Digital procurement: Companies betting big on technology to transform
For the past 20 years, procurement has slowly evolved from a tactical, manual process to a strategic, digital function. But things are about to pick up speed. According to the results of a new global survey conducted by the University of Applied Sciences Würzburg-Schweinfurt with support from SAP Ariba, leading procurement organisations see digitization as the future. And they are investing heavily in technologies that go beyond automating things and saving money to helping them drive business innovation and make a difference in the world.
“The message is loud and clear,” notes Dr. Karsten Machholz, professor of strategic procurement and supply chain management at the University of Applied Sciences Würzburg-Schweinfurt and co-author of What’s the Next Big Thing in Procurement. “Procurement executives around the world believe digitisation is more critical than ever. And they are taking steps to accelerate it within their organisations and increase the value they deliver.”
To understand their goals, Machholz joined forces with SAP Ariba to survey more than 450 procurement and supply chain executives across EMEA, North and South America and Asia Pacific. The study, which covered all major industries and included blue chip enterprises and mid-market companies alike, uncovered several striking findings:
- The digitisation of procurement is only in its infancy. While 83% of respondents believe digitisation will profoundly impact their business, only 5% have highly automated processes in place. So the opportunity to create value from digital transformation remains enormous.
- Procurement professionals are driven by conscience no less than by cost-savings. Driving down costs is still their number one priority. But 88% of procurement executives surveyed have higher objectives as well, such as eliminating forced labor, conflict minerals and poverty from their supply chains. They see the value in helping their companies do good and do well at the same time.
- Perhaps the most intriguing takeaway from the study is that procurement leaders expect their information systems to become not only faster but smarter. While robots are unlikely to replace buyers anytime soon, artificial intelligence and machine learning will make robots more intelligent and efficient. To this end, more than 60% of respondents plan investments in robotic process automation (20%), artificial intelligence/cognitive computing (17%), machine learning (15%) and chat bots (9%).
Despite all its promise, though, digital transformation isn’t without its challenges. Within many organisations, insufficient analytics, poor data quality, budget restrictions and lack of talent are putting up roadblocks. Fortunately, the study points to several strategies for removing them:
- Don’t just automate, innovate. Use digital technologies to redesign processes and make them work the way they should — with ease, intuitive functionality, and elegant design.
- Cleanse data and leverage intelligent technologies and predictive analytics to make smarter decisions. As business networks open up transparency into the interconnected operations of buyers and sellers, purchasing professionals can extend their sight beyond their organisation’s four walls to anticipate bottlenecks or supply/demand mismatch or other supply chain issues — and work to mitigate (or resolve them altogether) them before it’s too late.
- Look beyond savings to measure success. Find a purpose, and deliver on it. Business networks, particularly those powered by cognitive applications, enable buyers and suppliers to evaluate each other not only on the basis of traditional criteria such as inventories, cycle times and contracting terms, but also on whether a potential trading partner has brand values that align with their own. Does a potential partner have in place the governance structures necessary to root out forced labor or human trafficking from its supply chain? Or to certify responsible stewardship of natural resources? Or to ensure that women- and minority-owned businesses receive equitable consideration in requests for proposal? A procurement network can illuminate all these factors and hundreds of others. What it provides, ultimately, is accountability. More than ever before, investors and consumers demand that the brands they support take account not only of their own ethical and sustainable business practices, but also those of their trading partners. Only the broad visibility offered by a procurement network can alleviate exposure to both operational and reputational risk.
- Recognise that companies are only as good as the people they recruit and retain. Develop a talent management strategy to advance roles, skills and knowledge. As digital technologies reshape procurement, the opportunities have become limitless for professionals in the field to deliver strategic value to their organizations for the long run.
Over the next decade, companies will see more opportunity than they have in the past two combined. In embracing digital technologies and strategies, procurement can take the lead in maximising these opportunities and go beyond delivering cost savings and process efficiencies to fueling collaboration, innovation and competitive advantage.
The author, who co-authored the study with Professor Karsten Machholz of the University of Applied Sciences Würzburg-Schweinfurt, is chief digital officer of SAP Ariba, the world’s largest business network, linking together buyers and suppliers from more than 3 million companies in 190 countries.
Upgrading RFID and Automated Track and Trace Solutions
During the COVID-19 pandemic, global supply chains faced the challenge of rapidly adjusting their business priorities to new customer preferences. Local supplier backlogs, winter storms, and the Suez Canal backup in March underscored the need for efficiency and visibility across the supply chain.
According to Christof Backhaus, Digital Lead Product Supply and Smart Label Project Lead at Bayer, companies must now place critical importance on tracking and tracing their products. “All large enterprises in the world dealing with finished goods,” he said, “seek functional and technical solutions to real-time channel inventory.”
Indeed, RFID’s real-time tracking data allows executives to make quick, well-informed decisions in moments of supply chain crisis - and rather than unfolding across days or weeks, it only takes a matter of minutes.
Why does RFID remain relevant despite digital disruption?
