What’s Next for Digital Procurement?
Posted by Georg Roesch, VP Direct Procurement Product Management in Autonomous Procurement on October 8, 2019
Our survey of the global procurement community and the subsequent report, Digital Transformation in Procurement: How Close Are We? revealed heightened awareness of digital technologies and their potential to transform the procurement function, but little progress over the past two years. It identified a couple of key challenges. We dealt with one of them in the previous article in this series: the need to integrate data across the full spectrum from source-to-pay. As we noted in the report, the digital transformation of procurement involves many processes working in tandem rather than sequentially; data integration would also allow analytics applications to exploit data from one area of the value chain to improve performance and efficiency in another.
The way to do this is to move all of the data onto a unified platform. This is precisely the approach that JAGGAER has adopted with the launch of JAGGAER ONE.
For this to happen, procurement professionals must make a stronger case to the organization’s leadership to demonstrate the value it can deliver. With budgets not growing at an adequate pace, or even shrinking, procurement cannot deliver the value that digital transformation promises.
Procurement will also need to recruit talent with the skills that will be needed to take the next leap forward: professionals who understand data, IT and analytics. This does not necessarily mean “hands-on” knowledge of software development, as the software applications are now available in secure multi-tenant cloud-based solutions. But just as, for example, the marketing function has evolved with the recruitment of quantitative analysts with PhDs in mathematics and statistics, so must procurement.
These skills emphatically do not replace traditional procurement expertise. Rather, they complement it and enable procurement to move up to the next level. So, what else has to happen?
At JAGGAER, we believe more in evolution than in revolution. Organizations have to be pragmatic and build on their existing digital components.
Building a Successful Digitalization Roadmap
1) Get started: Build a strong digital base.
Use procurement technology to streamline and improve core processes. Our survey shows that most procurement teams are there already with many applications: SRM, eSourcing, and eProcurement are in place.
They should also extend this digitalization to supply chain management (supplier portal, webEDI, etc.) You will also need to create a business case based on your vision and the potential improvements – and above all, get your senior stakeholders on board! This is not simply about cost savings here and there (the traditional C-suite view of what procurement does) but driving value and making your organization more agile in an uncertain and rapidly changing world.
2) Establish the basics.
Eliminate manual processes as much as possible or maximize the utilization of the processes that you have already digit(al)ized. Be sure to increase your analytics capabilities! Connect the dots between processes, your teams, and the suppliers to ensure that data flows smoothly. Our survey shows that this is where most organizations want to invest in the near future.
3) Optimize: Leverage new and emerging technologies.
They contribute to further digitalizing processes and to increasing the amount of data available. Depending on your industry sector, these technologies are probably already transforming other aspects of your business: they include the Internet of things, blockchain, robotic process automation. Get additional data from new sources where you need them, e.g. about supply chain or financial risks. Define standard actions based on changed KPIs and turn them into triggers for a process change. Visualize and communicate your category strategies and improvement measures and involve your suppliers in your innovation processes.
4) The “Day of Digitalization”
Now it is time to really ramp up your analytical capabilities! Develop new cognitive analyses to enable efficient data monitoring. This will allow you to gain new and better insights by leveraging smart technology (e.g. machine learning, AI, chatbots, assistants). An example would be using a digital assistant for proactive user support-based on algorithms. Also, you can now start implementing predictive and prescriptive analytics. Predictive analytics tells you what is likely to happen based on what has happened in the past and current data streams. Prescriptive analytics provides you with insights into what course of action to take in current circumstances and/or in various “what-if?” scenarios. This will play a vital role in making organizations more agile and reducing supplier risk.
A common platform is of key importance
It is very difficult to make progress in digitalization and digital transformation unless all processes and data are on a common platform. This provides the foundation for visibility over all data, which is consistent for the execution of all processes, and for end-to-end process continuity, compliance and auditability. It also enables comprehensive supplier lifecycle management, with full visibility over the historical relationship and spend, current performance (purchasing process, contractual compliance, service level performance, quality, invoicing accuracy etc.)
Earlier this year, JAGGAER introduced its own end-to-end platform, JAGGAER ONE: All processes, all data. One platform. This is a technological development that will enable many organizations to make positive strides towards fully digital procurement over the coming years.
What does this mean for procurement practitioners?
All of our research and experience point in the same direction: it will make procurement more strategic. Machine intelligence and digital assistants will be introduced at the operational and tactical end of the spectrum. The sheer volume of tactical decisions made by procurement professionals, which are often very time-consuming, means that the return on investment in digitalizing these decision processes will be high.
JAGGAER has already succeeded in developing artificial intelligence-based tools that eliminate analogue decision-making. For example, an application trialed with a leading German manufacturer is making decisions on whether suppliers will deliver components on time. It has shown an average 95% accuracy, far higher than can normally be achieved by humans alone.
Tomorrow’s buyers will also be supported by more intuitive purchasing experiences, regardless of underlying technology systems already in place, such as voice-activated purchasing experiences for goods and services, supported by natural language search and virtual assistants.
If technology can take control of such tactical decisions, procurement professionals will be able to take charge of more interesting challenges. This is already starting to happen today. For example, especially in the public sector, procurement practitioners are being challenged to make more sophisticated decisions not simply based on price and the technical content of supplier bids, but also the quantifiable and intangible social value benefits of each contract, such as economic and environmental sustainability. Procurement will also have a huge role to play in analyzing supplier portfolios and new technologies to support “build versus buy” decisions.
The bottom line: the procurement function is likely to be smaller in the future, but with the help of digital technology, it will become more securely embedded within the organization’s value stream and will have a far greater influence over its high-level business strategy, growth agenda and competitive advantage.
The application of disruptive technologies to procurement also implies a transformation of the procurement leader’s role from managing costs (although this will still play a part) to enabling innovation, agility, competitiveness and risk reduction. It is time to embrace this digital future and establish your own roadmap for digital transformation!