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Procurement 2016: The Supply Chain Goes Digital

Emily Rakowski

The world today is a different place. There are officially more mobile devices than people. And with increasing frequency, we use these devices to manage our lives. To shop. To pay for things. To find restaurants and hail cabs. To network with our friends and family. Many of these same technologies have made their way into the enterprise. And they are transforming the way we work. Business networks, for instance, are changing the way we discover, connect, and collaborate with our trading partners. They are giving us access to insights and intelligence that allow us to make better, more informed decisions. They are, in essence, transforming procurement as we know it.

So what does the future hold? Here are five trends to watch:

1. Supply chains will go digital

Technology has driven a new wave of productivity by digitizing key financial and business processes and enabling collaboration across the organization. This trend will continue as best-in-class organizations leverage business networks to create a digital community of partners executing coordinated processes in a more organized and informed way than in the past.

2. Collaboration will increase – and fuel innovation

Many companies have taken steps to improve the efficiency and effectiveness of their supply chain operations by automating key processes such as procurement, orders, invoicing, and payment. And with good reason. Research shows that companies who have embraced digital strategies are seeing real value, boosting revenue more than nine percent, market valuation more than 12%, and profitability by over 26%.

Led by procurement, many of these companies will take things to the next level and enable new processes that drive more collaborative, intelligent, and transparent ways of operating. Processes like dynamic discounting that allow them to secure discounts that can be reinvested in research and development and funding to expand their business. Contingent workforce management through which they can identify and manage highly specialized resources needed to develop that next-generation product. Or joint solution development where they get innovations that enhance their products, and their partners get something they can market to others in the industry.

3. Business will run simpler

Personal networks from Facebook to Twitter have made it simple for consumers to shop, share, and consume in new and more informed ways. Business networks provide an equally easy and scalable way for companies to discover, connect, and collaborate with the trading partners and resources they need to operate in today’s dynamic world. Procurement will tap into these networks to create a simple, consumer-like experience where, with just a few clicks, they can shop for goods and services, place and manage orders and pay for them electronically, and view and manage spend across all major categories through a single, connected platform. With network-based spot buying they can also improve the purchasing process for low-value, non-sourced items and eliminate maverick buying.

4. Lines will blur

Fueled by digital technologies, procurement will take the lead in integrating business processes and collaborating across functions in entirely new ways that drive value. Chief procurement officers (CPOs) will, for instance, engage in helping to manage the financial supply chain, turning payables into a profit center because they have real-time visibility into whether an invoice is okay to pay and whether it has been matched against purchase orders and contracts. Or extending days payable outstanding to improve the overall balance sheet while at the same time offering early payment discounts to suppliers to mitigate both financial and supply risk. According to Future of Procurement, a recent survey conducted by Oxford Economics, 54% of executives say that procurement managing accounts payable is significantly changing the way the function operates.

5. Procurement will get smarter

Like their social counterparts, business networks house incredible amounts of insights and data. Procurement will unleash the power of this information to optimize their supply chain decisions and accelerate innovation and growth. They may, for instance, access performance ratings on potential trading partners along with recommendations from the community to determine who to do business with. Or detect risk across the multi-tier supply chain based on world events and geo-political risk factors. They might combine in-the-moment demand data with historic trends to predict stock outages before they happen and direct replenishment. Or gain real-time insights into invoice approval status to more efficiently manage cash.

In today’s global and connected economy, digital supply chains are the on ramp to innovation and success. And if you want to be among the winners, you need to get on the highway and go fast. Start today by re-imagining your supply chain. Develop digital strategies that allow you to proactively evolve ahead of the competition. Employ comprehensive solutions that support the entire source-to-settle process and create value for all parties involved in it.

Don’t just think about the future, see it and shape it to your advantage.

Emily Rakowski is Global Vice President for Ariba, an SAP Company.

For more on the future direction of sourcing and procurement, see The Future of Procurement, a series of reports by Oxford Economics.

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Emily Rakowski

About Emily Rakowski

Emily Rakowski is the Global Vice President, Audience Marketing and Demand Management, SAP Ariba. She is an entrepreneurial and passionate marketing and demand management executive with 20+ years leadership experience in the software and consulting industries.

How Integrated Project Delivery Contracts Are Changing Construction

Dustin Anderson

In the next 14 years, the construction market will nearly double, growing from $8 trillion to $15 trillion by 2030. Rapid infrastructure expansion is fueling this growth. In fact, an astounding 75% of the infrastructure that will exist by 2050 has yet to be built.

“Construction is likely to be one of the most dynamic industrial sectors in the next 15 years and is utterly crucial to the evolution of prosperous societies around the world,” says Fernando A. González, chief executive of global building materials company CEMEX.

But it’s not all good news for the construction industry. The industry is also facing serious challenges. Projects are more complex than ever before. Inefficient, wasteful practices are reducing already razor-thin profit margins. As long as companies persist with the ineffective design-bid-build delivery method, they will continue to face these problems.

