Redirecting the digital transformation toward users has significant implications for how changes are designed, implemented, and renewed over time. ): Technology Optimization and Change Management for Successful Digital Supply Chains, IGI Global, Hershey, PA, pp. Some CPOs have begun supporting business innovation and helping implement the companys broader digital goals. 12, No. Frictionless collaboration accelerates cycle times by improving internal coordination and supplier performance. Batran, A., Erben, A., Schulz, R. and Sperl, F. (2017): Procurement 4.0, Campus, Frankfurt/New York. The mining companys road map therefore attended not only to digitizations technical architecture and data management, but also to creating a culture that came to embrace digitization. Building this structure involves many tradeoffs. Thats a missed opportunity in cost savings and competitiveness. A digitally savvy procurement team can enable companies to partner faster with innovative suppliers, embrace new ways of working and lead change. These are just a few of the benefits digital procurement brings to the table through a blend of big data and next-gen tech. The business unit leader explained that he hadnt purchased as much as planned. Improved collaboration across functions and better decision-making through advanced analytics will create further savings. 3, pp. Procurement Transformation in Digital World That led the company to raise its digitization target dramatically. The platform became the single source of truth for all procurement data and included quick access to all business units and functions. PROCUREMENT In fact, many elements of a digital procurement strategy are important input to a firms digital roadmap. (2018): Agile Procurement Volume II: Designing and Implementing a Digital Transformation, Palgrave Macmillan, Cham. (2010): What is the value of an IT eprocurement system?, Journal of Purchasing and Supply Management, Vol. Executives assumed that the most important problem they needed to address was unusually high turnaround times at specific process steps. Companies should be highly selective and customize these tools or await market developments that boost their satisfaction and importance. Winning brands will rebuild their supply chains for three hugely disruptive technologies. The answers to these questions provide critical context to identify the right digital procurement strategy. A 2018 report by research firm The Hackett Group indicates that world-class procurement organizations can achieve savings of 70% or more per order through their embrace of next-gen tech. The solution? Coleman Radell is a partner in Bain & Companys Performance Improvement practice in the firms Los Angeles office. Bruel, O. et al. Digital Transformation in Procurement | Planergy Software Digitizing procurement wont do a company much good if its people dont think it helps them get their work done. For companies with a spending base of $1 billion to $3 billion, that implies $12 million in annual procurement headcount savings. Clear roles, decision rights, governance and agile ways of working help procurement teams enter into strategic conversations with business unit heads and develop new supplier partnership models. (ed. The building blocks are richer data sets, optimization engines, and tools to control demand and enforce compliance. Abstract. The authors wish to thank Mauro Erriquez for his contributions to this paper. As a result of the evergrowing availability of new technologies and decreasing cost of computing power, there are constant fresh starting points for creating Leadership teams expect procurement teams to master these technologies and provide better service without increasing the cost of procurement. (2016): The second machine age: work, progress, and prosperity in a time of brilliant technologies, W.W. Norton & Company, New York. (PDF) Procurement Transformation in Digital World Its an on-demand world; one-click orders, same-day delivery, social media-based customer support, and instant access to, well, everything make maximum convenience and minimal hassle the name of the game. That allows companies a more agile approach deploying best-of-breed tools. Presutti, W. D. Jr. (2003): Supply Management and eprocurement: Creating value added in the supply chain, Industrial Marketing Management, Vol. This field is for validation purposes and should be left unchanged. For example, digitized services may require competitors to share physical assets such as warehouse space. Where the best opportunities for savings are in indirect spend. As procurement takes on this new role, business units will start coming to them with different questions. Mose, J. M., Nijhia, J. M. and Magutu, P. O. The CPO knew two suppliers, one of which was breaking ground on an innovative production process for rapid prototyping and another using advanced analytics to accelerate design. Better to err on the side of creating more capabilities than less: once the organization sees what digital can do, demand for digital support may quickly outstrip supply. Leading companies are adding new talent to support a digital operating model. (ed. WebMany organizations struggle with managing their suppliers. (2018): Purchasing & Supply Chain Management: Analysis, Planning and Practice, 7th ed., Thomson Learning, Andover. As these measures took hold, interest began building from other parts of the organization, turning procurement into a springboard for a much broader digitization plan. Srai, J. S. and Lorentz, H. (2019): Developing design principles for the digitalisation of purchasing