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    Trends and Advantages of Digitalization in Manufacturing Procurement

    Innovation

    JAGGAER InsideSpend Thought leadership Series – In this blog series, we profile leaders in the procurement industry. We hope their insights and experiences inspire you to achieve greatness in procurement. A conversation with Georg Rösch – Vice President, Direct Procurement Product Management at JAGGAER.

     


     

     

    Trends and Advantages of Digitalization in Manufacturing Procurement

    We recently chatted with Georg Rösch – Vice President, Direct Procurement Product Management at JAGGAER about the impact digitalization is having on eProcurement projects in large manufacturing companies.

    Georg talks about the steps companies should take to successfully digitize their organization. He also provides insights into current trends in manufacturing procurement, including areas of greatest investment by leading companies.

    State of Digitalization in Manufacturing Today

     Q:  What is the state of digitalization today?

    That’s a very interesting question, and until recently, we could only guess. In 2017 we conducted a study to determine where companies stood today, and their expectations for the near future and long-term. The most shocking thing we learned about how those companies work today was that almost a quarter still work with fax and paper.

    While 37% of the companies have digitized their standard processes, such as sending purchase orders electronically, very few companies are implementing new technologies. So the impact of digitalization has not really taken effect yet.

    Q: Have you repeated this survey in 2018?

    Yes, we changed the survey a little and distributed via social media, mailing lists and other outlets and received 250 responses. One thing we wanted to know was the biggest priority these companies have regarding suppliers: savings, innovation, growth or risk management. The biggest finding was that companies are less focused on price as a cost savings measure. Increasingly, they are utilizing their SRM to help manage all aspects of their relationship with their suppliers. The result has been greater overall savings than could have been realized from seeking the lowest price solely.

    The Successful Road to Digitalization

    Q: What is the most common mistake when on the road to digitalization?

    Failure to begin at the very beginning — they will often simply electrify what they already have rather than re-evaluating processes. The intent is not to replicate what already exists, but to create better systems for running your organization.

    Q: What are the steps to doing this correctly?

    It is a step-by-step approach. First, you must normalize your data. Clean data is difficult to ensure and many companies struggle with this problem. However, it is absolutely vital that your primary data be clean, allowing content to be used in a meaningful way to generate accurate outcomes. If this is not done, you will not know the span of your suppliers — parent company, subsidiaries, suppliers — that are connected.

    The second thing that you need to do is digitize both information and processes. All of your information should be made digital and be easily searched. How we function as an organization should also be digitized, this allows for the continued accumulation of new data and easy access to what already exists.

    Q: What is the best way to get started in this process?

    I would suggest beginning with something you are already using — perhaps a software program already in place, such as supplier management. These can be quick wins, as they often have processes in place, but can perhaps be better implemented and utilized.

    Q: So, after the quick wins, then what?

    The second step would be to tackle other processes such as audit management, quality management, and in the case of a manufacturing company, tool management.

    The focus should be on any area — upstream or downstream — where you can find value. An example is in having purchase orders delivered to suppliers using web electronic data interchange (EDI) or classic EDI capabilities. So many companies are still using valuable labor and time on keying in these items manually.

    Q: What are some of the challenges in this process?

    A difficulty now is in finding data scientists and analysts. These are incredibly valuable members of an organization. Data is only growing. It is more important than ever to have people who are able to really understand the information — to tell you what it means.

    Benefits of utilizing data

    Q: How does predictive analytics factor into this process?

    Predictive analytics can be tremendously beneficial. For example, if you were evaluating quotes from two different suppliers, the system can tell you which supplier will likely be on time or which will have better quality.

    Historically, procurement has been focused only on price. By collecting and sharing this data, we can see what the “cheapest” choice actually costs.

    Q: So it can help in determining how to optimize the base price to quality?

    Our goal is to define the Total Value of Ownership (TVO). This is similar to TCO, Total Cost of Ownership, which includes your purchase price with anticipated costs. TVO will go a step further and help us to define its real value.

    For example, say we have two suppliers and the quality is the same. Using supplier “A” requires me to manually issue, confirm and enter the PO — this supplier has higher costs attached to it. If the second supplier completes everything electronic, this frees up time and costs.

    Investing in the Future

    Q: What areas are being most heavily invested in right now?

    Right now, big data and predictive analytics are what most companies are investing in most heavily. By that, I mean they are investigating these areas or have intentions to implement in the near future. For the most part, there is no one size fits all approach. What works well for one company may be of no benefit to another. So it is somewhat unique to the company and its needs.

     


    Bio: Georg Rösch is the Vice President of Product Management and Solution Engineering at JAGGAER. He previously led the Development Department of POOL4TOOL AG for over a decade. Georg studied Media Informatics at the Technical University of Vienna.

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