Zooming in on Data Integration in Procurement
Procurement is central to the profitability of organizations in all industry sectors. Given the value that procurement delivers, you would think that the function is ripe for digital transformation. But the reality is rather different. Why is this?
Our 2019 Digital Procurement Survey, Digital Transformation in Procurement: How Close Are We? provides some answers. We already considered some of these in the first of this series of articles. In this installment, we focus specifically on data integration in procurement – and the lack of it.
In fact, lack of budget and lack of IT knowledge were the biggest reasons cited for the lack of progress towards digital transformation. Data integration was ranked third in this respect; however, progress with data integration is itself dependent on both budget and know-how: these three barriers to progress are closely interlinked.
Moreover, a mere 6% of respondents stated that “lack of data” was “not a challenge”. Or to put it another way, 94% think data integration is a challenge, more than any of the other possible answers.
Data Integration Is Still Largely Manual in Most Procurement Organizations
This impression is certainly borne out by the answers to another of our questions. In our 2017 survey we found that, while many organizations are generating and capturing data for specific procurement processes, integration of data between processes is weak. Our 2019 survey report shows that the level of integration has barely progressed over the past two years: 30% of organizations do not integrate data from upstream/downstream processes, 54% do so manually, and only 16% have automated the integration of data from end to end.
By manual integration, we mean a manual process to “pull” the information that is needed (i.e. manually extract information from one system and integrate it into another system). Automation means a solution that “pushes” the information where and when needed (data generated as output of one process and stored in a system becomes available in subsequent process steps, if needed, and in the system used to run that process).
The percentage of organizations that have fully integrated procurement, using smart technologies, remains stuck at 2%, exactly where it was in 2017. “Fully integrated procurement” means that across the full procurement spectrum (source to pay) automated processes integrate information that is “pushed” to and stored in a central location, and is subsequently available wherever it is needed elsewhere across the procurement spectrum, i.e. in subsequent process steps, and for subsequent analysis using technologies such as prescriptive or predictive analytics.
Data that is gathered in this way can also be used for automating not just processes but certain types of decisions. For example, JAGGAER has developed an artificial intelligence-based algorithm for predicting, with up to 95% accuracy, the probability of on-time delivery of goods and materials in direct procurement.
Digitization of Procurement Data Is Only the First Step
The report distinguishes between three terms that are often used interchangeably, though in reality they are three different things: digitization, digitalization and digital transformation.
Digitization is simply the conversion of analog information to digital (e.g. by scanning paper invoices). An eProcurement application digitalizes a process.
The vast majority of organizations, even if they talk about “source to pay” or “purchase to pay” as though these were seamless process steps, store data from each step in a separate repository. Consequently, data that would be very valuable in another process step remains siloed.
This disconnect is well known and can have dramatic impacts when, for example, strategy and execution are not connected and hence, not informing each other. It is only when the data created by these various processes is integrated, and advanced technologies are applied to exploit that data, that digital transformation can take place – and that is the true game-changer.
The Next Steps towards Digital Transformation
Our 2019 digital procurement survey clearly indicates that organizations that have not yet achieved digital transformation must tackle three key problems.
First, they must remove the data-related obstacles by integrating data across the spectrum from source-to-pay, because the digital transformation of procurement involves many processes working in tandem rather than sequentially, and analytics exploiting data from one area of the value chain to improve performance and efficiency in another.
The way to do this is to move all data onto a unified platform – precisely the approach that JAGGAER has adopted with the launch of JAGGAER ONE.
However, for that to happen, procurement must make a stronger case to the organization’s leadership to demonstrate the value it can deliver. Our survey indicates that senior executives are aware of the potential, but they are not giving it sufficient resources to be able to achieve the level of data integration that is required. This is backed up by this year’s Hackett CPO Agenda, which reported that “procurement expects its budget to grow at a much slower pace this year than in 2018 (1.3%, versus 2.7% last year)”.
Third, procurement must recruit talent with the skills that will be needed to take the next leap forward: professionals who understand data, IT and analytics. These skills must be brought in to complement traditional procurement expertise; our survey revealed a 50-50 split on digital awareness, a finding that was mirrored in the Deloitte Global CPO Survey 2018, which stated that “51% of procurement leaders do not believe that they have the capability in their teams to deliver their procurement strategy”.
What Has Changed in the Past Two Years?
In our survey report, we set out a roadmap for implementing a digital transformation strategy. It can and should be implemented in several stages, the first of which is to build a strong digital base and streamline processes where possible.
There is good news for companies that are yet to start on their journey to digital transformation – or have started, but feel somewhat daunted by the scale of the challenge.
- First, other companies have already blazed the trail, and by working with an experienced solutions vendor like JAGGAER, organizations can leverage the know-how that has been accumulated in virtually all industries.
- Second, cloud-based solutions have reduced the total cost of ownership and made pricing more transparent.
- Third, JAGGAER has built a partner ecosystem that provides the implementation skills needed to get up and running fast. That includes, most important of all, the skills needed to integrate data across the source to pay spectrum but also with all flavors of ERP system, publicly available data (e.g. via the internet) and external data feeds such as D&B, LexisNexis, Riskmethods, Ecovadis, RapidRatings, etc.
We can therefore conclude by underlining what we said two years ago: there is no shortage of data in procurement, but its usefulness increases exponentially when it is integrated to improve process efficiency and provide insights. What has changed from two years ago is that the JAGGAER ONE approach has greatly simplified the task of achieving that integration.