There is little argument anymore that the future of procurement is digital. New technologies, ranging from the Internet of Things to 3D printing to artificial intelligence, are changing the way companies of all sizes approach procurement and therefore changing the role of chief procurement officers (CPOs) and how they work.
While CPOs have accepted the inevitability of digital procurement, in many cases they have not yet determined exactly what it will look like for them, or what they need to do in order to successfully transition into this new world. The technology itself is still in development and advancing every day, but to take advantage of it, CPOs and other procurement professionals need to develop a new mindset and approach to their work.
Shifting from savings to value
For decades, the chief responsibility of procurement teams has been to purchase necessary goods and services for the company, with a priority on getting the best possible price for them. Because of procurement’s involvement in every aspect of a business, though, their role has expanded into one that’s integral to containing and reducing costs and maintaining a healthy bottom line.
In that vein, procurement has become more focused on value than on savings. Procurement teams must leverage the company’s purchasing power into not only securing the best price for goods and services, but also securing those goods and services within the terms and timeframe required by the company. This often means finding efficiencies and ways to take advantage of technology to streamline – and potentially automate – cumbersome paper-based transactions and ordering processes.
One way that many companies are taking a more strategic approach to procurement and improving value is by making procurement a more visible part of the company and developing more cross-functional teams to ensure a broader understanding of the business as a whole. This has meant bringing in staff from other departments to work in procurement for a stint to better understand those processes. It’s also meant adding procurement personnel to different teams and projects to both provide a purchasing perspective and learn more about other areas of the business. With these arrangements, purchasing becomes a more strategic process in which procurement decisions are made with an eye toward the value they can bring to the organization.
A strategic function
Shifting procurement toward a focus on value requires thinking strategically, something that hasn’t always been a priority for CPOs. Companies are now looking for procurement teams to have a better overall understanding of business fundamentals – even going so far as to encourage employees to enroll in online MBA programs to effectively learn about business strategy development and implementation. One area in particular that’s seeing a great deal of change is technology strategy, thus requiring a new approach.
In short, CPOs must turn their focus toward developing a technology strategy to deliver procurement services. The strategy must not only include a plan for developing and implementing a data architecture for procurement services, but also be focused on measuring and analyzing performance in this area. This usually means working closely with IT to develop a long-term strategy and a roadmap and a business case for investing in procurement technology, including specific goals, KPIs, and conclusions about how the technology can help achieve not only the overall strategic objectives for procurement, but for the organization.
Accepting artificial intelligence
Finally, moving into the world of digital procurement also requires an acceptance of the role of machine learning and artificial intelligence in procurement processes and learning to embrace to potential of these tools. Some have decried the rise of AI as a worst-case scenario, claiming that “robots” will eventually take over procurement and all purchasing will be automated.
While AI and technology do have potential to streamline certain processes, the likelihood of machines entirely replacing humans in procurement is highly unlikely. AI is a tool, one that can handle some of the most rote processes in procurement and provide data and insights that allow you to create more value and achieve the ultimate goal of protecting the bottom line. AI frees humans from processes that take away from their ability to innovate and solve problems, and therefore CPOs and their teams are better served to embrace the technology that’s already here and put it to use.
The rapid expansion of technology is changing virtually everything about the way we do business. By changing how you see technology and its role in your work, you can more fully embrace the technology and become an even more important part of your organization.
For more on digital transformation in procurement, see Integration: The Key To Digitizing Procurement Processes.