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.