As the digital disruption wave takes over organizations, executives face overwhelming challenges and pressure to sail through successfully. Advancement in digital technologies, coupled with honest investment commitments, is helping companies reimagine their business processes and business models.
In the past, procurement has not been a betting horse for business leaders, resulting in minimal investment in cloud-based e-procurement technologies. The result was that most companies only reshaped their current software, leaving procurement processes the same: archaic and complex.
However, the trend is changing fast now, with leading companies focusing on procurement and its role beyond the gatekeeping function of cost savings and compliance. Procurement is showcasing its value by becoming a collaborative function across the value chain, integrating knowledge and expertise from suppliers, contract manufacturers, and trading partners. In turn, it is helping organizations to innovate and be relevant in this dynamic environment.
According to The Hackett Group’s 2017 Key Issues Study, “84% of procurement organizations believe that digital transformation will fundamentally change the way their services are delivered over the next three to five years.”
This is just one part of the whole story. The shift from the current “Procurement 1.0” (relying on transactional data) toward becoming a “Procurement 3.0” organization (real-time business intelligence with external data integration) is evident and real. Procurement organizations are rapidly adopting and deploying technologies in all major sub-functions. These include:
- Use of AI and machine learning in strategic sourcing to predict demand and advanced negotiation techniques for optimized source of supply
- Self-executing, autonomous procure-to-pay processes through deployment of robotic process automation (RPA) and smart contracts for error-free transactions and faster procure-to-pay processes
- Effective supplier management with integration of third-party information (news feeds, social media, supplier website, etc.), not just measuring but predicting supplier performance and future supply risk
Below are some of the important ingredients for a successful digital procurement transformation.
- Data accessibility: For procurement organizations to be completely digital, the ability to capture and use the vast amount of data is foundational. Currently, most companies can capture and extract information from transactional data (PO line-item data, contract data, delivery time, returns from suppliers, etc.) for insights into only internal data (with contextual information). But to have the edge over competitors, organizations need to couple it with external data, like market intelligence, category expertise, industry benchmarks, geopolitical information, weather forecasts, etc. This will help the organization gather and analyze more and richer real-time data to drive better, smarter, more accurate decisions.
- Advanced analytics: Data accessibility is a mere half battle won unless there is a mechanism in place to extract data-driven, meaningful insights that fuel real business decisions. Real-time analytics will help use procurement data (both internal and external) to deliver insights for procurement executives and influence key strategic decisions. Procurement, like other forward-looking functions (e.g., marketing or finance), is joining the wagon to move from descriptive analytics (things that happened in the past) to predictive analytics (identifying patterns and anticipating future events). These results could be used by sourcing managers to prioritize suppliers based on multiple parameters, like cost (leveraging should-cost models to analyze commodity pricing and predict raw material cost); quality & performance (real-time comparison with industry benchmarks); supplier risk (calculating risk scores based data analyzed from multiple sources); etc.
- User experience: To tap the real benefits of digitalization and increase end-user productivity, companies can empower their employees with a consumer-grade user experience. B2B employees expect their user experience to be as easy and intuitive as in their daily life. They want to be able to view the system-recommended products and services just by answering a few questions (guided buying), aggregated with real-time integration of e-marketplaces for enhanced catalog management and spot buying for one-off or emergency needs, with compliance.
Has your organization already put a procurement strategy in place? Start a discussion with your team about digital procurement with this white paper.