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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Vizibl: The Future of Supplier Relationship Management (SRM)
Even the best procurement team on the planet can only derive so much value from their suppliers by tinkering with spreadsheets or negotiating another half-percent-per-unit from a regular bulk-buy.
The value of relationships count in today’s fast-paced and disrupted business environment, where partnerships, future efficiencies and risk mitigation are just as vital a measure of an organisation’s maturing procurement organisation as overhead reduction.
A recent McKinsey survey into 100 large organisations found that the more cooperative an organisation, the more financially competitive it could become. "Companies with advanced supplier-collaboration capabilities tend to outperform their peers,” it found, but also admitted that this value is not a simple thing to access.
Visibl is a company built from the ground up with the philosophy of ‘delivering mutual value' in mind. Its digital procurement platform is designed to place collaboration at the centre of supplier relationships. Greater transparency for all stakeholders not only simplifies and quantifies contractual obligations, but also provides opportunities to discover and align on common goals and business objectives.
How does Vizibl’s platform work?
Vizibl’s supplier relationship management platform feeds off data. By leveraging data from existing enterprise applications such as ERP, P2P, risk management, or project management systems, all stakeholders can share a central source of truth. The result is greater transparency, visibility and accountability on both sides of a contract. The platform is divided into several focus areas:
- Vizibl Relationships: This system helps organisations move beyond transactional interactions with their suppliers, instead building trust and applying a governance framework that is both scalable and consistent to better support core business objectives.
- Vizibl Workspace: Operating in one virtual workspace removes friction in collaborative endeavours and aligned initiatives. Vizibl Workspace enables partners to drive goals together, whether improved cost-savings, ESG commitments, new product launches or boosting operational efficiency.
- Vizibl Reporting: Measuring results is critical in achieving business objectives, forward planning and risk management. This system helps business leaders leverage actionable data to quantify and drive initiatives, support and mange supplier performance, and understand true ROI.
Key Vizibl customers: Heineken, Vodafone, Astellas
“Gartner lists supplier collaboration as supply chain leaders’ number one focus to solve for agility and resilience”
Speaking to SupplyChainDigital.com earlier this year in June, Mark Perera, CEO and co-founder of Vizibl said: “We work with companies across multiple industries, but regardless of sector, we really see agility and resilience as overarching topic areas in the supply chain. From a resilience perspective, that’s both in terms of operational resilience, but also strategic resilience; we see organisations looking at implementing the desired levels of flexibility and the ability to change with demand, as they look towards the future of their company.”
“Gartner lists supplier collaboration as supply chain leaders’ number one focus to solve for agility and resilience,” he added. “The mindset and process change to switch to a supplier collaboration model will be a challenge for organisations that are falling behind.”