How Procurement Can Help Suppliers Become Innovation Partners
IM: Jean-Baptiste, could you tell us a bit about yourself and your experience with innovation at Mondelēz?
JBR: Certainly. I have been with the company for 16 years now and I have worked on different things over time. As you might know, Kraft (more recently Mondelēz International) is organized by what we call categories: coffee, chocolate, biscuit, candy and cheese and grocery. Its R&D department is organised around the same divisions.When I began my career in Kraft, my assignments included R&D work in chocolate, in coffee, and then cheese and grocery but I later shifted to Corporate Quality where I was responsible for 3rd party manufacturing business – what we call External Manufacturing (EM). Thereafter I moved to the commercial side of External Manufacturing – Procurement. And that is where the link to innovation comes in again.
“Today we have a much more strategic approach (…), we work very closely with our co-manufactures in the development phases”
Basically what was done in External Manufacturing was to change the company mind set from using EM solely to manage capacity constraints and complexity (i.e. we were using EM for tactical activities). Today we do a lot of our innovation through EM. We have a much more strategic approach and to sustain it, we work very closely with our co-manufactures in the development phases. So given my success with this I was asked to develop a similar model for Procurement which is for raw material, packaging material, equipment, supplies etc. And this is where the story started.
IM: How does procurement fit into the global R&D strategy of a company?
JBR: Procurement is a support function and is organized differently than the rest of the business. When you buy packaging you don’t buy packaging for one category or one business – for example, you don’t buy film only for chocolate products; you buy film for all the businesses. This is why we have a central procurement team organized by what we call buying groups: paper, foil, sugar ingredients etc. and these cut across categories.
Procurement has some linkage with R&D on productivity but when it comes to “innovation” we had some difficulties. Given all these different organization structures,attempting to engage with a supplier was very difficult. As an R&D specialist, you do not really know whom to contact in procurement. As a matter of fact, what happened was that people were going directly to suppliers. You could have, for instance, R&D folks in 5 different categories contacting the same company. So what we realized was that suppliers were just overloaded with projects and activities – many of which the buyers in procurement had no clue of.
IM: How did you manage this situation?
JBR: We started our journey by going back to suppliers (which was quite embarrassing…) asking them to detail what all these projects were about. When the suppliers got back to us with a list of 2-300 initiatives we came to wonder: how can the suppliers actually focus under such conditions?! It’s impossible. One of the reasons for this situation was that no one had an overview of the on-going activities with suppliers.
“Procurement innovation managers come in to translate the needs”
So what we put in place were procurement innovation managers or specialists that work closely with the Innovation R&D team and Marketing team. Their role is twofold. On the one hand, they translate the business strategy in something that is meaningful to suppliers. Take for example, the strategy to develop the next generation chocolate tablets. You could certainly argue that this is mainly a media marketing strategy but what does it mean for packaging suppliers, for ingredient suppliers, for equipment suppliers etc.? It doesn’t make sense to them. This is where procurement innovation managers come in to translate the needs. That was the first thing.
Now the second role is to ensure that what we ask suppliers is related to strategy and focused on the business priorities. Sometimes, we prefer to do the development ourselves so the procurement innovation manager together with R&D need to agree on what we develop externally as to avoid duplication and frustrations at the end of the process. So they settle (together) the project list and prioritization. Next, the procurement team receives the project list from each category and can develop an“Annual Plan” that they can share it with the supplier. Remember: before this everyone was going directly to the supplier and there was no prioritization, no strategy, no nothing.
All in all, this prioritization really helps the supplier. And, of course, it is also important for R&D to have a one-stop-shop. Every time they have a request for a supplier, they can go to the procurement innovation manager and they will be directed to the right supplier and the right procurement buyer.
IM: Did you head this initiative?
JBR: Yes. I am responsible for this procurement innovation manager team and also looking at the synergies across categories, bringing us to the next stage. If you have five people that really understand the needs in each of the businesses and they have a standardized way to capture those needs, then we realized that there were some overlaps. We call them platforms – technical or product platforms. Some were very well-known from R&D, whereas others were completely new in the sense that not even R&D realized that this was something they were working on in different categories.
IM: Could you elaborate more on these platforms and their importance for procurement innovation?
“By creating product or technology platforms you can really start to leverage innovation.”
JBR: By creating product or technology platforms you can really start to leverage innovation. This means that when you approach a supplier, you do not approach him/her with only one project or one category that requires one development.You approach them by saying: This is our platform. This is our challenge across different businesses. If you manage to find a solution, the potential for you is not only in one business, but in multiple ones. The return on investment for the supplier becomes much higher. In addition, it helps us to develop an innovation strategy with suppliers because sometimes suppliers are working with, say, biscuits but they do not have the capability to work for chocolates. Through the strategy you can enable a supplier develop capabilities in areas they are not supporting today.
