McKinsey: shifting the dial in procurement
The role of procurement is changing. Value chains are becoming more complex, with increased risks and opportunities that accompany that complexity, developments in digitisation, automation and analytics that unlock previously untapped potential, as well as the acceleration of technological advancements and innovations which has meant it has become more difficult than ever to keep pace without external partnerships. McKinsey evaluates where procurement leaders should begin to transform their functions.
Automation, digitisation, analytics: fundamentally changing procurement
Digital disruption in procurement is already underway. Digitisation, automation and advanced analytics are causing transformation in how procurement operates by enabling procurement functions to identify and capture previously untapped sources of value. In McKinsey’s recent study, it was discovered that half of all procurement activities can be automated using technologies that are already available today. These advances promise to free up resources traditionally dedicated to transactional activities for reinvestment in strategic procurement, as well as seeking out innovative sources of value. AI and ML are helping to solve the challenge of data quality. Large spend datasets from enterprise-resource planning (ERP) systems can be often categorised as text-mining algorithms to work out even poorly coded spend.
Three actions for procurement leaders to take:
Rethink the procurement mandate
Invest in digital and analytics
Future-ready the organisation
McKinsey’s research believes that innovative digital solutions in procurement can harness as much as an incremental 3-10% rise in annual cost savings. Advanced analytics-enabled spend-intelligence solutions can provide deeper category insights to find out opportunities in strategic sourcing of commodities, such as those with volatile pricing caused by the fluctuating cost of raw materials inputs.
Internet of Things (IoT) sensors able to collect real-time data from operating equipment are now being used across the board to decrease the total lifecycle cost of operations equipment and consumables. For example, tire manufacturers are now sensorising their products to offer digital tire monitoring platforms that help fleets lower costs and increase uptime by analysing data to determine optimal corrective measures. Procurement and operations teams will subsequently be able to achieve incremental total-cost-of-ownership savings in maintenance time, protecting tires from long-term damage while decreasing tire-related breakdowns and increasing fuel efficiency and safety.
The need for innovation ecosystems
As the speed of adoption increases significantly across industries, it becomes increasingly harder for organisations to keep up as many choose to partner more with technology providers, be it from established partners or start-ups, to develop an ecosystem of innovation. Procurement’s insight into how suppliers are transforming their offerings means it can play an influential role in working with suppliers through innovative business models as well developing partnerships to invest in new technologies.
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Tradeshift: Pioneering eProcurement and Digital Trade
Tradeshift helps transportation and logistics organisations digitally transform their processes. The company offers a suite of services, including spend management, accounts payable and invoice automation, eprocurement, and supplier collaboration through a dedicated B2B supply chain marketplace of more than one million businesses.
As disruption and digitisation continue to accelerate, demand for Tradeshift’s solutions has grown dramatically. The company recently announced the signing of 20 new global enterprise customers since the beginning of its financial year on 1 February, while the number of active businesses transacting on the Tradeshift platform rise by 52 per cent year on year.
Tradeshift Chief Revenue Officer Christope Bodin expects that growth trajectory to continue, as the economy begins to fully reopen and the world works towards recovering from the pandemic. “We are well positioned to support the wholesale digitalisation of business processes,” Bodin said. “For organisations looking to grow in a post-COVID economy, this is fast becoming an organisational standard.”
Tradeshift in Brief
- HQ: San Francisco, USA
- Employees: 800 located in offices in 13 countries
- Customers: 500+ in 190+ countries
- Total on-platform transaction value: $1tn
- Platform: 1.5m companies connected
Key Tradeshift customers: Volvo, Kuehne+Nagel, DHL, Air France-KLM Group
Tradeshift: From $1 to $1 trillion
The company was established with a mission to “connect every company in the world, digitally,” according to Lanng, and followed the trio's earlier product EasyTrade, a pioneering open-source trade platform.
In July 2021, just over a decade since launch, Tradeshift announced passing a new milestone: the cumulative value of transactions processed across its platform passed the $1 trillion threshold. To put that in perspective, Tradeshift said it took two years to reach the $1bn milestone.
Commenting on Tradeshift’s current and future standing, chief executive Christian Lanng said: “We’ve helped a lot of businesses to stay operational and get paid during an extremely volatile period. Every time a business joins our platform it unlocks a whole ecosystem of relationships that we can help to digitise. This sets us apart from the majority of enterprise software providers who remain preoccupied with building connections one at a time.”