linked to mastering supplier relationships and being able to influence the organisation’s product and service roadmaps.

Often the biggest challenge for Purchasing directors is to realise their potential as part of a wider enterprise and then launch initiatives to move forward.

Define your roadmapCreate the buzz by thinking “out of the box”: standardising the Purchasing process can act as a hindrance to Innovation by reducing the incentives for new concepts and tools.

Set up a two-way street with internal clients: in order to overcome the lack of integration with other functions, buyers need to further develop their "soft" skills to ally recognised market knowledge with the ability to drive change.

Shake up supplier relationship management: over a third of responding companies identified “mastering supplier relationships” as the main area of improvement that would lead to Innovation within the Purchasing function.

Put the flash light on your initiatives: measuring and communicating the value created by the Purchasing function to the Innovation process is a key lever for Purchasing directors to consolidate their legitimacy and expand their influence internally with other departments. Shift to a new state of mindThe capacity of a company to innovate depends on its own capabilities, its behaviour and the way it reacts to its environment. In fact, Innovation involves the ability to connect the people with ideas or solutions to the ones facing risks or problems.

Purchasing function must play its role and become a project manager to ensure Innovation becomes part of the function's objectives. This requires from buyers project management skills and moreover the ability to drive change in attitude and mindset.

Are Purchasing directors ready to embrace this innovative transformation? According to our research, 82% of Purchasing directors agree.

Japan, our guest star The exposure of Japanese companies to Innovation is considerably higher than that of European companies.However, the integration of the Purchasing function in the Innovation process of the company is still in its early stage of maturity.The current economic environment is bringing a renewed focus on the role of this function. There is an opportunity in the years ahead for Japanese Purchasing departments to play a larger part in the innovative roadmap.

The conquest of Innovation initiates the emergence of Purchasing 3.0 Companies as a whole reflect this uncertainty on trends and developments for the coming years and are looking for innovative ways to create value as growth drivers in their markets and for their customers.

The drivers of tomorrow's Purchasing stakeholders will be to produce and build on knowledge, organise capability management, make actions meaningful, innovate in

management and transform information so that it gives an edge over competition using an IT platform that is easily adaptable.

The basis for this new resource shared by the company, the suppliers and its customers will be a driver for sustainable growth. A new type of Purchasing service will be created: the buyer "on-demand".

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50 | Appendix

Appendix

Sourcing Monitor historyThe Sourcing Monitor, founded in 2004 by BearingPoint, Microsoft, Essec and Novamétrie, presents its seventh edition of state-of-the-art practices, organisation and trends within the Purchasing function in Europe. The goal is to provide leadership viewpoints regarding the evolving Purchasing function on an annual basis. Our first edition in 2004 illustrated the ramping up of the Purchasing function in the 90’s. The survey underlined the areas of progress linked in particular with the improvement of methods and skills, and the ability of the Purchasing function to place itself upstream in the definition of functional and technical needs. It identified supplier relationship management as a promising area for development.

Our second survey confirmed the profound evolution of the Purchasing function in relation to its origins and the new areas it had moved into. The study highlighted prospects for human resources and the function's interaction with executive management.

In the third survey, the study was conducted on the dynamics of the relationship between general management and the Purchasing department. The executive managers interviewed stated their expectations in terms of cost control and competitiveness, though they were not aware of the full potential the function may create for the business.

The fourth study's main findings revealed that Purchasing directors are still too often set on a medium-term approach. Yet there was a need for even more higher-level skills. Better knowledge of the market and the handling of even more complex Purchasing issues gave pride of place to skill allocation and high potential for managing resources. It concluded that the Purchasing function's trend was moving away from the status of cost killer and towards operational player.

The fifth edition confirmed the previously identified trends. The role of Purchasing has evolved. By working more closely with its in-house customers, Purchasing has repositioned itself as a source of new ideas which add value on a cross functional basis. A new and more

ambitious role is emerging; that of business partner. Finding and managing the scarce resources with the high skills required to meet rising standards is becoming the main challenge for Purchasing directors. The sixth edition leads us to wonder whether sustainable Purchasing is a myth or a reality, and whether the challenges of performance and excellence above are consistent with the growing importance of business ethics. For the first time, the introduction of a European survey pointed out the different behaviors deployed to achieve compliance with sustainable Purchasing.

This seventh edition of the Monitor focuses on the company's perceptions, initiatives and assessment of the maturity of the contribution of the Purchasing function to Innovation. It also explores the areas of improvement and the next steps to operate the transformation of the Purchasing function's state of mind toward breakthrough Innovation.

Scope of the studyThe study was conducted across a number of European countries including France, the United Kingdom, Ireland, Germany, Austria, Switzerland, Finland, Norway, Denmark, Sweden, Belgium, the Netherlands, Luxembourg and Russia. An overview of Japan is also given in the study.

MethodologyThis study was conducted between January and June 2012 in two phases:• A quantitative study: 401 telephone

interviews with Purchasing directors, based on a questionnaire;

• A qualitative study: over 55 face-to-face interviews with Purchasing directors in different countries gaining insight into their perspectives.

Final analysis and conclusions of the study are based on both quantitative and qualitative data.

The five classes presented in the study are taken from the Multiple Correspondence Analysis (MCA), a data analysis technique to detect underlying structures in a data set. The

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51

categories are the result of factor analysis and then classification of active variables.