and supply management, Journal of Purchasing and Supply Management, Vol. How effectively the company can implement these types of digital solutions will depend on its architecture assessment, which comprises three major dimensions: integration architecture, data architecture and analytics, and infrastructure. The third cluster of tools includes those ranked high in importance but lower in satisfaction, largely because they are less mature or highly complex. Digitization and greening have become the characteristics of social and economic development. How strategic sourcing, cost management, and cost avoidance strategies can be applied to indirect spend. It all begins from seeing procurement as something worth a digital investment. Relying mainly on outside hires may prove expensive and difficult to sustain, especially over time as digital becomes more central to the organization. An honest assessment of how able different teams are to use digital solutions will help you focus on solutions that wont hit a roadblock. A mining company found that the people most involved in its end-to-end S2P process were actually requesters and suppliers rather than the category managers it expected to see. Another option is a contract incorporating a series of consecutive development goals with shorter defined sprints, a proof of concept or continuous releases. Agile operating model. Provided by the Springer Nature SharedIt content-sharing initiative, Over 10 million scientific documents at your fingertips. Digital procurement boosts efficiency and shifts the role of Chief Procurement Officers (CPOs) and other procurement professionals away from cutting costs and toward more advanced capabilities focused on creating lasting value for the company. Procurement executives are finding that its more effective to teach data scientists how to deploy that expertise into the procurement world than to teach data science and analytics to procurement professionals. SnchezRodrguez, C., MartnezLorente, A. R. and Hemsworth, D. (2020): Eprocurement in small and medium sized enterprises; facilitators, obstacles and effect on performance, Benchmarking: An International Journal, Vol. 3D printing could reduce the space for parts storage and save on both cost and CO2 emissions. First, the emerging theorization on digital supply chain is introduced and focuses on innovative technologies (big data, cloud computing, internet of things, etc. The effort was part of a broader IBM initiative to automate every procurement process possible. WebDigital Transformation Procurement Technology & Software. The focus was placed on the current state of digitization as well as on challenges and possible methods for simplified implementation. Instead of trying to coordinate all of the anticipated changes into a single, integrated projectwhere errors or miscommunication can mean months of reworkcompanies can learn to make constant, small improvements in quick sprints of activity. 972987. (accessed: 1 December 2020). This design-thinking approach enables the company to sketch out digital alternatives that address real problems (Exhibit 3). Five years from now, CPOs may feel amazed about the increasingly strategic nature of their rolemuch as in our opening scenario. Webarea of corporate procurement as one of the key areas for fulfilling corporate goals and its transformation in the age of digitalization. 423440. In our experience, leaders put a few basic elements in place to get the most from new solutions: Clean, high-quality data. Stay ahead in a rapidly changing world. Unlike cloud-based technologies, traditional Microsoft Office tools dont allow real-time collaboration. Advanced category strategies help procurement teams reduce costs by buying better and spending better. Enterprises on the platform can leverage the diverse ecosystem of users to achieve new efficiencies. Consider on-demand warehousing from providers such as Flexe. An Engine 2 business can create options for growth, and seven neobanks owned by traditional banks show what it takes to succeed. In digital, where the technology landscape is constantly changing, the threat is far greater because lost time leaves a company farther and farther behind its competitors. This disciplined model requires commitment but is far more likely to yield value over both the short and long term. In designing an application, for example, a sprint seeks only to develop a clickable sketch of a proof-of-concept prototype rather than a complete end product. Research conducted by Procurement Leaders shows that a fully automated procurement function could save the Global 5000 up to $86 billion annually. 1, pp. The tools that scored high on customer satisfaction, for example, include supplier quality management, e-invoicing, transport optimization and collaborative data platform (see Figures 3a and 3b). This is a preview of subscription content, access via your institution. But for procurement departments of all sizes, embracing and implementing digital procurement technology comes at a price some arent yet willing, or able, to pay. The digital transformation is rapidly changing how every procurement process, from contract management to procure-to-pay (p2P) to risk management, is handled. Hochschule fr Angewandte Wissenschaften, Hamburg, Deutschland, You can also search for this author in 7, No. Procurement would orchestrate an agile team to test the process and, if successful, make the case for investing in the new technique. Bain & Company research has identified 22 digital procurement solutions, highlighting an increasingly complex environment. Of course, procurement teams should make sure that the companys existing data system works well with new solutions. The manual tasks have been replaced with efficient procurement systems. The problem was that all three parties lacked access to all the relevant data. For procurement organizations, the digital revolution is focused on developing eProcurement solutions that move beyond simple cost reduction and create new opportunities for more effective procurement processes, from supply chain management to big data analytics. 