Creating sustainable, innovative value chains
Value creation through Innovation
Annual theme NEVI 2011
Prof Dr Arjan van Weele
www.arjanvanweele.com
aweele@euronet.nl
© Prof dr Arjan van Weele
Value creation in the chain through innovation
1. Why this annual theme ?
© Prof dr Arjan van Weele
Value creation in the chain through innovation
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...
© Prof dr Arjan van Weele
Value creation in the chain through innovation
Short film
© Prof dr Arjan van Weele
Value creation in the chain through innovation
1. Why this annual theme?
Other examples of ‘over-the-top purchasing enthusiasm’…
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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...
© 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, CPO’s must
abandon the cost savings myopia and service mentality that
tarnish procurement’s image…. ( Russill,(2008))
© Prof dr Arjan van Weele
Value creation in the chain through innovation
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...!’
© Prof dr Arjan van Weele
Value creation in the chain through innovation
2. We need to act different…
© Prof dr Arjan van Weele
Value creation in the chain through innovation
2. We need to act different…
improve the company’s
customer propositions,
accelerate customer
processes
value
guarantee the availability
of goods and services
under all circumstances,
in line with ‘Triple P’
reduce costs of goods
and services and
transaction cost
cost
risk
© Prof dr Arjan van Weele
Value creation in the chain through innovation
2. We need to act different
What is Value? Sum of three different value concepts:
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Customer value…
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Social value…
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Shareholder value…
© Prof dr Arjan van Weele
Value creation in the chain through innovation
2. We need to act different…
market orientation
social
value
customer
value
Duu
sustainability
innovation
shareholder
value
Propeller model: combining customer value, social value and
shareholder value (Kibbeling (2010))
© Prof dr Arjan van Weele
Value creation in the chain through innovation
3.Value creation through innovation
© Prof dr Arjan van Weele
Value creation in the chain through innovation
3. Value creation through innovation
Numerous academic studies find that innovation
contributes to long-term success and market share.
For decades now, it is clear
that innovation is vital for
companies’ survival on the
long run. (Porter, 1980;
Chesbrough 2003a; Schilling, 2005)
Van Erum (2010)
Value creation in the chain through innovation
3. Value creation through innovation
Challenge to many companies: how to manage our EXTENDED
ENTERPRISE…?
turnover
sales:
100%
profit margin: 1.5%
added value: 20%
Question:
What should managers do?
purchasing value: 78.5%
External costs strongly
influence company
results…
© Prof dr Arjan van Weele
Value creation in the chain through innovation
3. Value creation through innovation
Challenge to many companies: how to manage our EXTENDED
ENTERPRISE …?
turnover
sales:
100%
profit margin: 1.5%
added value: 20%
Question:
What should managers do?
purchasing value: 78.5%
Suppliers determine 78.5%
of the costs, innovation
capacity , CO² footprint and
customer value…
© Prof dr Arjan van Weele
Value creation in the chain through innovation
3. Value creation through innovation
Research shows that:
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suppliers are an important source of competitive advantage
and innovation…
innovations in many industries originate mainly from
suppliers…
© Prof dr Arjan van Weele
Value creation in the chain through innovation
3. Value creation through innovation
Research shows that:
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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…
© Prof dr Arjan van Weele
Value creation in the chain through innovation
3.Value creation through innovation
There is sufficient theory by now…
Now we really have to look for what
really WORKS!
© Prof dr Arjan van Weele
Value creation in the chain through innovation
4. What are we going to do?
© Prof dr Arjan van Weele
Value creation in the chain through innovation
4. What are we going to do?
The following activities are at hand:
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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’)
© Prof dr Arjan van Weele
Value creation in the chain through innovation
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… LET’S DO IT!
© Prof dr Arjan van Weele