Prospective CommitteeAs in previous surveys, the 2012 Sourcing Monitor was guided by the Prospective Committee. This Committee has three primary roles: to set the study topics, to react to initial results and to interpret the results.

Average results presented in the study are based on the European panel of 401 companies. Japan's results have been treated separately.

PanelThe panel brings together 400 European companies and over 15 Japanese companies.

Special attention was paid to provide a balance between different industry segments and turnover in order to ensure that the results would be representative.

10%

50%

10%

10%

10%10%

Source: BearingPoint, Essec, Novametrie study - 2012

6%

16%

62%

Distribution

Industry Financial services

9%7%

Non financial services

Public sector

32%

30%

More than 10,000

Less than 500

18%

20%

From 1,000 to 10,000

From 500 to 1,000

Sector Turnover (M€)

Germany, Switzerland and Austria

Denmark, Finland, Norway and Sweden

United Kingdom and Ireland

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52 | Appendix

AcknowledgementsWe would like to convey our sincere thanks and gratitude to all those who have contribute to this study.

Thanks to all the companies that have participated to this survey, and especially to the fifty Purchasing directors who agreed to meet us and give up their precious time. Their thoughts and experiences have added valuable substance to this survey.

Thanks to the members of the Prospective Committee, for their guidance all along the study:• Julien BARTHELEMY, Procurement Group Manager - Microsoft• Jean BOUVEROT, Purchasing Responsible - Department of Defense• Sylvain FRESNAULT, Purchasing director of Courier - La Poste• Christian GALICHON, Purchasing director - LVMH• Christian JOUAN, Purchasing Manager - Bic Group, and President of Adra• Régine LUCAS, Group Procurement Senior Vice President - Axa• Arnaud MINVIELLE, General director - BPCE Purchasing• Patrice POURCHET, Academic director MS GAI - Essec Business School• Isabelle QUETTIER, Purchasing VP - Suez Environnement• Laurence ROLLES, Purchasing director - 3M• Sylvain ROUSSEAU, VP Purchasing and Supply Chain - DCNS• Thierry du VILLARD, VP Purchasing and Supply Chain - Jarden Group EMEA

We would also like to convey our sincere thanks and gratitude to the ADRA (Association des Directeurs et Responsables Achats) and its President, Christian Jouan, for their support all along these years.

Special thanks to Petr Solomatin (Russia), Simon Clark (United Kingdom), My Tegelgard (Sweden) and Osamu Uehara (Japan) for their active contribution.

And finally, we would like to thank the Sourcing Monitor team for their daily work on this Monitor edition: Livia Gonzalez, Stephanie Lesdos and Arnaud Lethrosne.

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Partners

We deliver Business Consulting. We are an independent firm with European roots and a global reach. In today’s world, we think that Expertise is not enough. Driven by a strong entrepreneurial mindset and desire to create long term partnerships, our 3,200 Consultants are committed to creating greater client value, from strategy through to implementation, delivering tangible results. As our clients’ trusted advisor for many years (60% of Eurostoxx 50’ and major public organizations), we define where to go and how to get there…

To get there. Together.For more information: www.bearingpoint.com

@BearingPoint

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Germany | Ireland | Italy | Japan | Korea | Malaysia | Morocco | Netherlands | New Zealand | Norway |

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Kingdom | United States | Emerging Markets in Africa

The ESSEC group, École Supérieure des Sciences Économiques et Commerciales, founded in 1907, is a major world player in management training. Teaching is by internationally recognised research professors and renowned business leaders. Together, they carry on the tradition of academic excellence, promote individual creativity and build character and the spirit of group openness in the service of economic and social activities.

For more information: www.essec.com

NOVAMETRIE is an institute specialising in strategic studies for opinion leaders. The institute offers globalised and holistic interdisciplinary methodologies, integrating the quantitative aspect and the qualitative approach. The Novametrie Scientific Committee, composed of academics and experts, offers an innovative operational and strategic vision, from designingresearch to effective recommendations.

For more information: www.novametrie.com

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54 | Contacts

Contacts

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ContactsEssecPatrice PourchetAcademic director+33 1 34 43 32 [email protected]

NovamétrieChristophe ExcoffierChairman+33 1 44 43 54 [email protected]

BearingPointYvon DonvalPartner - France and Belgium+33 6 10 84 38 [email protected]

Stephen Coy United Kingdom+44 203 206 [email protected]

Patrick Palmgren Partner - Denmark, Norway and Sweden +46 733 211 [email protected]

Matthias Loebich Partner - Austria, Germany and Switzerland +49 89 54033 [email protected]

Jean-Michel HuetDirector - Emerging Markets+33 621 72 78 [email protected]

Charles de Monchy Partner - Netherlands +31 20 504 [email protected]

Claudia Carr Ireland +353 1 418 [email protected]

Riku Santala Partner - Finland +358 40 532 [email protected]

Ralf Dillmann Director - Austria, Germany and Switzerland +49 69 13022 [email protected]

Sergey Kuzovkin Partner - Russia +7 495 937 [email protected]

Page 14: Innovation, the new deal for Purchasing? Bearingpoint Sourcing 2012-2013 report

www.bearingpoint.com@BearingPoint