Digitalization in Procurement: Your Questions Answered
Last week JAGGAER hosted a webinar reviewing the findings of our recently released 2019 Digital Procurement Survey Report. We reviewed the key takeaways and provided recommendations for how procurement professionals can begin to take advantage of next-generation technologies. Our engaged audience left us with more questions than we could get to in our allotted time, so in the spirit of continued learning we’ve answered some of the biggest concerns below.
Watch the on-demand webinar
Q: New technologies are not as affordable and many companies are using old tools. What could be done to ensure that companies are moving toward new technologies?
A: Cost is a huge factor in determining what technologies and tools your company uses. In fact, our report found that insufficient budget was the single biggest obstacle to moving forward with digital transformation. 35% of respondents said it was their main challenge in modernizing their procurement process. We also found that a company’s annual revenue was strongly correlated with how far along they were in the digitization process, suggesting that larger companies digitize more quickly because they have the funds to do so.
To ensure that you don’t miss out on the opportunities that emerging technologies have to offer, the first step is to do your due diligence. Even if you aren’t ready (or able) to invest just yet, it’s important to be aware of the technologies that are available, and to gain a realistic understanding of their potential for procurement.
While the hype surrounding digital transformation tends to focus on new technologies like AI, RPA, and blockchain, most companies still lack the basic digital infrastructure and data integration to implement them successfully. If you do think that investing in these technologies will be worthwhile in the future, start laying the groundwork now. Sophisticated SaaS procurement solutions like the JAGGAER ONE Spend Management Platform allow you to consolidate all your procurement processes, data, and analytics on a single, unified platform. Keeping up with the latest innovations means you will be better positioned to take the next step when the time comes.
Second, it’s important to look at whether your current system is really more affordable in practice. IT upkeep, downtimes and people power spent on manual tasks and data organization quickly add up, and in many cases aren’t actually saving your organization money. There are several ROI calculators available online to help you measure whether you would save money by moving to newer systems. Armed with this information, you will be better prepared to go up the ladder to executives to request the necessary up-front cash for implementation.
Q: How do we differentiate between digitalization, digital transformation, and automation? Innovation does not always mean just automation, so how do we define innovating in the right direction?
A: Defining the difference between digitization, digitalization, and digital transformation in procurement is key. In short, digitization is simply moving data, paperwork, or processes from physical media and putting them on a computer. Instead of faxes and memos you use email, cloud storage, and online forms. Digitalization is when you actually start to make those digital files work for you. By using technology to start automating standard, repetitive processes (think eInvoicing, for example), you begin to increase efficiency. Digital transformation comes when you begin to leverage technology to inform your business models. This is where you truly see operational effectiveness (more value delivered), agility, and systemic change.
Digital transformation in procurement is not just automation. Many automation tools are still only speeding up current processes, but not fundamentally changing the way procurement is done. True innovation means using technologies to move your processes forward and generate value. In some cases, (RPA and predictive analytics, for example), this means automation. However, with technologies like blockchain and internet of things, it means having more data to leverage in a more secure way. Automation should not be seen as synonymous with innovation. Innovating in the right direction means using whatever tools you have at your disposal to drive your processes forward, focusing them on next-generation steps that carry you into the future.
Q: With digitalization, we can put ourselves at risk of information leakage, and often don’t consider data integrity risk when we examine risk management. How can we shore up the reliability and integrity of our data enough to trust them?
A: Data integrity risk is an enormous concern for any company going through the digitalization process. First of all, it’s essential to be able to trust the data that you have. Siloed data is digitalization’s worst enemy, but a unified data source on a single platform helps ensure data quality and a single source of truth. The vast majority of our survey respondents do not yet have their data integrated, and among those that do the majority are using manual processes. These manual data processes open up the opportunity for leakage, data corruption, and information discrepancies. Unified solution platforms offer the best way to streamline information and are the best starting point for serious data analysis.
Second, protecting your data and keeping it secure is vital to keeping your supply chain and supplier network safe from harm. A major step is seeking out a data platform that meets security standards and certifications, such as the ISO 27000 information security standard. This ensures that your data is protected by up-to-date security practices. Additionally, establishing workflows that take advantage of secure platforms for communication and storage will cut down on the risk to your data. Communicating with suppliers by email or fax can leave data unencrypted and vulnerable to attack, but using dedicated supplier portals prevents third parties from intercepting communications and stealing data. By using workflows only on secure platforms, you significantly cut down the risk for data leakage or data corruption.
Q: Could you address artificial intelligence and machine learning, particularly as they apply to supply chain and forecast analysis? Are there concrete deployments of such solutions in procurement?
A: AI and machine learning are the backbone of many next-generation solutions. The opportunities for AI in procurement are many, including unlocking new insights and enabling more natural forms of expression for human interactions. AI and machine learning fuel forecast analytics by examining existing contracts, quality issues, order frequency, disruptions, purchase orders, and more, and then using those to make predictions about potential opportunities or problems in the supply chain.
One of the primary implementation areas for AI thus far has been in contract analysis. In a recent experiment from Goldman Sachs, Cisco, and others, AI proved to match top-performing contracts attorneys for accuracy in reviewing documents. On average, the machine learning program was more accurate in detecting risks in the contracts than the lawyers. This is one field where we’ve seen clients begin to leverage AI in their procurement workflows, but as the technology becomes more widely accessible and data integration and reliability become more common, we will see AI rapidly expand to supply chain prediction, risk assessment, and more. For example, JAGGAER recently launched a prototype of the world’s first AI-based algorithm to predict on-time delivery. Tools like the on-time delivery predictor have particular value for manufacturing companies who depend on the arrival of parts and materials in order to hit deadlines. Innovations like OTD will prove more and more common in the coming years.