839866. This transformation touches every industry, in both the demand and supply markets. If done well, this mapping of problems and solutions should create excitement across user groups, enabling everyone to envision procurements digitized future and its impact on their daily work. A major basic-materials company, for example, started seeing results in just three months as it began rolling out early tests for its revamped procurement processes. The companys procurement team is leading the project in the consortium including all the companys major suppliers. Deloitte US | Audit, Consulting, Advisory, and Tax Services Take the example of a global industrial company that was struggling to achieve its procurement cost-savings targets because key managers disagreed about the data. Those that spend $3 billion or more would save an average $27 million on headcount.1. Cycle times fell by up to 80 percent, while for the first time both suppliers and internal requesters could see exactly what was happening at any given moment with their purchase orders and invoices. As organizations transform their direct procurementprocesses to a digital platform, careful andcomprehensive consideration must be made acrossthe organizations people, processes, policies, dataand technologies to ensure program success. Further, there are mostly theoretical approaches, which are relatively unexplored in practice. Digital procurement transformation is like a marathon in which many companies drop out of the race early on, failing to get beyond an initial set of pilots. Digital procurement: Driving a revolution in improved Digital supply chain: challenges and future directions But as external and internal stakeholders recognize that advantage, the practice is likely to become common practice, transforming the role of procurement. Webdefine a customized digital transformation journey for procurement. 219226. 1 Procurement Leaders data Three criteria can help procurement executives determine which use cases will deliver the biggest impact for their companyand what they need to do to ensure a successful implementation. Bauer, F. and Gbl, M. (2019): The influence of digitalisation on procurement efficiency, Journal of Applied Leadership and Management, Vol. But real enthusiasm for digitization is even more valuable, and takes more effort. And because procurement processes are so closely interconnected, transformation leaders must think carefully about which processes to digitize and when, as well as what attendant changes in the IT architecture must be made and when. For procurement organizations, the digital revolution is focused on developing eProcurement solutions that move beyond simple cost reduction and create new opportunities for more effective procurement processes, from supply chain management to big data analytics. This transformation touches every industry, in both the demand and supply markets. What are the companys digital goals and strategy? Procurement executives are standing at a crossroads today. This new era is defined by transformation and disruption. A failed deployment can dissuade leadership teams from further investments. 5065. Procurement digitization seems to be on every CPOs agenda nowadays. The tool allowed engineers to select parts with prenegotiated rates, lead times and volume availability. Digitization can be hobbled even before it begins by ambitions that are set too low. In a situation such as the mining companys, the road map might prioritize an initiative for implementing a basic collaborative-messaging tool so that multiple approvers could quickly consult one another in deciding on a purchase. Others finish implementing new tools only to find that users simply fail to adopt them, or that scaling up across the whole enterprise takes too much time and effort. Will supply chain staff embrace demand forecasting? Artificial Intelligence (AI) is a range of analytical techniques that allows a computer to detect relationships, predict outcomes, and often act based on the patterns in data without being explicitly programmed to do so. By the time the company was ready to build the product, it was far too late to consider an alternative part and the company was forced into a weak negotiating position. Look to the technology sector. For instance, Flex Pulse, a cloud-based platform built by global contract manufacturer Flex to give the company visibility into its manufacturing operations worldwide, also supports a digital contracts system. The third step is a roadmap to implement the vision for a new role for procurement. WebDigital procurement is enabling a progressive digitization of labor through automation of existing mundane processes and opening the door to new levels of performance at every It instead found that 40 percent of its end-to-end S2P process would be automatable with technologies that are already deployable today. (ed. 25, No. 2, pp. Bogaschewski, R. and Mller, H. (2020): BMEBarometer Elektronische Beschaffung 2020. Ongoing maintenance, repair and overhaul traditionally have required companies to manage a