The digitization of intercompany collaboration creates a unique opportunity window for construction companies to improve efficiency, optimize performance, and increase profits. To do so successfully, construction companies must move from a design-bid-build delivery method to an integrated project delivery contract system with outcome-based success measurements.

From design-bid-build to integrated project delivery

The move from design-bid-build delivery method to integrated project delivery contracts and outcome-based success measurements will help overcome historic productivity challenges in construction.

Much of the poor productivity in the construction industry can be traced to the design-bid-build (DBB) delivery method. Traditionally, an owner contracts directly with a designer and a contractor. The design firms delivers 100% complete design documents. The owner then solicits price bids from contractors to perform the work. Designers and contractors have no contractual obligation to one another for the project’s success. The owner, in turn, bears all risk associated with the completeness of the design documents and their successful execution.

Rather than fostering collaboration, the DBB method drives an adversarial relationship that causes information to be “siloed.” Each party keeps vital information to themselves in an effort to protect against litigation. The result: projects are expensive, experience cost overruns, and are rarely completed within the original time frame.

Integrated project delivery, also known as design/build (DB), is different. Under this collaborative arrangement, design and construction contractually work together in the best interest of the project. DB teams have the greatest potential for achieving goals in schedule maintenance, construction speed, and intensity. Rather than pitting teams against each other, integrated project delivery creates a single team with a sole purpose: achieving what’s best for the project. Participants are evaluated based on the outcome of the project, rather than just their particular piece.

How integrated product delivery is changing construction

Re-imagined business models fundamentally change how contractors perform, work together and retain their workforce. This shift is good for productivity and the bottom line. A study from the University of Texas at Austin comparing DB and DBB projects found that DB projects “take less time, had less cost growth, and were less expensive to build in comparison to DBB projects.” A study by Penn State found a similar positive outcome for DB projects. Compared to DBB, DB projects had a six percent reduction in change orders, were delivered 33% faster, and cost six percent less.

Beyond design build: New contract models and extensive verticalization driving change

Extensive verticalization and new contract models are forcing construction companies, contractors, and architects to reimagine their working relationships. This is an extension of the DB concept that allows contractors to reduce overall project risk and, also importantly, the owner’s perception of construction risk.

As use of integrated project delivery contracts accelerate and collaboration technology is adopted, true vertical integration of projects will expand. In turn, customer-perceived risk will diminish. The implications for supply chain simplification and cost reduction are significant, with a single entity controlling all aspects of the project from design to prefabrication and construction.

Integrated project delivery contracts are also reshaping the end delivery process. Traditionally, contractors have delivered their end product to an owner to operate and maintain. Now, to improve margins in this low-margin industry, some contractors are financing and operating what they construct. This allows construction companies to deliver facilities- and assets-as-a-service. One of the earliest examples of this model are the public-private partnerships for transportation.

It is increasingly common for transportation departments to employ public-private methodologies to construct new roads or bridges. The contractor provides the financing and construction of the asset, performs maintenance on it for 20 to 30 years, and receives payment over time, often via collection of tolls. For example, Fluor is not just building the new Tappan Zee Bridge over the Hudson River in New York, but will also operate the bridge.

Together with integrated project delivery, expect this new construction business model to make inroads in commercial, industrial, and residential construction.

Next steps: Digital solutions for new business models

As construction companies adapt to new business models like integrated project delivery, they must do so in conjunction with new digital strategies. Construction companies must digitize to grow profits and simplify operations to reduce risk. This starts with bringing together business processes, project controls, visualization, and analytics in real time to work smarter, faster, and simpler. SAP is powering this transition with digital solutions for enhanced workforce engagement, supplier optimization, and project optimization.

To find out more about digital transformation in construction, see Building a Sustainable World, How to Survive and Thrive in a Digital Construction Economy.

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Dustin Anderson

About Dustin Anderson

Dustin Anderson is a Global Industry Solutions Director for the Engineering, Construction, & Operations Industry Business Unit at SAP representing North America and Latin America. Prior to this role, Dustin worked at an SAP partner company implementing SAP Solutions. Dustin helps clients deliver value through SAP solutions.

Digital Compliance: Only Superheroes Need Apply

John Bertrand

Compliance in banking and finance is big business. If you’re wondering what I mean, consider that the four big UK banks have paid $75 billion in penalties (as of a year ago) and 20 global banks have racked up $235 billion in fines since the financial crash.

Compliance officers are in great demand, but the responsibilities and requirements for the job are so daunting that even Superman would have a difficult time filling the role.

The high need for compliance superheroes may just be starting. Two new regulations, the UK’s Senior Managers Regime (monitored by the UK’s Financial Conduct Authority, or FCA) and the EU’s Market Abuse Regulation, will test compliance officers’ ability to govern. There’s also Basel IV, which is looking like global regulation, and the FCA, which says its “enforcement division supports our objectives by making it clear there are real and meaningful consequences for firms or individuals who don’t follow the rules.”

Why should compliance be so hard that we need to find superheroes to do the job?

