A key issue on many procurement executives’ minds is the much talked about concept of “digital procurement”. It’s a hot new buzzword and everyone at every conference is talking about it. While achieving digital is front of mind, what's important is to tread carefully and understand what does it mean for your organization, and what are the foundational elements of a strong digital-forward procurement strategy?
The promise of digital procurement holds many obvious appeals. True digital procurement is about digital transformation internally—the application of digital technologies should be about transforming the function to become far more internal customer focused, and not simply about finding bits and pieces of the department to digitalize.
In line with that, it’s all about creating a digital-forward procurement model. One where procurement organizations are focusing on more differentiating, value-adding activities and strategic decision-making, augmented by advanced technologies such as cognitive computing and predictive analytics.
Digital transformation can be a competitive advantage—improving insights, spend and how procurement interacts with and serves its stakeholders. This transforms procurement into a vehicle that not only manages costs but unleashes the potential of the supply base and market to significantly improve business performance.
To help procurement organizations become ‘digital-ready’, we have created a checklist comprising a mix of attributes and pre-requisites. Although your answer may not be ‘yes’ to all of these, depending on where you are along your digital procurement journey, the list can map out a path to get to ‘yes’ on all of them over time.
- You need to have senior stakeholder support from the start – you can’t move forward without it, so ensuring there is visible vocal support from the top is a must. Are your senior stakeholders truly pro-technology? Do they see it as more than a simple efficiency tool? Do you have adequate support from your senior stakeholders, including both the vision and inclination to prioritize and commit resources?
- Define clear roles and responsibilities and create new roles, if required – your existing team may need to be reinforced, updated or changed. Do you have access to the right talent and skills needed to operationalize your digital strategy? Do you have access to a cross-functional team of people with distinct skills such as knowledge of data science and AI, category/business expertise, IT professionals who understand the technology tools and software applications, design professionals, etc.?
- Gauge the adoption appetite of your organization before launching new technologies – what kind of cultural pushback can you expect? Change management is as important as the digital changes themselves. Is your organization open to the adoption of new technologies? Is your team tech-savvy and quick to adopt new technologies? Do you have the budget for technology investments? At the same time, be sure to push the organization and your team harder than they are comfortable with; it’s at the edge of comfort and security that you will achieve real change.
- Take stock of what technologies already exist – assess if those can be utilized to meet the current defined strategy (new or state of the art is not always the best). Start small and do it effectively rather than go for the (high risk) big bang.
What Does the Digital Future Hold?
A Hackett Group study of 180 large company executives determined that 85% of procurement organizations believe that digital transformation will fundamentally change the way they deliver services over the next three to five years. The study found that the use of cloud-based applications, advanced analytics, robotic process automation (RPA), mobile computing and big data are also expected to grow dramatically. So, what are the hot trends to watch out for?
- Visualization: Transforms data into user-friendly, executive-friendly, visual formats that can simplify decision making by organising information and delivering fresh insights and recommendations
- Predictive and advanced analytics: Will integrate statistics, modelling, machine learning, and artificial intelligence with third-party data sources to predict price fluctuations, demand levels, geopolitical risks, and more
- Robotic process automation: An application governed by business logic and structured inputs that will automate many P2P activities, and improve efficiencies
- Cognitive computing and AI: Applying pattern recognition software and iterative machine learning to help categorize spend and related data to find opportunities
- Cyber tracking: Will enable real-time tracking of online and physical activity of key suppliers and their performance
- 3D printing: Has the potential to eliminate stock-outs, carrying costs of low-volume items, but also allowing for rapid prototyping, which could help in direct sourcing
- Blockchain: A developing area that is likely to change the way transactions, contracts and more are handled, verified and managed
As digital technologies continue to evolve and leading-edge capabilities such as AI become more accessible, the opportunities to enhance procurement’s performance and contribution to the business will surge.
A well-oiled and fully-functional digital-forward procurement strategy and operating model will allow executives to: increase spend under management, dramatically improve compliance, accelerate savings and significantly reduce risk.
For progressive CPOs across the globe, digital procurement should be a central feature of the growth and transformation agenda.
Omer Abdullah is Co-Founder and Managing Director of The Smart Cube.