It is excellent if you have already gained a grip on procurement’s changing landscape. If not, for many businesses, procurement remains quite intimidating. There are concerns about co-ordinating upstream and downstream processes. Risk management, supplier intelligence, advanced analytics and a drive towards innovation all suffer from disruptive digital transformation. “To keep up with the fast-changing supply chain landscape, a procurement leader has to have control over aspects that govern procurement”, says Linda Ashok, a content, communications and branding professional.
1. Bridge upstream vs. downstream
An Aberdeen Group report states that 86% of best-in-class procurement organisations still battle with cost reduction and their savings mandate. 41% stated that their objective is to simplify procurement practices and to improve the efficiency of the entire source-to-pay (S2P) process. We have come across chief procurement officers (CPOs) who are worried about the various challenges that they face owing to unconnected S2P processes. Therefore, the entire S2P cycle needs some form of bridging: upstream procurement processes and technologies (sourcing, contract management, etc.) need to bridge with downstream processes and technologies (expenses, invoicing, etc.).
2. Control risk
Best-in-class procurement organisations that succeed in cost savings and profit margins are aggressive in their risk management strategy. However, they focus on integrating risk management with their supplier management operations as opposed to their procurement systems.
3. Centralise supplier intelligence
Supplier onboarding, from performance evaluation to mandating risk and compliance assessments, comprises supplier data/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 organisations focus on establishing a singular and accurate source of data, spanning across supplier programmes, geographies and solutions. In this regard, an aspiring procurement firm should consider technologies that cater to augmenting supplier intelligence.
4. Analyse your analytics
“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% increase in adoption, that is 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.
5. Innovate or perish
“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 resists the change, it will likely perish. For procurement practices to absorb the culture of innovation, internal and cross-functional collaboration are key. Innovation is not the duty of any single department; rather R&D, Marketing, etc., should all get involved. 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 towards innovation is immense. Otherwise, one function’s blinded determination towards savings/improvements may adversely affect the savings goals of other functions.
Above, we broadly touched upon aspects that will keep procurement afloat: co-ordination between upstream and downstream processes, risk management, supplier intelligence, advanced analytics and the drive for innovation. However, the most challenging aspect is still pending…the quintessential need for holistic digital transformation (known for yielding tremendous performance opportunities). Digital transformation is already on its way but still waiting on many procurement organisations to tap into its fullest potential across organisational culture to information technology (IT) systems, through to governance and supplier relationships.
6. Digital transformation
The entire procurement system has to be overhauled to render complete digital transformation. Below, we discuss five steps to achieve the necessary change:
a. Nurture a digital culture
Another priority for organisations should be to culture digital practices. Digital culture should find native application on procurement activities, including developing strategies, identifying opportunities, etc. Procurement executives should be enthusiastic about digital transformation and be willing to explore new prisms in their day-to-day transactions for better management of constraints and their implications.
b. The holy triangle: CPO/CDO/CIO
It is the responsibility of procurement leaders to convey a company’s digital strategy to the chief digital officer (CDO) and the chief information officer (CIO) so that all are on the same page. Companies should also establish procurement governance. As a result of allocating digital and IT resources to a category/zone/management, committees can identify upstream opportunities and consistent technology choices that are in alignment with line-of-business objectives.
c. Futuristic capabilities
Since we know that buyers are behaviourally different from yesteryear, procurement leaders must build new capabilities. Such can be achieved through training existing employees into interest buyers. For instance, the big data guy, in his role of data scientist, can influence:
– Analytics at the stem of every decision made and related approaches
– Change management: transitioning from manual to pure digital suppliers
– Negotiations to scale up contract-related capabilities
– New business models by tapping into magnetic supplier market shifts
d. Reinvent supplier relationships
While suppliers these days realise the advantages of digital transformation, they also realise how to survive market competitiveness and how to augment performance. Likewise, world-class procurement organisations work toward recognising those suppliers that are ready for digital. Hence, invest in training suppliers and joint-finance innovation through simple, flexible and agile processes. As a result, both buyers and suppliers will work as responsible digital players to usher in transformation while continuing on the path of success.
e. Systems integration roadmap
The holy triangle discussed above becomes a square with the inclusion of the chief technology officer (CTO). As a result, a clear systems integration roadmap is on the table. For procurement to achieve fully digital status, CIOs should prioritise investments. Other than CTOs, directors of procurement should also identify other critical integrators while technology partners should ensure the smooth execution of the roadmap.
It is my hope that the six strategies discussed here will help you to emerge as a procurement leader. Because the future lies with the Internet of Things (IoT), machine learning and scores of complex mechanisms, you should be ready to hit the market already. Owing to disruptive technologies that have already saturated analytics and automation, procurement leaders should evaluate their current procurement structures even more.
Linda Ashok is a content, communications and branding professional with 12 years’ work experience in business process outsourcing, banking, payroll, robo-advisory, internal communication and social media. She is interested in how businesses perform at the intersection of big data, artificial intelligence, the IoT and other emerging technologies.