“You instantly know which is a good company to work with because of their attitude towards making it work for us. It is in everybody’s interest”.
As a material, its properties promise to be revolutionary. Isolated in 2004 by a Nobel prize-winning team at Manchester University, graphene is 200 times stronger than steel, flexible, transparent and a good conductor of electricity.
It has applications in water purification, electronics and energy storage. Companies getting an early march on building these qualities into their products would be ahead of the competition. It is innovation of this kind that companies want to see. In its latest CPO survey, Deloitte found procurement chiefs are focusing on innovation through new product development, which underpins company growth.
However, suppliers that provide the new ideas and technologies to drive that growth do not always experience procurement as a department glowing with enthusiasm for innovation. UK-based company Versarien brings products based on graphene, as well as other advanced materials, to market. According to CEO Neill Ricketts, sales leads are driven by engineers and scientists wanting to solve specific technical problems. They will work with small quantities of the material to prove concepts, but when it comes to mass orders, the conversation changes.
“It becomes more commercial as procurement thinks about the impact on the bill of materials. There is also an element of risk: they want to know whether a small company can satisfy their needs without increasing risk,” he says. “It can be quite challenging for a small supplier. Some of our larger customers might have a procurement department that is bigger than our entire company. Big companies sometimes need to realise that small companies do not work in the same way they do, particularly when it comes to credit. For a lot of small businesses, cash is sometimes hand-to-mouth: you cannot wait 90 days for payment on a large contract,” explains Ricketts.
In some cases, he suggests, procurement functions can be reluctant to work with smaller, innovative companies because of the risk they represent. “For a company to rely on a small supplier as a single source of a vital material can be a concern. We try to work on that by showing how we can source from different elements in the business. If one of our factories is hit, we can start production in another factory. Now we are more substantial, we can take away some of those fears, but in a lot of cases it is just not possible.”
EVERYONE’S A WINNER
More innovative procurement teams can be easy to spot, says Ricketts. “You instantly know which is a good company to work with because of their attitude towards making it work for us. It is in everybody’s interest. There are companies that understand working capital can be squeezed in smaller firms and they are willing to pay upfront or offer lending to offset capital requirements. Other companies are very set in their ways and put us under huge amounts of pressure.”
This means innovative companies have to be careful about the customers they choose to work with, he says. “In some cases, we need to say we just cannot make it work and tell the buyer we’ll come back to it at a later stage. You get a feeling whether or not it is likely to be good.” Design company Moixa has developed a battery that enables houses to make more efficient use of solar energy. It stores excess energy from the sun, which consumers use at peak hours, reducing the amount of electricity they draw from the grid and, ultimately, helping to cut energy bills. The company sells directly to consumers, but also supplies businesses and utility companies. Dudley Moor-Radford, Moixa’s managing director, says procurement is not always a positive force when introducing such innovation.
“Most of the time we respond to a tender, then attend a road show and do an interview, maybe with consultants and technology people. You always have procurement in the room, not saying very much,” he says. “But when you get to the commercial arrangement you are beholden to procurement and often there is zero room for manoeuvre. The capital expenditure is negligible to them – they might be spending billions of pounds on a new power station. But to us, it really matters: we put all our resources into building our product and selling it. “We have developed what we believe is a ground-breaking technology, and if we are selling to a big utility firm, they may want up to 100 units – it could be up to £300,000 per order.
Cash can be key for any small business – we’ve got limited working capital and, in many cases, have to pay our bills for components and materials upfront. But procurement in some of these big firms tends to be reluctant to move from standard terms, which are, at best, 30 days. The dilemma is always cash flow.”
Moor-Radford says the company is hesitant to push too hard for better payment terms because it may give the buyer the wrong impression and suggest the company is struggling with cash flow, which would cause alarm bells to ring with their customers. However, one client has agreed to pay upfront for units once households sign up to have them installed. “I cannot think of another example where we have managed to agree preferential payment terms,” he says.
Procurement teams can create barriers to innovation in other ways too, says Matt Hopkins, VP of business development at Blue Yonder, which applies machine learning to business problems. The firm collects masses of data from clients, stores it in the cloud and combines this with external data, such as weather records. It then works to recognise patterns using machine learning. This is fundamentally different to the way many companies work with data and is not what companies typically go to market to buy, he says.
“The procurement process can be very linear. Businesses build up their master data, then they process it, then analyse and do forecasts at the end. But we don’t work like that. We sometimes find that procurement is driven from the IT perspective – there is a scope, a sequence and at the end, the price. It is a five-year cycle. They are only looking for traditional offers and benchmark what they have done so far against them. It can prevent us getting involved,” Hopkins says.
Di Lindsay Clark ( Procurement Leaders)
Il testo completo sul numero 2 della rivista “Tecnology & Digital trasformation”