The Three Pillars of Digital Procurement.
Procurement professionals have the same question looming over their head on a daily basis:
“How do you plan on dealing with digitalization?”
This past Tuesday I had the pleasure of attending EBG Network’s 8th Annual Source to Pay Summit, which gathered some of the Nordic’s largest organizations and procurement profiles.
The day was filled with a plethora of interesting keynotes, roundtable discussions, and one-on-ones. Regardless of the sheer amount of content one could chose to consume, the theme for the day was apparent and held strong: Digital Procurement.
Mingling with procurement professionals, sourcing experts, category gurus and purchasing managers under the day gave me an incredible insight into daily challenges and pain points regarding their digital procurement strategies. The range of digital integration these professionals had in their organizations was astonishing. Some were already considering applications for Blockchain technology within their P2P systems, while others didn’t have a central supplier database. Some had their eyes towards the future, thinking platform outlooks and APIs, while others said regulations kept them from even bringing in external technology providers.
After a lot of talking, but more importantly a lot of listening, an underlying focus emerged from these procurement pros, regardless of their level of digital ambitions:
Finding a starting point.
Every organization needs to take into account it’s own reality, regardless of where technology is/where it’s going. Assessing wants and needs — from digital procurement integration — internally is the first step to moving forward. These discussions are the basis for developing a hypothesis for application in an organization. And, a hypothesis is the basis for piloting and eventually adopting digital procurement as an element of an overall procurement strategy; proving a business case.
As one can see from the statistics below, taken from Deloitte’s 2018 CPO Survey, procurement leaders themselves don’t believe in the potential impact of their digital procurement strategies. So, how do you teach an old dog new tricks?
Well… let’s try and walk this one back, and decide, what tricks are necessary to learn?
Withstanding Scrutiny — A New Kind of Transparency
Advancements in technology have created a new age of business transparency, demanded by stakeholders and consumers at large.
As supply chain networks become more complex, and risks grow larger, the visibility of supply chain activities becomes all the more distant. Globalization has posed procurement teams with a double-edge sword. Source and purchase goods and services from anywhere — around the globe — and save time and money while doing so. But, as the physical distance grows between buyer and supplier, so does the gap in ability to ensure compliance and governance.
Looking at the levels of transparency, gauged by the 2018 CPO Survey, there isn’t much visibility beyond tier 1 suppliers despite the influx of digital solutions on the market.
The fact that the technology exists furthers the argument for concerned stakeholders demanding more transparency and traceability in the procurement function. A new risk reality is upon us — enhanced by the globalized infrastructure of supply chains — closely monitored by growing interests of the modern consumer.
Brands, and management teams, must remain resilient to the scrutiny they will continue to face in the age of expected digitalization. For this reason, the first pillar is a preemptive pillar.
Anticipating scrutiny will help you identify risk areas and understand where the applications of digital procurement could improve future resilience.
Without drawing a blanket over anyone’s organization, or generalizing needs, there is value in mentioning a technology area that holds incredible potential for aiding transparency:
I know… You’ve heard enough of this crap!
But, get ready to hear some more.
Blockchain’s ability to serve as a decentralized ledger holds potential for reliable verification, transaction and monitoring activities. All of which are very important within the S2P (Source-to-pay) journey. As we’ll dive into later, the quality and security of data will become a central focus in the digitalization of procurement activities.
The future and current utilizations that have been most discussed in today’s marketplace of Blockchain technology are:
· Trust and transparency with end customer. Tracking and relaying the data of environmental impact, cost-of-production, logistics for post production, laborers who produced the goods (techcrunch 2016).
· Monitoring supplier actions. Assuring that suppliers are living up to agreed upon circumstances in regards to the digital contracting in the Blockchain. Can streamline auditing, performance review and supplier selection.
· Warehouse management and logistics efficiency, avoiding over-stocking and streamlining waste reduction.