Essentially, RFID uses radio frequency waves to transfer data wirelessly between a scanner and a tag. In contrast to barcode technology, which requires a stationary scanner, RFID tags can be pinged from anywhere in the world, allowing companies to track real-time movement through the supply chain. RFID tags can also scan unique SKU numbers and distinguish between varying product sizes, colours, and styles: a critical feature for increasingly personalised end-user products.
Though the first patent for RFID tags appeared in 1973, higher accuracy rates, lower costs, and advances in sensor and data technology have made it newly accessible to a wide range of companies. Today, the technology is used in logistics networks, manufacturing and delivery networks in the pharmaceutical industry, and any business where efficiently tracking and monitoring product location is critical: raw materials, consumer products, cars, electronics, retail, and agriculture.
What are the key benefits?
Overall, automated track and trace solutions keep labour costs low, optimise operating costs, mitigate security risks, use capital effectively, and assist companies in adhering to regulatory requirements.
Below are three in-depth dives into how RFID benefits major industries:
- Pharmaceuticals: RFID tags help manufacturers safeguard sensitive products such as vaccines, tracking where they are and when they will arrive in real-time. Sensors closely monitor temperatures to ensure regulatory compliance. If anyone tampers with a shipment, the sensors alert the company.
- Logistics: RFID identifies process gaps and frequent anomalies by monitoring a product’s lifecycle from shipment to delivery. This data helps decision-makers predict the most efficient routes and therefore optimise their distribution schedules.
- Retail: Sensors help guard shipments against theft and provide critical intelligence when shipments go missing. Before adopting RFID technology in 2203, UK retailer Marks and Spencer relied on barcodes to scan inventory. When they made the switch, their productivity increased from a maximum of 400-600 items scanned per hour to up to 15,000 items scanned per hour. Building on their initial success, the retailer expanded the use of the technology and is still using it today.
Regardless of the industry, RFID promotes accuracy, immediacy, and efficiency. Companies reduce human error by automatically scanning products, keep track of inventory even in geographic locations with poor connectivity, and help streamline warehouse operations by identifying exact product locations.
Which recent innovations have changed the game?
With recent developments in cloud technology and IoT, a multitude of cloud-based alternatives have emerged to challenge traditional RFID technology. One of these cutting-edge solutions is Sony’s Smart Label - an intelligent shipping label that runs on AT&T’s global cellular network.
As with any good innovation, Sony’s proprietary technology started with a customer need ready to be solved: the Bayer Crop Science Division lacked an international IoT solution that could track seed products from start to finish throughout its distribution channel. Millions of dollars of revenue stood at stake, so Bayer turned to Sony to develop a smart label that would set the organisation up to manage its supply chain with end-to-end visibility.
Sony’s printable and disposable adhesive label allows companies to track the condition and location of their products worldwide and act upon the vast amounts of data it collects. The process is simple: the label activates when attached to the package, connects to AT&T’s secure LTE-M network, and sends data to the Smart Label Cloud in real time.
In sharp contrast to other smart label solutions that place trust in a patchwork combination of Wi-Fi, radio-frequency identification, and other limited coverage connections, the Sony Smart Label connects solely through a secure and universally-available cellular network. “Working with Sony,” says Robert Boyanovsky, the vice president of Mobility, IoT and 5G at AT&T, “we provide full visibility of every item shipped.”
Most importantly for companies on the edge, the Smart Label integrates with existing enterprise systems to achieve full visibility, thus adding value without disrupting supply chain process flow.
Why is this important now?
Companies that previously delayed introducing RFID and other automated track-and-trace technologies can capitalise on recent developments that lower costs, improve accuracy, and supercharge traceability.
Clearly the technology has value in today’s uncertain global marketplace, and can help decrease the costs of tracking goods. To quote Christof Backhaus, the Project Lead at Bayer, “the Smart Label indicates how much product is in the market, from the packaging line to the end customer.” Companies no longer have to spend a small fortune to take advantage of recent IoT developments. “Due to the technical composition [of the label],” Backhaus explains, “we don’t require additional infrastructure, manual scanning, or other expensive tools.”
Over the decades since RFID was first introduced, support for introducing it to company supply chains has also improved. AT&T’s IoT Professional Services Organisation, for example, supports companies through the end-to-end design and integration process--from installation to deployment and project management.
Companies that invest in traceable and visible supply chain solutions stand the best chance of survival, adjusting in real-time to natural disasters, shipping backups, and slowed-down supplier turnarounds as a result of the global pandemic. “Smart Label promises to help businesses like Bayer realise the full potential of the IoT,” says AT&T’s Boyanovsky. “[We can] deliver improvements in revenue and cost savings and make supply chains more efficient.”
Certainly, company executives will be hard-pressed to ignore recent innovations. In an age of uncertainty, RFID and its challengers herald a welcome sense of supply chain security. The next step? “Our sales team,” Boyanovsky adds, “is prepared to engage with prospective customers now.”