Let’s make digital technology the superhero instead

Given that banking worldwide is going digital, compliance should also go digital. It will take time for compliance functions to be built directly into the technology, but adding a layer of digital technology operating across the enterprise could be the short-term answer.

Incorporating digital technology into the compliance function could identify anomalous – and potentially non-compliant – actions in near-real-time. Every anomaly has a sequence of events, digital fingerprints if you like. Digital compliance picks up on those deviations from the norm and enables supervisors to quickly examine them in order to forestall malicious behavior.

Automated supervision can test trades against certain rules and levels of exposure; if the rules are breached, the system will trigger texts, emails to the management team, or other alerts for immediate action, before or after a trade.

For example, human resources data can be coupled with trading systems to show a trader’s past behavior against the house rules and regulations. In addition, predictive analytics can show where the trader is moving along the “risk for misbehavior” scale. With digital compliance monitoring the market, the trader, and the bank’s policy, anomalies are illuminated and the probability of non-compliant activity is dramatically reduced.

Like any other superhero, the compliance supervisor must address the biggest risk, the most important regulations, first. Digital technology allows these superheroes to act faster than a speeding bullet to prevent non-compliant activity, focusing first on the most pressing business issue, then repeating until they have established a penalty-proof level of compliance.

Digital compliance, built in stages, can become a liaison between the stakeholders in the business, even including the official regulators. It not only installs a permanent digital superhero on your team, it may also prevent prison terms for “Persons Discharging Managerial Responsibilities” – even if the CEO does look good in stripes.

For more on how digitization can strengthen your business, see Algorithms: The New Means of Production.

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Robots: Job Destroyers or Human Partners? [INFOGRAPHIC]

Christopher Koch

Robots: Job Destroyers or Human Partners? [INFOGRAPHIC]

To learn more about how humans and robots will co-evolve, read the in-depth report Bring Your Robot to Work.

Download the PDF (91KB)

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Christopher Koch

About Christopher Koch

Christopher Koch is the Editorial Director of the SAP Center for Business Insight. He is an experienced publishing professional, researcher, editor, and writer in business, technology, and B2B marketing. Share your thoughts with Chris on Twitter @Ckochster.

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What Is The Key To Rapid Innovation In Healthcare?

Paul Clark

Healthcare technology has already made incredible advancements, but digital transformation of the healthcare industry is still considered in its infancy. According to the SAP eBook, Connected Care: The Digital Pulse of Global Healthcare, the possibilities and opportunities that lie ahead for the Internet of Healthcare Things (IoHT) are astounding.

Many health organizations recognize the importance of going digital and have already deployed programs involving IoT, cloud, Big Data, analytics, and mobile technologies. However, over the last decade, investments in many e-health programs have delivered only modest returns, so the progress of healthcare technology has been slow out of the gate.

What’s slowing the pace of healthcare innovation?

In the past, attempts at rapid innovation in healthcare have been bogged down by a slew of stakeholders, legacy systems, and regulations that are inherent to the industry. This presents some Big Data challenges with connected healthcare, such as gathering data from disparate silos of medical information. Secrecy is also an ongoing challenge, as healthcare providers, researchers, pharmaceutical companies, and academic institutions tend to protect personal and proprietary data. These issues have caused enormous complexity and have delayed or deterred attempts to build fully integrated digital healthcare systems.

So what is the key to rapid innovation?

According to the Connected Care eBook, healthcare organizations can overcome these challenges by using new technologies and collaborating with other players in the healthcare industry, as well as partners outside of the industry, to get the most benefit out of digital technology.

To move forward with digital transformation in healthcare, there is a need for digital architectures and platforms where a number of different technologies can work together from both a technical and a business perspective.

The secret to healthcare innovation: connected health platforms

New platforms are emerging that foster collaboration between different technologies and healthcare organizations to solve complex medical system challenges. These platforms can support a broad ecosystem of partners, including developers, researchers, and healthcare organizations. Healthcare networks that are connected through this type of technology will be able to accelerate the development and delivery of innovative, patient-centered solutions.

Platforms and other digital advancements present exciting new business opportunities for numerous healthcare stakeholders striving to meet the increasing expectations of tech-savvy patients.

The digital evolution of the healthcare industry may still be in its infancy, but it is growing up fast as new advancements in technology quickly develop. Are you ready for the next phase of digital transformation in the global healthcare industry?

For an in-depth look at how technology is changing the face of healthcare, download the SAP eBook Connected Care: The Digital Pulse of Global Healthcare.

See how the digital era is affecting the business environment in the SAP eBook The Digital Economy: Reinventing the Business World.

Discover the driving forces behind digital transformation in the SAP eBook Digital Disruption: How Digital Technology is Transforming Our World.

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Paul Clark

About Paul Clark

Paul Clark is the Senior Director of Technology Partner Marketing at SAP. He is responsible for developing and executing partner marketing strategies, activities, and programs in joint go-to-market plans with global technology partners. The goal is to increase opportunities, pipeline, and revenue through demand generation via SAP's global and local partner ecosystems.