Digital Transformation of Procurement…..& Beyond
In the present day, there is an overkill of the ‘Digital’ buzzword. While the term and its offshoots with myriad addendums are oft times loosely used on occasions, one area where stakeholders confuse a lot is in demarcating between Digitization, Digitalization, and Digital Transformation. Lets quickly define the same:
Digitization – Conversion from analog to digital
Digitalization – Use digitization to convert/improve a set of process(es)
Digital Transformation – Use digitalization of various processes in a firm to achieve a holistic transformation, across own business model (people capabilities, processes, operating models), customers, suppliers, and extending to creation of new markets
Let us speak of the same drawing examples from the world of Procurement. Scanning of invoices and contract documents are examples of digitization, using an eProcurement tool to enforce contract norms like price points, material specifications is digitalization of Contracting process, while digital transformation of Procurement would involve a comprehensive relook at CPO organization, considering SRM, contracting, new vs incumbent supplier comparison, savings tracking, and so on.
A few examples of Digital Transformation of Procurement from some first-hand experience would be as below -
An US leader in consumer products producing paper-based categories for the most part, could develop Spend Data Scorecard achieving over 96% accuracy every quarter, gain category and inter-company cost containment insights, build advanced automated extraction process – thereby revamping its spend management process full on.
A Telecom behemoth having 1/3 rd of the world’s wireless calls travelling via its networks, could effectively bring in Spend Forecast aggregation process to ensure demand aggregation at component level, drastically improve sourcing cycle time – thereby improving spend forecast procedure and supplier normalization.
All of the same were aided by Digital tools and levers. Moving beyond Internet of Things, an Internet of Everything, along side drones, delivery robots, 3D printing are enabling supply chains to become –
‘zero length supply chain’
‘batch size of one’
…and Procurement has an integral role in the same.
Digital Transformation is not only for Direct categories, but Indirect procurement too. Facility management is one such area where multitude of sensors installed to manage all aspects of buildings, including access control, energy management, maintenance, lead to FM managers understanding the facility supplier group better, including potential opportunities for cost savings.
Digital Transformation is oft times about creativity, than reengineering. Traditional procurement organizations many a time are reluctant to obliterate existing and established processes to think Digital-first. No wonder, a Gartner study on 2020 Procurement action plan found only 31% business partners interviewed on what they prefer during any sourcing decision, to mention the value it delivers to business, while a whopping 69% prefer an easy-to-execute process as the chief driver. Harnessing the power of data to draw more context and open new perspectives in the sourcing process can enormously help in such circumstance. Leveraging Cognitive Procurement is one such example – one specific use case being Guided Buying, where the entire Procurement strategy is virtually tackled, with focus on supplier preference, preferred categories/sub-categories, error-free contracting, tracking of real-time availability of products and purchasing history, etc.
Another aspect of paramount importance in Procurement, integral to a Digital Transformation, is laying requisite importance to CX. Procurement organizations traditionally lag behind other ‘customer facing’ facets of organizations on this front, at their own peril. Ignoring CX in Procurement would be tantamount to ignoring the role procurement plays in bridging the inside and outside of an organization, the importance SRM and supplier fraternity bring to the table, and an imperative to deliver personalized experiences (like we all know of Supplier segmentation in procurement, whereas Stakeholder segmentation panning suppliers and target customers for each category sourced, is not that common.)
A few discrete ways Digital Transformation can aid Procurement are on below parameters:
Value Proposition – From traditional notion of cost rationalization to leveraging knowledge of spend, suppliers, categories
Sourcing Discipline – Free up category managers’ time to let them focus on strategic buys, and letting the more Transactional buys get automated
Process Ease – Tools using digital levers to ease execution of sourcing events by personnel
Sourcing Speed – A Gartner study on 2018-19 Procurement trends found that 63% of the time, procurement skips or short-cycles steps to make the overall sourcing procedure look faster. This has inherently risky fallouts. Buys can be expedited by making buy timelines more predictable, and tracking the process cycle right from supplier nodes through retail, minimize redundant work towards unnecessary documentations and process checks.
Digital Transformation of Procurement can reap substantial operational benefits. It can then be taken a notch higher, to make the process anti-fragile, leveraging digital means. The prime purpose of having an anti-fragile procurement, and broadly supply chain, is to gain strength/improve operational performance during downturns. In an ever-riskier world, mired in disruptive trends like Glocalization and geo-political uncertainties, this assumes paramount importance to businesses.