· Creating financial transparency between buyers and suppliers. Monitoring credit, streamlining payments, increasing transaction authenticity and reducing the time of contracting (fineextra.com 2017).
API Driven Innovation
API (Application Programming Interface): “is a software intermediary that allows two applications to talk to each other” (MuleSoft).
The ‘conversations’, APIs have together, impact the solutions you use in your private life on a daily basis. When you download a game, or post a picture to Instagram from your phone, APIs are working in harmony to allow those actions; seamlessly communicating the threshold between the software’s processing systems.
Look at the capabilities sales and marketing teams have within their CRM platforms, such as Salesforce or HubSpot. Salesforce has APIs, connecting their services with thousands of applications. This capability allows Salesforce to remain as the central solution provider, but build shared value for their customers and other solution vendors. Instead of building their own email-marketing tool to compete with the existing market giants, Salesforce allows the user to integrate with Zoho, Mailchimp, and more!
API driven innovation is a form of innovation through integrality and inclusion. Breaking down barriers and silos within your business intelligence is just as important as eliminating the silos of a physical team.
For procurement, centralizing the lifecycle of processes and gathering of data sets are two examples that come to mind when brainstorming the application of scalable API-integrated solutions. Running an ERP system, spend analysis solution and invoicing application from the outlook of one platform streamlines accessibility of data, and centralizes digital procurement operations.
Some of the barriers of API driven innovation remain within questions of cyber security and/or regulations of compliance that procurement orgs may have from their stakeholders. For example, traditional banking institutions cannot run their applications for procurement with an open-API mindset, because they have government regulations to abide by, concerning cyber security. This kind of internalization of software solutions could, too, prove to build intelligent platforms. But, one risks returning to the sluggish modus operandi of on-premise software systems when turning the blind eye to external software vendors.
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Turning Data into Intelligence
In an age of user-enabled digital procurement, data will become a central force within decision-making.
Ensuring that data sets become a means for intelligent decisions requires a focus on taking passive data, and making it active data. This is a hurdle every procurement team has had to, or will need to, jump over in their construction of the three pillars of digital procurement. Getting data out of un-scalable solutions, such as excel, should be a paramount focus.
Too often, I meet procurement professionals gathering supplier master data sets in their excel sheets, marking off ISO certifications, listing out spend, and storing the data away in the archives of their hardware. Getting out of this excel hell is scary for many procurement teams, and that reluctancy to change is the reason behind the problems faced today.
“The supply chain as a complex system cannot be effectively modeled in a spreadsheet.” — Lora Cecere, Founder, Supply Chain Insights.
But, ensuring your data is being stored, and utilized within scalable platforms is just half the battle…
Quality of data is the biggest hurdle procurement teams face today, in the adoption of digital procurement solutions.
If your master data is incomplete, or non-existent, it makes the functionality of many solutions rather redundant. One could argue that integrating digital procurement into your day-to-day procurement activities lies within the willingness to do the gruntwork- the mundane cleaning of master data. Without a quality database, the scalability of your procurement solutions is rather limited.
Cognitive procurement is the future of many application-aided procurement tasks, that are the reality of today. Artificially intelligent technologies (ML, RPA, NLP) will change the way procurement teams work with analytics, data and supplier information. But, without the initial interaction of human control over data quality, the machines won’t be recognizing reliable patterns.
Every procurement organization will have different ambitions within their digital procurement strategy. To say that the three pillars of digital procurement, listed above, are a standard for companies everywhere is rather naïve.
However, these are questions your organization will have to address — if you haven’t already — when laying a foundation for a more intelligent procurement strategy.
So, I’ll ask it one more time…
“How do you plan on dealing with digitalization?”
Until next week.
This publication is brought to you by author Sam Jenks, but also on part by Kodiak Rating — A Supplier Relationship Management SaaS functioning out of Stockholm, Sweden. Kodiak Community intends to challenge traditional business practices with innovative thinking and creation.