massive inventory of replacement parts. Ancarani, A. and Di Mauro, C. (2018): Successful digital transformation needs a focus on the individual, in: Schupp, F. and Whner, H. Supply Management Research pp 6394Cite as, Part of the Advanced Studies in Supply Management book series (ASSM). The basic-materials company went into its automation assessment assuming that very little of its existing IT would be useful. To fully exploit these insights, companies need deeper interactions with upstream suppliers and customers downstream. IBM, for instance, used RPA to resolve blocked invoices, reducing resolution time to 90 seconds, on average, from 32 minutes previously. Davila, A., Gupta, M. and Palmer, R. (2003): Moving Procurement systems to the internet: the adoption and use of eprocurement technology models, European Management Journal, Vol. 6, pp. Once the basic elements for a digital shift are in place, CPOs can set priorities including near-term goals that can create momentum for change, key investments, a detailed business case for the investment and a timeline. Global investment in digital procurement including venture capital, private equity and other forms of investment totaled $475 million in 2017, up from $378 million in 2014 (see Figure 1). 1123. These opportunities can be speedily translated into revised contractual terms. 2, pp. Digital procurement solutions not only create an opportunity to improve efficiency; they also pave the way for procurement teams to play a strategic role in accelerating innovation. Below Digital technologies also provide a competitive edge by improving the speed and quality of procurement, reducing risk and enhancing innovation. For CPOs, making the most of the opportunities created by digital technologies can feel daunting. These solutions also are likely to be successful and deliver a meaningful ROI, demonstrating the value of digitizing procurement. Schiele, H. (2011): Innovationen von und mit Lieferanten Ergebnisse einer quantitativen Studie, BMEReport, Enschede. ): Handbuch Beschaffung, Hanser, Munich, pp. Organizations that start procurement digitization with a visioning workshop can avoid this problem. Ahuja, T. S. and Ngai, T. (2019): Shifting the dial in procurement, McKinsey, May 2019. (2014): Strategic sourcing management, Kogan Page, London. Industry 4.0 as a topic had been explored 459473. This is a major change for organizations that historically have wanted to perfect a new process before unveiling it. Racing Toward a Digital Future in 27, No. A companys business, location and the efficiency of its existing procurement operation, for example, will affect the potential return on investment. Angeles, R. and Nath, R (2007): BusinesstoBusiness eprocurement: Success factors and challenges to implementation, Supply Chain Management, Vol. Schoenherr, T. (2015): The Drivers and Barriers to Effective User Adoption of Procurement Technologies, Zycus/Michigan State University Whitepaper. In this section, we highlight the three-step process procurement executives can use to start shaping a digital vision: Gather input; create a vision; and design a roadmap to get there. Centralized control with decentralized security. procurement 2022 Diversity, Equity, and Inclusion Report. To establish a definitive data source, the company implemented a collaborative data platform that included contract records, savings opportunities and methodology, key metrics and analysis, and stakeholder signoff. Retrieved from https://www.bme.de/fileadmin/_horusdam/4190-Vorstudie_Einkauf_40.pdf (accessed: July 2018). Leading companies use digital tools for advanced category management, better sourcing strategies and improved forecasting. 19, No. To make sure a strategy is well designed, start by gathering information on digital trends from the companys leadership, your industry, the market and procurement experts. 2, pp. 6, pp. Nicoletti, B. Just as successful software companies plan continual product-update releases, procurement organizations must learn to plan continual "digital-function releases." 11, pp. Consequently, once the organization has its digital vision and knows which journeys to prioritize, the next task is to look at IT resources, focusing on the organizations capacity for automation and its flexibility for integrating solutions at individual process points. The fourth group rated low in satisfaction and low in importanceincluding dynamic discounting, e-auctions and social procurement tools (see Figure 3e). Schoenherr, T. (2019): The Evolution of Electronic Procurement, Palgrave Pivot, Cham. Sabri, E. (2019): Mastering Change Management for Successful Digital Supply Chain Transformations, in: Sabri, E. The International Labour Office (hereinafter the ILO) is pleased to invite your company to submit a Proposal for the tender of an "Business Process Re-engineering, Digital Transformation and IT System Development for the Department of Social Security (DSS), in Iraq" as further described in Annex III Terms of Reference (ToR) of RFP 30/2023. Digital procurement boosts efficiency and shifts the role of Chief Procurement Officers (CPOs) and other procurement professionals away from cutting costs and toward more strategic roles focused on creating lasting value for the company through: The digital revolution is sure to have its casualtiesafter all, no amount of software, servers, or smart cars can guarantee success. WebThe digital transformation of procurement practices can be seen in the use of fundamental use cases, and offers various short-term development perspectives: The focus here is on determining which improvements are possible with the existing architecture, and where additional investment may be needed for achieving the transformation goals. 