This post series looks at how procurement can help tackle disruption. In the previous post, I raised the importance of revising strategies. Here, I discuss the role of technologies and the opportunities they represent for procurement at times of disruption.
Digitalization of procurement has been there already for quite some time. I first came across electronic procurement in the early 2000s when the company I worked for set out to invest in an e-invoicing solution. One of the main justifications for the investment was that automation would free up procurement teams’ time for more strategic tasks. This rationale has never been more relevant than today, with risk screening, what-if scenario building and impact analysis taking over procurement managers’ to-do (or should-do) lists. Simultaneously, the need for comprehensive real-time, or near real-time analytics that help managers to grasp the situation quickly and make informed and timely decisions has grown exponentially. Despite the case for speeding up procurement digitalization appears self-evident, there is room for development. According to a recent study on 1,000 executives, nearly four in ten resorted to manual processes (SAP & Oxford Economics, 2021). Yet with modern technologies and collaboration networks, the number of manual steps could be drastically reduced, productivity improved, and time saved for more strategic tasks.
A traditional way to expedite a purchase order, even when created by an MRP run automatically can take up to 11 manual steps compared to zero manual steps when using a collaboration network. When multiplied by thousands of purchase orders, imagine the amount of time taken from more topical tasks.
In terms of using analytics for decision making, the same study observed a gap between leaders and laggards where leaders (representing 10% of the 1,000 surveyed executives) outperformed laggards in compiling data automatically, making data-driven decisions on spend and having access to real-time spend data, including directs and indirects (SAP & Oxford Economics, 2021). In case a procurement organization has limited capabilities to capture and view data and make quick informed decisions, its role will be constrained to being a tactical and reactive function instead of the strategic, proactive and agile one that is needed today.
Technology investments in procurement are typically driven by the quest for process efficiencies, transparency and more systematic spend management. Yet, recent findings suggest that digital transformation in procurement is driven by factors other than plain automation. According to a global study on 430 C-level executives (Economist Impact, 2022) the top three motives for procurement digitalisation are user experience, category management and mobility solutions. Here, CPOs and Chief Supply Chain officers in particular highlighted category management as the primary driver for transformation. This makes sense considering that category management is typically a manual and time-consuming effort. As a result, only the most strategic categories get managed, which means leaving money on the table. Digitalizing category strategy creation, analysis and benefit tracking increases spend under management, improves productivity and transparency. Managers can spend more time on analysis, generating opportunities and executing initiatives, which should be the focus when supply markets are in a flux and quick responses are called for.
Many companies operate with a diverse set of solutions that come with their own analytics capabilities. There is a growing need for flexible cross-solution, enterprise-encompassing analytics with intuitive dashboards and charts to support observations and quick decision making. At best, analytics solutions should accommodate various data sources and levels of analysis. Think about the category managers – in order to fully grasp the as-is situation, they need data on commodity, supplier, category and the supply market level. External data such as market intelligence reports, benchmarks, price indeces as well as risk scores and cost breakdowns help complement the picture. Ideally, all data would be available within a single interface, instead of dispersed databases, solutions and Sharepoints. It appears that companies are missing the overall glue that brings in-house solutions and data together whilst allowing third-party data to be integrated in a straightforward manner. A customizable workbench with links to underlying applications, intelligent personalized recommendations, unified workflows and personalized and context-aware reports and alerts would help managers to stay informed and focus on the most important tasks at hand.
Procurement is becoming increasingly intelligence-driven. Managers can benefit from smart data insights, system recommendations for building competitive bidding events and automatically generated opportunities for spend reduction. Advanced technologies can spot anomalies and alert proactively on deviations. When tackling disruption, it is essential to find new potential suppliers quickly. Here, AI can speed up the process considerably and reduce the time needed for findings suppliers from months to just a few days (McKinsey, 2021). Interestingly, AI can spot suppliers beyond known contexts, for example within new industries (ibid). This could lead to valuable new collaborations for product and service development or even joint innovations. Indeed, as the adoption of AI grows, companies that use AI for exploration ie. finding new business opportunities instead of mere exploitation ie. improving current processes can build competitive advantages (BCG, 2021). Exploration and exploitation likely require a different set of capabilities and focus. Going forward, we will possibly see specialization within procurement whereby some excel in process improvement and others in finding new opportunities by using AI and other new technologies. The new skills and capabilities that are required from procurement and sourcing organisation going forward will be the topic of the next blog post.
Modern technologies and solutions underpin the transformation of procurement to becoming more strategic and proactive. Process automation has become table stakes, so companies that are able to harness technologies creatively to improve supplier and spend visibility, develop real-time analytics and dashboards, digital category management and the utilization of AI for exploring new ways to collaborate with suppliers will be the winners.
BCG, 2021. “Of Global Executives Using AI, Over 75% Report It Improves Team Culture.” bcg.com. Accessible at: https://www.bcg.com/press/2november2021-global-executives-using-ai-75-report-it-improves-team-culture. Published: November 2, 2021. Retrieved: August 22, 2022.
Economist Impact, 2022. Transformation challenges and trends for procurement. Building value through Digitalization. Accessible at: https://dam.sap.com/mac/app/p/pdf/asset/preview/akLTdAv?ltr=a&rc=10. Published: June 22, 2022. Retrieved: August 15, 2022.
McKinsey, 2021. “With artificial intelligence, find new suppliers in days, not months.” www.mckinsey.com. Accessible at: https://www.mckinsey.com/business-functions/operations/our-insights/with-artificial-intelligence-find-new-suppliers-in-days-not-months. Published: March, 30, 2021. Retrieved: August 22, 2022.
SAP & Oxford Economics, 2021. Procurement Powered Performance. Accessible at: https://www.ariba.com/resources/library/library-pages/procurement-powered-performance. Published: February 16. 2021. Retrieved: August, 17, 2022.
Disclaimer: This blog post bases on the author’s own insights and experiences.