Digital procurement: What is hype and what is here to stay?
Augmented reality, artificial intelligence and big data are all hot topics right now. If procurement is to keep pace with these developments, it’s crucial to react quickly and innovatively.
"Digitization can go wrong whether you do or don't do anything about it. As the German proverb says, you can fall off a horse from two sides," said Dr Christoph Seyfarth, Managing Partner of TALENTspy, at the latest meeting of the Efficio Leadership Procurement Club in Berlin. If you're too sluggish you risk being overtaken by the competition, but if you run too fast you could burn through a considerable amount of money without achieving your goal. His advice to procurement managers: "Introduce digitization early and run with it." Here are some questions every CPO should be asking themselves.
Digitization can go wrong whether you do or don't do anything about it.
How do I go digital?
Digitization works on two different levels. First, complete value-add from development to after-sales service. New business models can be created (car sharing), existing ones can be expanded (smart homes) and those that are tried and tested can be destroyed (online direct selling by wholesale and retail manufacturers is declining). The trick is to anticipate early on where your own business model could be under attack. It’s the only way to ward off the danger of disruption.
In Germany the second level of digitization is generally summarised under Industry 4.0 and the Internet of Things (IoT). This includes embedded systems, (partly) autonomous machines, 3-D printing and robotics, among others. The new technology makes cost reductions, individualisation, diversity and faster order-processing possible.
What is procurement's role in this?
The CPO is a moderator and designer of digitisation in three areas:
- Helping to shape the company's digitization strategy
- Digitalizing procurement processes
- Acting as a consultant/scout for other value-add functions
Digital tools and technologies are fast becoming a factor in the success of the procurer and play a crucial role in procurement’s position within the company. It’s crucial that CPOs get the digitalization of procurement processes right, otherwise they risk losing the trust of the wider company when it comes to applying their digitization skills in other areas of the business.
Are Excel spreadsheets digital?
Digital transformation in procurement is well underway with procurement platforms, automatic invoice processing, cashflow management and supplier relationship management now being standard. Nevertheless, there is still a lag when it comes to the reality of businesses actually capitalizing on these opportunities.
Fully automated, paperless procurement processes triggered by customer orders and ending with automatic payment of the supplier are still a long way off. Instead, Excel spreadsheets, paper catalogues and manual data entry still exist in most procurement departments. The danger is that anyone stubbornly clinging on to their old systems risk manoeuvring themselves onto the sidelines.
Digital transformation in procurement is well underway with procurement platforms, automatic invoice processing, cashflow management and supplier relationship management now being standard.
Blockchains, augmented reality, big data and AI – where should procurement begin?
According to procurement expert Dr Seyfarth, "before digitization comes standardization and measurability”. To this end, there is a need to eliminate existing system errors, such as inadequate care of master data, maverick buying, and early specification of suppliers based on engineered processes and incomplete specification profiles. Standardizing processes is essential to digitization. So, for anyone looking to go digital, it’s now time to start this long overdue homework.
How much digitization does procurement need?
Efficio's procurement consultants can help convert your existing procurement processes into a functioning, standardized digital system. Our eFlow technology platform supports the entire procurement cycle as an integrated solution, from cost analysis through to continuous performance management.
Every company needs to determine its own level of digitization; it can’t be decreed from above. Digitization is an ongoing process and with beacon projects, procurement should demonstrate to sceptics that working digitally is possible and advantageous. Progress should be gradual and digestible for everyone.
Our key question when assessing new technology is: will this be simpler and/or make people's work better? Only when the answer to this question is yes does it makes sense to implement new technology.
Which technology is particularly interesting for procurement?
Digitization is not an end in itself; it must generate a measurable benefit for procurement. Not every tool offers this advantage, but procurement should closely monitor those most important technologies, for example:
- data and text mining analyses texts and data using algorithms
- synergy potentials provide a boost, software recognizes the same or similar components and materials
- smart contracts enable contracts to be adjusted automatically to altered circumstances
- artificial intelligence assesses risks
- expanded procurement platforms enable easier sourcing (also of staff/services)
- augmented reality can replace quality control on site
- sensor tracking of supply chains identifies where raw materials come from, where products go, etc?
- digital data management recognizes errors and sorts inactive datasets.
What skills does a digital procurer need?
Successful, modern CPOs drive innovation. They help with the digitization strategy, with ‘make or buy’ questions, filter the relevant information from big data and know procurement markets for innovation. "They also need a lot of courage," says Dr Seyfarth, as not everything will succeed. His advice is to create islands where new technologies can be trialled in a test environment.
Digitization is not an end in itself; it must generate a measurable benefit for procurement. Not every tool offers this advantage, but procurement should closely monitor those most important technologies.
What benefits will digitization bring procurement?
Estimates assume that unnecessary stocks and idle time can be reduced by up to 60% using technology. Stocks of materials can be reduced by 15 to 30% because of more efficient use, depending on the company.
How can Efficio consultants help with digitization?
We can clear up operating weaknesses in procurement and the supply chain and support you in your digital transformation, sharing our deep knowledge and expertise of which technologies provide sustainable and measurable benefits.