338349. For others, the return on investment (ROI) isnt clear, or the executive team doesnt understand why procurement should be a strategic priority for information technology investments. Typically, initiatives are prioritized using two major criteria: impact on the organizations objectives for digitization (such as spend reduction, cycle-time reduction, or user satisfaction) and ease of implementation. The road map provided for new communications that explained the reasons for digitization and how it would help improve peoples jobs. Optimizing processes will foster business efficiency as well as user experience and allow talent to focus on higher, added value tasks and 7898. Anyone you share the following link with will be able to read this content: Sorry, a shareable link is not currently available for this article. ): Einkaufscontrolling: Instrumente und Kennzahlen fr einen hheren Wertbeitrag des Einkaufs, Haufe Lexware GmbH, Munich, pp. The rapid emergence of shared data platforms and emerging technologies created an opportunity for procurement to speed innovation. HBR Staff/Nick Veasey/Science Photo Library/AF-studio/Getty Images, MIT Center for Transportation and Logistics, MIT Supply Chain Management Masters programs, MITx MicroMasters in Supply Chain Management program. It all began six months earlier, when a business unit leader invited the CPO to brainstorm with his team on how to get a new product to market rapidly. For digital transformation, companies develop their slow-twitch fibers by building the right digital team to sustain the transformation over the long run, and their fast-twitch fibers by learning to produce new releases quickly in rapid sprints. Additionally, large companies will need a new approach for dealing with promising companies that may not yet have a legal team. (2020): Procurement 4.0 and the Fourth Industrial Revolution, Palgrave Macmillan, Cham. Schlnsen, H. and Schentler, P. (2016): Digitalisierung im Einkauf: Chancen, Anwendungsbeispiele und Erfahrungen bei der Umsetzung, in: Klein, A. and Schentler, P. Leading companies already are using digital tools to transform the way their procurement teams work. In our experience, these three problems share the same root cause: starting too small, usually by looking for the right off-the-shelf solutions for single pain points. Ready or not, digital transformation in procurement departments around the globe is quickly defining the line between companies who seek a true competitive advantage, and those who may find themselves left in the digital dust. To develop sharp insights using digital tools, procurement teams will need data science and analytics expertise. Part of Springer Nature. Digital ): Digitalisierung im Einkauf, Springer Gabler, Wiesbaden, pp. Ronchi, S., Brun, A., Golini, R. and Fan, X. Digitalization, and the communities of users it creates, can enable companies to develop contract systems that rapidly realign agreement terms with new business demands. As a result, those in charge of the companys IT roadmap often deprioritize procurement solutions. Brem, A. and Tidd, J. At the same time, manual intervention to resolve blocked invoices dropped 95%. For example, an industry consortium including ship builder Maersk is piloting a collaborative project to test the potential for using 3D printing as an alternative to storing thousands of spare parts on ships and in offshore facilities. With the growing processing power of modern computer systems, its possible to achieve data collection, analysis, reporting, and planning at levels that were simply impossible with analog tech. In creating a road map of initiatives to implement, the sequencing must be orchestrated so that both the user experience and the impact can be maximized for each major release. Select research provided by Procurement Leaders. Sharing the space in this way enables the owner of the space to defray the cost of its unproductive asset and better align its warehousing needs with others demands. It might also offer real-time access to updated designs for ship systems. ): Digital Innovations for Customer Engagement, Management, and Organizational Improvement, Hershey, IGI Global, pp. However, the owner might have to accept that companies interested in sharing its warehouse facility may be arch-rivals an accommodation that was difficult to justify before digital transformation opened the door to this type of service. By helping accelerate innovation across the organization, procurement executives can play a vital role in shaping a companys broader digital vision. We conclude with a few practical steps for creating a digital strategy and roadmap. 1, No. 8398. Iterative sprints allow for a maximum of user involvement, transparency, and flexibility in developing solutions that address the real problems procurement users have with predigital systems. A Bain survey of 243 procurement professionals rated 22 digital procurement solutions and ranked them by their proven success in the market and importance in the coming five years (see Figure 2). Here are three areas of procurement that are ripe for digital transformation. Several new profiles are critical in the digital factory, raising the question of how best to source them. We began our digital transformation in 2016 by examining PwC Business Services, our back office and shared services center and functions, located primarily in Tampa, Florida.
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