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Shifting the paradigm: how innovation is driving Procurement

 

 

A Philips electronic toothbrush is more precious than you might imagine. In its head there are rare-earth magnets that help the brush vibrate for optimal brushing awareness, ensuring teeth and gums stay healthy and your smile is even whiter.

 

It’s an expensive component but an essential one, too, which is why we buy 20 million of them every year and continuously put enormous efforts into sourcing the materials responsibly.

So recently, through our unique Procurement strategy, we hosted a special ‘supplier development group’ in which separate organizations within the Philips family sat together with suppliers to find a new partner who can manufacture this vital ingredient in an even more environmentally-sustainable manner, whilst ensuring costs are minimized.
By approaching the Procurement issue in this creative and collegiate manner, we were able not only to positively influence the manufacturing ethos of suppliers but also to save almost 12 million euros without altering the efficacy of what is already a world-leading product.

It is an example of how Philips leads the way in a new business methodology – placing Procurement at the heart of innovation. Instead of assessing products and partners after key decisions are made, Procurement executives are there at the beginning. Not to ‘squeeze’ suppliers but to energise them, to drive performance and inspire innovation.

 

Embedded within the Philips DNA is a pledge to provide innovation that is meaningful to the consumer, that is life-enhancing, and that approach guides Procurement too. Of course costs and savings are integral to the way we do business but so too is how those twin issues impact on the relationship between our customers and our products.

 

It is a vision that we regard as holistic, in that we apply a consistent methodology that gathers all the information about the businesses, customers, competitors and markets and bring up to a fast and consistent decision chain, turned immediately into targets and execution. It’s this kind of intensive, constructive and swift collaboration – internally and externally – which is key to ensuring that Philips continues to not only provide affordable products that benefit society and touch the lives of consumers, but also keeps costs down. In fact, we think it’s an approach that can save a billion euros by as early as 2016.

 

Innovation is not just in the DNA of our partners, it’s at the core of our Procurement identity as well. We call it the DfX methodology, Design for eXcellence. Each product is scrutinised through a series of assessments – how it will impact on the value chain, benefit the consumer, outperform the competition, be sensitive to the environment, prove financially astute and add to the competitiveness of the company.

 

The earlier Procurement gets involved, the more likely we are to enter into agreements with premium suppliers faster than our competitors. One way of engineering this is via our Global Supplier Conventions – we staged one just the other week – in which senior Philips executives meet strategic partners to analyse business opportunities and outline long-term goals and challenges.

 

This is how Philips ensures Procurement is as innovative, strategic and entrepreneurial as other elements of the business, that it has a cogent vision of future development rather than a rigid focus on quarterly results, that it is an active participant in innovation from the start.

 

Two thirds of all Philips’ revenue is spent with suppliers like those who help to build our Sonicare toothbrushes. These are the types of partnerships that define a company. Our growth is dependent on them and vice versa – and I’m proud to say that Procurement is at the heart of that.

 

Fredrick Spalcke  

Executive Vice President and Chief Procurement Officer  

Before joining Philips in 2012, Fredrick worked for several multinational companies in executive leadership roles, building a successful international career with a strong track record of restructuring and delivering results, based on a broad experience in Corporate Strategy, M&A, Logistics and Procurement.

 

Follow Fredrick on:

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