Not Your Grandfather’s Procurement (Part 1)

Mark Brohan

In Part 1 of a 3-part series, Marcell Vollmer, chief digital officer at SAP Ariba, shares his take on where digital procurement is headed. Read Part 2 and Part 3.

Q: Let’s start with a pair of basic definitions. What is the role of e-procurement in B2B e-commerce and what is the role of the chief procurement officer?

Vollmer: Procurement has earned an unfair reputation of being a complicated process, but let’s break it down simply here. Procurement’s role in B2B e-commerce is to streamline the purchasing process and ensure that businesses get the right goods and services that meet all of their specifications, from a corporate-approved vendor, for the right price. Call this the golden triangle of procurement. The most effective procurement providers help businesses with the entire process from end to end – from finding the right suppliers, to negotiating and managing contracts and discounts, to processing and ensuring accuracy of invoices and payment. Procurement platforms also help manage suppliers, provide visibility into the entire purchasing process, and reduce complexity.

As for a chief procurement officer (CPO), this role is increasingly becoming more strategic. Gone are the days of purchasing as a back-room function. For this reason, CPOs are collaborating more frequently and effectively with other members of the C-suite – particularly finance. And, while the CPO’s role is still about cost-cutting across the organization, it is also about much more than that today, in large part due to digital transformation. By linking together buyers and suppliers in real time, digital networks allow procurement leaders to foster collaboration, spur innovation, and drive much of the strategic value that fuels business growth. As technology has transformed the role of the CPO, CPOs are now able to transform the entire source-to-pay function, making it more data-driven, strategic, and value generating.

Q: How many companies have a chief procurement officer and how are they hired or promoted into that title?

Vollmer: It’s difficult to say an exact number, but from my experience, I see the CPO role quite frequently used in North America, Australia, and Europe. The title CPO is used less frequently in Latin America, Africa, and large parts of Asia. This also reflects the maturity level of the procurement function, which is more advanced in the geographies where a CPO role exists.

On the way to the CPO role, you see predominantly two typical career paths: internal promotion of procurement professionals and external hiring of CPOs from other companies. What may increase in the future is the cross-functional hiring of CPOs to bring in different expertise, but also benefit from experiences outside the procurement profession. In my case, I was promoted to CPO from a former role leading a strategic in-house consulting organization with shared services and post-merger integration, as well as global restructuring programs. The restructuring experience combined with a deep process and systems understanding was the main reason I was selected to transform procurement from a tactical, operational function to a strategic value-generating organization.

Q: In your forthcoming survey of chief procurement officers, 83.9% consider the implementation of digital technologies such as artificial intelligence (AI) and others as “important to improve procurement performance.” What is the impact of these new technologies on B2B e-commerce?

Vollmer: With the advent of AI, machine learning, and predictive analytics, CPOs gain much more insight into their spend and vendor relationships across the organization. This allows them to plan more effectively, analyze patterns, and drive smarter, data-driven processes that have positive impacts throughout the business. It also allows CPOs to practice purchasing with purpose, making an impact beyond the four walls of their own business. For example, a CPO could use machine learning to analyze supplier and network data, current events, industry patterns, and more, to determine where there could be risks within a business’s supply chain.

These risks vary from sustainability issues that negatively impact the environment, human rights violations (forced/slave labor), natural disasters, financial volatility, and more. Whether it’s a tier-one or a tier-four supplier, businesses could be at risk and at the same time completely unaware. The potential for damage is grave from a business and societal perspective. Businesses could suffer major financial losses and severe damage to their reputations, while also unknowingly negatively impacting sustainability and human rights efforts. Thanks to machine learning and AI technologies, businesses can avoid these devastating events by having more visibility and insights into their supply chains.

Part 2 of this series explores more findings from the report, beginning with the effect of automation on e-commerce.

This article originally appeared on B2BecNews and is republished by permission.

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Mark Brohan

About Mark Brohan

Mark Brohan is editor and publisher at InternationalHealthManagement.com and director of B2B e-commerce research. Follow Mark on Twitter @markbrohan.