Using Public Procurement to Promote Innovation

Using Public Procurement to Promote Innovation

Innovation is essential if you want to gain a competitive advantage in the public sector, where every edge is necessary to gain the attention of procurement buyers and contracting authorities. But did you know that the public sector can actually drive innovation?

It can create the very thing it needs by working closely with suppliers and consumers.

In fact, consumers play an important role in keeping government departments and public sector agencies in touch with their local communities and the innovative products and services they truly need.

We’re going to look at Public Procurement Innovation (PPI) to see how its benefits stack up against its challenges, as well as the steps the public sector must take to fully optimise innovation strategies.

Procurement Innovation Processes

Broadly speaking, there are six methods to create an effective innovation strategy.

Competitive dialogue.

The procurement or contracting authority meets potential suppliers to discuss possible innovation strategies for a specific value proposition or customer requirements. Innovative ideas are encouraged to help both parties develop the most suitable solutions for future growth.

Innovative partnerships.

Procurement authorities and potential suppliers collaborate to develop innovation initiatives that are most likely to meet new business model requirements. In this business model, suppliers and buyers share risks, costs, and benefits. 

This business strategy is preferred in the UK, where it’s called Competitive Innovation Procurement (CIP).

Pre-Commercial Procurement.

Contracting authorities choose the most successful innovation strategies for specific customer needs from a pool of competing R&D providers. The winning innovation strategy from the best value proposition belongs solely to the contracting authority.

Open innovation.

Suppliers are invited to submit innovative solutions to meet specific innovation strategy outlines, but also to identify new suppliers with innovative ideas that could have a positive impact on business models and procurement processes. 

Challenge prizes.

Procurement authorities challenge suppliers to create the best innovative strategies for specific problems, including those related to existing products and services. A prize is awarded to the most radical innovation strategies.

The prize isn’t necessarily a contract, but the exposure to existing buyers in the procurement sector is invaluable to suppliers’ future products and services.

Co-creation.

Contracting authorities work with suppliers to create an innovation strategy tailored to meet the specific requirements of a new or existing business model. Strategies can be built into the buyer’s existing business model, or integrated into new business models.

The Benefits Of Innovation Strategies In Procurement

Promoting innovation in the public sector has several benefits that are ultimately passed on to potential customers. This is especially the case when it comes to technological innovation in high-demand products and services.

  • Innovation removes redundant and unnecessary processes in the public procurement cycle. This saves time and money and concentrates efforts where they can be most useful in an organisation’s innovation activities.
  • It opens new markets for suppliers and buyers. Suppliers also enjoy greater exposure for their successful innovations in the public procurement sector. Grabbing the attention of contracting authorities who value their innovation efforts is as good as gold.
  • Innovation uncovers potential in suppliers from diverse disciplinary backgrounds that might otherwise fall through the cracks. More suppliers increase competition, which promotes continuous improvement in new technology and innovation in products and services.
  • Certain types of innovation can lead to significant advances in fields where consumers’ well-being is directly affected; for example, education and healthcare. Some of the most obvious and impactful innovation is in existing technologies and the technological environment in general.
  • Innovation drives environmental sustainability by removing wasteful and toxic processes in supply chains. For instance, effective innovation plays a role in minimising water usage in manufacturing and using grey water when necessary for a sustainable competitive advantage.
  • Innovative suppliers compete more successfully in public sector procurement, by providing more value for money and making their innovation efforts more effective at meeting business objectives than others in the market.

The Challenges Of Public Procurement Innovation

Buyers and suppliers both face internal and external challenges that block the implementation of innovation strategies.

  • The wheels of bureaucracy turn slowly and sometimes they get stuck in the mud. This makes it difficult to implement innovative solutions that could keep the wheels in motion.
  • Access to resources is an ongoing problem for public sector organisations. Resources are often scarce and competition to secure resources for even the best innovation strategy is fierce.

    This is why it’s so important for an effective innovation strategy to integrate seamlessly into an enterprise’s overall business objectives. After all, the better and more encompassing the innovation strategy, the more likely resource allocation decisions will be directed a supplier’s way.

  • Resistance to change is a common challenge in innovative business strategies. The preference is to stay with what’s familiar, even if it no longer functions properly or contributes to the overall business strategy.

    Even if effective innovation strategies prove how new ideas and new technology help the company achieve long-term success, stakeholders and key decision-makers may be reluctant to approve a new strategic approach.

