Creating sustainable, innovative value chains Value creation through Innovation Annual theme NEVI 2011 Prof Dr Arjan van Weele © Prof dr Arjan van Weele

1.Why this annual theme ? Value creation in the chain through innovation © Prof dr Arjan van Weele

1.Why this annual theme? The last few years, purchasing as a company function has gained more recognition … Has shifted from back room to board room… Purchasing professionalization has generated significant savings… This development, however, has not had only positive sides... Value creation in the chain through innovation © Prof dr Arjan van Weele

Short film Value creation in the chain through innovation © Prof dr Arjan van Weele

1.Why this annual theme? Other examples of over-the-top purchasing enthusiasm… Homecare… Disabled child transportation in the city of Eindhoven… Contract catering… Public transport… Temps agencies… In numerous sectors there is a pressure on margins... and quality of work at stake... Value creation in the chain through innovation © Prof dr Arjan van Weele

Value creation in the chain through innovation 1.Why this annual theme? Debatable purchasing practices (Rietveld (2009), p.32): Competition enhancement is the most favorite purchasing technique… Bundling purchasing volume is the most favorite sourcing strategy… For supplier classification, purchasers use the immensely popular Kraljic matrix… Sourcing models are no longer regarded as means but as a target… Terms of payment are stretched and discount is deducted on payment… Purchasers focus dominantly on purchasing savings… To steer into more strategic business waters, CPOs must abandon the cost savings myopia and service mentality that tarnish procurements image…. ( Russill,(2008)) © Prof dr Arjan van Weele

1.Why this annual theme? Hypothesis 1 It took us 30 years to get purchasing into the boardroom… it will take probably less than 5 years to get us out... Hypothesis 2 With our single cost driven purchasing paradigm, we as a purchasing community hardly do our companies and society a service anymore... Hypothesis 3 We need to act different ie. change our ways of working...! Value creation in the chain through innovation © Prof dr Arjan van Weele

2. We need to act different… Value creation in the chain through innovation © Prof dr Arjan van Weele

2.We need to act different… value risk cost guarantee the availability of goods and services under all circumstances, in line with Triple P reduce costs of goods and services and transaction cost improve the companys customer propositions, accelerate customer processes Value creation in the chain through innovation © Prof dr Arjan van Weele

2. We need to act different What is Value? Sum of three different value concepts: Customer value… Social value… Shareholder value… Value creation in the chain through innovation © Prof dr Arjan van Weele

2.We need to act different … Propeller model: combining customer value, social value and shareholder value (Kibbeling (2010)) Duu social value shareholder value customer value market orientation innovation sustainability Value creation in the chain through innovation © Prof dr Arjan van Weele

3.Value creation through innovation Value creation in the chain through innovation © Prof dr Arjan van Weele

3.Value creation through innovation Numerous academic studies find that innovation contributes to long-term success and market share. The most successful companies consistently dedicate resources to new product development. (Booz, Allen & Hamilton, 1982) Innovation is a driver for competitive success. (Schilling, 2005) For decades now, it is clear that innovation is vital for companies survival on the long run. (Porter, 1980; Chesbrough 2003a; Schilling, 2005) Value creation in the chain through innovation Van Erum (2010)

3. Value creation through innovation Challenge to many companies: how to manage our EXTENDED ENTERPRISE…? profit margin: 1.5% added value: 20% purchasing value: 78.5% Question: What should managers do? turnover sales: 100% External costs strongly influence company results… Value creation in the chain through innovation © Prof dr Arjan van Weele

3. Value creation through innovation Challenge to many companies: how to manage our EXTENDED ENTERPRISE …? Suppliers determine 78.5% of the costs, innovation capacity, CO² footprint and customer value… Value creation in the chain through innovation profit margin: 1.5% added value: 20% purchasing value: 78.5% Question: What should managers do? turnover sales: 100% © Prof dr Arjan van Weele

3. Value creation through innovation Research shows that: suppliers are an important source of competitive advantage and innovation… innovations in many industries originate mainly from suppliers… Value creation in the chain through innovation © Prof dr Arjan van Weele

3. Value creation through innovation Research shows that: suppliers are an important source of competitive advantage and innovation… innovations in many industries originate mainly from suppliers… innovative companies do well to work with innovative suppliers… these innovative suppliers can and must help these companies make a difference in their market… all this demands a different orientation from purchasing professionals, their way of operating and the way they are judged and rewarded… Value creation in the chain through innovation © Prof dr Arjan van Weele

3.Value creation through innovation There is sufficient theory by now… Now we really have to look for what really WORKS! Value creation in the chain through innovation © Prof dr Arjan van Weele

4.What are we going to do? Value creation in the chain through innovation © Prof dr Arjan van Weele

4.What are we going to do? The following activities are at hand: Best cases: NEVI Kringen present cases concerning the theme innovation at meetings Website: to communicate about best cases and toolkits Purchasing consultants: give their visions on the annual theme. How to fill in value creation through innovation? Higher education: arrange meetings… presentation HBO thesis award Universities: presentation WO thesis award Toolkit innovation: develop specific ideas and instruments that can stimulate innovation within the chain Publication: compile the best contributions in the field from practice and higher education (HBO; WO) Value creation in the chain through innovation © Prof dr Arjan van Weele

4.What are we going to do? Who needs to ACT ? The NEVI Kringen and their Boards… The NEVI knowledge managers… The professors and lecturers… The college students... This is all true… but the one really needs to act, is YOU! Now is the time for a new beginning… LETS DO IT! Value creation in the chain through innovation © Prof dr Arjan van Weele