IM: We could call it a positive “spill-over” effect of this approach.
JBR: Yes, exactly.
IM: To what extent do you rely on your suppliers for innovation? Is this percentage dictated by the types of projects you run?
“We are looking basically at competitive advantage. Anytime we can ensure a supplier has provided us with competitive advantage we count them in.”
JBR: Today, if you look at our company’s organic net revenue growth in Europe, at least 50% of the growth is coming from supplier contribution. To measure this we have defined criteria that determine whether a project or product qualifies as significant supplier contribution or not. Some of these criteria include: intellectual property (e.g. Do we receive the IP or does the IP stay with the supplier?), ?), exclusivity on that type of material, resources (i.e. Has the supplier spent significant resources to develop something that is of use to us). These sort of things. We are looking basically at competitive advantage. Anytime we can ensure a supplier has provided us with competitive advantage we count them in.
IM: How do you make sure you engage the right suppliers? What “filters” do you apply?
JBR: It depends on the need, really. I would say that tweaking some existing solution is something our current suppliers can usually support, but sometimes our innovation and business needs cannot be fulfilled by our current (supplier) portfolio. At times like thesewe work very closely with the Open Innovation Team to find a new supplier that can help us.
Another frequent occurrence is that suppliers walk up to us with unsolicited ideas. Here it is equally important to be able to respond. This is something that countless companies fail to do adequately – many suppliers complain about never receiving feedback.
Hence, one of the roles of the procurement innovation managers is to collect such ideas and put together (in each of the categories) a so-called Synapse Committee composed of decision-makers from the respective category. For example: the marketing innovation director, R&D director, consumer insights director and sometimes the nutrition director. Next, we present ideas to this Committee and let its members decide if certain ideas are interesting & worth pursuing. Finally, we assign some resources to explore promising ideas further. If the idea is ready for launch, then we just place it in our innovation funnel. Similarly, if we come across an idea that we do not want to pursue we can reply quickly and this is very effective on both sides.
IM: Has this process been in place for a long time at Mondelēz?
JBR: No, no. We’ve been working on this process for over 5 years (since 2008) and the platform approach has been developed only 2 years ago because the organization gets more mature and we also find new approaches.
IM: Going a bit back to Open Innovation – tell me a bit about your collaboration with NineSigma. How do you leverage expertise like theirs in your work?
“Companies like NineSigma are an important part of our innovation toolbox”
JBR: Well, we have an Open Innovation Team which is basically in R&D. As I said, the procurement innovation managers and R&D are working quite closely together at either the category level, or like myself, at the leadership level. When we have needs or challenges that we cannot solve by the usual means then we work with companies like NineSigma to help us find the right experts, to effectively screen the market, working out the challenge for us. Companies like NineSigma are an important part of our innovation toolbox.
IM: As I understand you received an award for your innovative approach to procurement. What is this award called?
JBR: The award was really about what I explained earlier. How do we set up the process? What do we deliver with this process? How do we deliver 50% of the growth through our suppliers? Basically, it’s the process to manage our strategies and then translate them by developing supplier innovation platforms and well as how to manage unsolicited ideas via the Synapse Committee; all this is what we received a distinction for.
The award’s name is a Procurement Leaders Award (we were 1st place in the Innovation category in 2012) and is backed by a global community of procurement specialists. It involves all businesses and not only companies from the food industry. To give you an idea of the finalists, these included Intel, IBM, Vodafone, Procter & Gamble, Unilever, Kellogg’s,and also a multinational private equity firm called Kohlberg Kravis Roberts(KKR). So it’s quite diverse. Then there are expert judges that assess the submissions and hand out the honours.
This year we are nominated again in “Innovation”. This is more for our approach to innovation contracts, which is pretty different compared to other companies.
IM: Thank you very much for sharing these insights with us and good luck with the award!
JBR: My pleasure. Thank you.
About the author
Oana-Maria is a marketing and branding professional with special interest in growth through innovation, the lean start-up methodology, online learning, and futures studies.
She is the former VP of Marketing at InnovationManagemet.se. Her track record of collaborations includes organizations in the innovation management service industry, both from Europe and the US such as Apollo Group Ltd., FutureThink, HYPE Innovation Gmbh, Ninesigma, Planview and Stanford Education. Oana is currently based in Copenhagen, Denmark.
Photo: sugar from shutterstock.com