It is excellent if you have already gained a grip on procurement’s changing landscape. Otherwise, for many businesses, procurement remains quite intimidating. There are concerns around coordination between upstream and downstream processes. Risk management, supplier intelligence, advanced analytics, and drive for innovation suffer disruptive digital transformation. To keep up with the fast-changing supply chain landscape, a procurement leader has to have control on aspects that governs procurement.
An Aberdeen Group report states that 86 percent of best-in-class procurement organizations still battle with cost reduction and savings mandate. 41% stated that their objective is to simplify procurement practices and improve the efficiency of the entire source-to-pay (S2P) process. We have come across CPOs who are worried about the various challenges they face when due to unconnected S2P processes. Therefore, the entire S2P cycle; upstream procurement processes and technologies (sourcing, contract management) needs a bridge with the downstream processes and technologies (expense, invoicing).
Certainly, best-in-class procurement organizations that succeed in best cost savings and profit margins are aggressive in their risk management strategy. However, they focus on integrating risk management to their supplier management operations and not procurement systems. Check out this article How to Bell the Risk & Build your Savings in Procurement that’ll help you navigate through risks much prudently.
Supplier onboarding to performance evaluation to mandating risk & compliance assessments comprises supplier data or intelligence. CPOs concerned with supplier data management should consolidate data from disparate and diverse systems to work on actionable supplier strategies. Best-in-class procurement organizations focus on establishing a singular and accurate source of data spanning over supplier programs, geographies, and solutions. In this regard, an aspiring procurement firm should consider technologies that cater to augmenting supplier intelligence.
Predictive or Advanced Analytics is defined as the process of discovering meaningful patterns of data using pattern recognition techniques, statistics, machine learning, artificial intelligence, and data mining. Abbott, 2014
Predictive analytics has already become a dominant influencer. It is poised to game up procurement in the years to come. 19% to 31% percent increase in adoption—that’s the projected leap for predictive analytics in the following two years. The IBM IBV CPO study reports that world-class procurement companies are already convinced about the impact of this advancement and consider it crucial to the success of their procurement practices.
48% of procurement directors interviewed identified innovation as equal to value creation, alongside gaining a competitive advantage and the development of new markets. BearingPoint
It seems like innovation is a wild current sweeping out all obsolete practices. Consequently, if procurement is resisting the change, it is likely to perish. For procurement practices to imbibe the culture of innovation, internal and cross-functional collaboration are the key. Innovation is not the duty of any single department; rather, R&D, and marketing, etc., should all involve. Almost every associate should have requisite training in innovation, including purchasing. For the reason that functions should be able to evaluate the supply market, innovative supplier solutions are essential. Through cross-functional collaboration, procurement’s contribution to innovation is massive. Otherwise, one function’s blinded determination toward savings/improvements may adversely affect the savings goal of other functions.
Above, we broadly touched upon aspects that will keep procurement afloat; coordination between upstream and downstream processes, risk management, supplier intelligence, advanced analytics, and drive for innovation. But the most challenging aspect is pending, and here we proceed toward discussing the quintessential need for a holistic digital transformation known for yielding tremendous performance opportunities. Digital transformation is already on its way but still waiting on many procurement organizations to tap its fullest potential across organizational culture to IT systems, through to governance and supplier relationships.
The entire procurement system has to be overhauled to render it a complete digital transformation. Below we discuss five steps to achieve the change.
Another priority for organizations should be to culture digital practices. The digital culture should find a native application on procurement activities, including the development of strategy, identification of opportunities, negotiations, etc. Certainly, procurement executives should be enthusiastic about this digital transformation and be willing to explore new prisms in their day-to-day transactions for better management of constraints and their implications.
It is the responsibility of the procurement leader to convey the company’s digital strategy with chiefs of digital and information (CDO/ CIO) so that all are on the same page. Companies should establish procurement governance. As a result of allocating digital and IT resources in the category, zone, and management, committees can identify upstream opportunities and consistency in technology choices in alignment with the line-of-business’ objectives.
Since we know that today, buyers are behaviorally different from yesterday, a procurement leader must build newer capabilities. Such can be achieved through training existing employees to interest buyers. For instance, the big data guy in his role of a data-scientist can influence-
· analytics at the stem of every decision-making and approaches therein
· change management: transitioning from manual to pure digital suppliers
· negotiation to scale-up contract related capabilities
· new business models through tapping into magnetic supplier market shifts
While suppliers these days realize the advantage of digital transformation, they realize how to survive market competitiveness and augment performance. Likewise, world-class procurement organizations work toward recognizing those suppliers are ready for the digital. Hence invest in training suppliers and joint-finance innovation through simple, flexible, and agile processes. As a result, both the buyer and the supplier work as responsible digital players to usher the transformation while continuing on the path of success.
The holy triangle discussed in point ii becomes a square with the inclusion of the CTO. As a result, a clear systems integration roadmap is in the offing. For procurement to achieve a fully digital status, the CIO should prioritize investments. Other than the CTO, the director of procurement should also identify other critical integrators while technology partners should ensure smooth execution of the roadmap,
Finally, we hope that the six strategies discussed in this article will help you emerge as a procurement leader. Because the future is IoT, Machine Learning, and scores of a complex mechanism, you should be ready to hit the market already. Due to disruptive technologies that have already saturated analytics and automation, a procurement leader should, therefore, evaluate their current procurement structure even more.