Procurement Isn’t Just About Spending Money…
Savvy Procurement professionals understand that Procurement involves so much more than Googling for potential suppliers, asking them for a quotation and then selecting the lowest-priced quotation presented. First, you should have a Procurement Strategy to meet the market challenges. Doing things like asking for quotations, negotiating terms and price with suppliers are just tactics. Without a proper Procurement Strategy, doing these things is meaningless.
The world today is a different place. There are officially more mobile devices than people. And with increasing frequency, we use these devices to manage our lives. To shop. To pay for things. To find restaurants and hail cabs. To network with our friends and family. Many of these same technologies have made their way into the enterprise. And they are transforming the way we work. Business networks, for instance, are changing the way we discover, connect, and collaborate with our suppliers. They are giving us access to insights and intelligence that allow us to make better, more informed decisions. They are transforming procurement as we know it.
Why aren’t more leaders willing to transform their business and seize the opportunity of our hyperconnected world? The answer is as simple as human nature. Innately, humans are uncomfortable with the notion of change. We even find comfort in stability and predictability. Unfortunately, the digital economy is none of these – it’s fast and always evolving.
Most of the time, when people talk about the “digital transformation of Procurement,” they speak of digitization or digitalization. For example, in the P2P process:
- scanning of invoices is a typical example of digitization.
- the use of an eProcurement tool is an example of digitalization.
The words digitization, digitalization, and digital transformation are often used in place of each other. This reveals the confusion around what digital transformation entails. Hence, the trouble to build a clear vision and an executable strategy.
Let’s get to the “definition” of these words:
- Digitization is the conversion from analog to digital. Atoms become bits (e.g. digitization of data). You cannot digitize people.
- Digitalization is the process of using digital technology and the impact it has (e.g. digitalization of a process).
- Digital transformation is a digital-first approach that encompasses all aspects of business, regardless of whether it concerns a digital business or not. It leads to the creation of entirely new markets, customers, and businesses (people, capabilities, processes, operating models,…)
Digital transformation of Procurement is no longer an option – it’s the imperative.
Digitalization is effecting changes in nearly every industry. It is disruptor’s tool for changing the playing field. In a world that is changing quickly, driven largely by technology, it is no longer adequate for enterprises to move at human speed. To remain competitive, productive, and cost-effective, businesses must embrace the possibilities of digital transformation and the benefits of moving at the speed of technology.
This transformation is not necessarily a comfortable concept for people to consider and ultimately accept. After all, the more technology can do human jobs, the less humans might be needed in the workforce. This may or may not be the ultimate reality, but either way, change driven by technology is coming and is likely to impact everything around us in one way or another over the next several years.
What is the digital transformation?
What exactly is the digital transformation? It’s often a hazy concept that incorporates references to big data, robotics, drones, the growing influence of mobile technology, and the increasing movement of applications and processes to the cloud.
To disruptors in many industries, a digital transformation is a tool that levels the playing field and allows them to compete with large, established enterprises without the expensive systems and equipment on which those enterprises have grown to rely. Consider the wild success of ride-hailing service Uber. Without investing in inventory or hiring lots of staff, Uber quickly and effectively changed the transportation industry and altered consumer buying habits by harnessing the power of digital technology. Disruptors like Uber are everywhere and in every industry, trying to figure out how digital technology can provide them with a way to not just level the playing field— but to change the playing field completely.
Transformational Challenges
Here are few critical trends & challenges that procurement & supply chain team need to embrace to achieve success in the next decade.
- A Digital Obsession: By 2022, most of procurement & supply chain execution systems expenditure in large companies will be for Cloud-based applications, while supply chain planning applications will remain on-premise, according to Gartner. Additionally, new technologies will appear such as Blockchain for Gross Weight Verification, the IoT and advanced (predictive) analytics for condition analysis and prediction. Digital Transformation will become a key focus to capitalize on the available value of these technologies in the supply chain.
- Forecasting: Short-term forecasting will all but disappear due to “demand sensing” and robust supply chain visibility. However, this will not occur for manufacturers that do not have a supply chain resiliency program in place.
- Talent Gap: Most of CPOs don’t think that their teams have the skills needed to deliver their Procurement strategy. More specifically, the most severe skills gaps are in the roles of implementing digital transformation. This points to continuing low investment in new talent and training. CPOs will need to find, train and retain talent that can get the most out of digital analytics. They will also need to overcome the top barriers to effective application of data in digital procurement.
- Challenges: As exciting as digital transformation is with its limitless possibilities for revolutionizing everyday processes, the advances of technology create challenges as well. The increasing use of technology produces endless data, which has value to enterprises but is difficult to process and analyse at human speeds. To meet this challenge, data analytics tools must be implemented concurrently with content tools and process management technologies to help enterprises gain insight into what their customers want, what the market demands, and how their processes are helping — or hindering — their success. Another challenge enterprises face is a reluctance to fully embrace digital. Enterprises often choose to harness the power of digital to solve specific problems or to automate a few selected processes. But to truly reap the benefits of technology, enterprises should embrace digital holistically, with a chief data officer at the helm focused on data, system integration, and compliance associated with digital technology.
- The Speed of Data: Digital transformation is a reality, and enterprises must embrace it or risk being left behind. However, good business practices honed and perfected over decades and centuries still apply. Careful thought should be given to the company’s digital philosophy, and a well thought out strategy will help the enterprise avoid costly missteps along the way.
Conclusion: Digital technologies will help procurement increase collaboration, analytics, and engagement using a spectrum of tools along the entire procurement value chain, from planning and sourcing to contract negotiations, order delivery, payment, and supplier management.