  • Cost is an important factor upon which the entire procurement process hinges. Traditionally, contracts were awarded to the bidder with the lowest price. The upcoming Procurement Bill, however, turns the existing business strategy on its head.

    Now, the bid that provides greater value for money and larger societal benefit could usurp incumbent suppliers, even if they are big businesses with big budgets.

    However, it’s not always that easy for buyers and SMEs themselves, to see how a small budget can provide incremental innovation benefits let alone radical innovation strategies. 

How To Optimise Innovation Strategies

There are several steps or best practices to ensure you get the best out of your procurement innovation strategy. The first step is to actually develop a strategy.

Having a structured plan, procurement management framework or procurement strategy will guide you through the innovation management process and ensure your innovation remains compliant with all applicable regulations.

Let’s look at some other tips to keep customers engaged and suppliers active in your procurement cycle.

Set yourself up for success by developing a procurement management framework. 

A framework simplifies innovation management by providing an overview of your sourcing and procurement status. Use this information to manage suppliers and record performance data. This way you can ensure that the innovative solution is being properly implemented and is on track to meet the deadline.

To set yourself up for long-term success, invest in digital contract management software with seamless integration into your procurement platform or portal. 

Adhere to transparency regulations

Transparency throughout the procurement process is one of the most important regulations emphasised by the Bill. Digital platforms provide an environment that fosters collaboration and new ideas for emerging technologies and existing products.

Transparency tips

  • Use a digital framework that is easy to use and easily accessible by all parties in public sector procurement.
  • Document everything to create an audit trail and ensure the necessary data is available to the parties concerned.
  • Evaluate suppliers’ performance by carrying out regular audits.
  • Use contract management software to ensure all contracts are standardised and legally binding, with no loopholes. 
  • Store contracts on your digital platform as templates, so you can quickly access them and tailor them to new business models and opportunities as necessary.

Nurture supplier relationships for a competitive advantage

Suppliers who feel valued are more likely to pull out all the stops to deliver innovative strategies tailored to the contracting authority’s unique needs.

A pool of dedicated suppliers who engage in friendly competition or collaborate on contracts tends to develop many different innovative ideas, so you can choose the best strategy for your core business.  

You can nurture supplier relationships by:

  • Keeping lines of communication open and ensuring that all communication is clear with no chance of ambiguity that could affect long-term success.
  • Make your expectations clear at the beginning of the procurement process. This is particularly important regarding quality performance and milestones that will ensure you remain competitive in the sector. 
  • Once again, regular audits are necessary to ensure that performance remains at a high standard and always meets customer needs.
  • Always pay invoices on time (within 30 days for government contracts). Suppliers who know they can trust you to hold up your end of the deal, remain motivated to deliver the most innovative solutions to increase your market share in the field.

Innovation strategies for the long-term

You’ve got an innovation strategy, but are you planning for the short-term or long-term?

For example, you currently have a contract with a business that supplies stationery for preschools (crayons, chalk, etc.) and you’ve got an impeccable strategy that covers the contract term, which is two years.

What happens after that? Are you going to publish a new contract notice or find a way to renew the contract with the current supplier? Is renewing the contract even an option? Does the contract allow for new types of innovation or are you bound to existing technologies?

These are important questions that need to be addressed in a long-term procurement strategy. 

Invest in a top-notch Supplier Relationship Management (SRM) programme.

Supplier Relationship Management software gives buyers a holistic view of everything supplier-related and enables them to enhance their core capabilities and carry out activities like tender management, monitoring and assessment of business model innovation and risk management.

Not only does the software qualify as an innovative management tool, but it also gives procurement authorities the information they need to identify innovation and new technologies from up-and-coming suppliers and then ensure that innovative solutions are in place for the benefit of potential customers.

Delta eSourcing provides supplier management software on its single central hub or eProcurement portal that provides essential functions, including framework management, real-time updates, and automation to save time and money. Furthermore, Delta’s vendor management software includes tender management and a Dynamic Purchasing System (DPS).

Benefits Trump Challenges In Procurement Innovation Strategies

In the beginning, we said we’d weigh the benefits of public procurement innovation strategies against the challenges. Upon reflection, it should be clear that the benefits, such as a competitive advantage over other suppliers and incremental innovation strategies, outweigh the disadvantages for potential customers.

This is especially the case when buyers use eProcurement software from professionals who specialise in eSourcing software and eProcurement services.

Contact Delta eSourcing and book a free demonstration to see how our supplier management and contract tracking software can take your public procurement enterprise to the next level.

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