For most consumers, making purchases has never been easier. Running low on paper towels or baby formula? No problem—in today’s digitally driven world there are dozens (if not hundreds) of solutions that can deliver anything you may need or want to your doorstep within a day. Pay a little extra, and you can probably have it within a few hours.
For some reason, though, that transformation has not been so easy for business functions, especially procurement. There seems to be a major lag in adoption of the technologies making consumers’ lives so easy. Comparing restocking household cleaning supplies to purchasing 100 tons of raw steel for manufacturing may seem a bit like comparing apples to oranges, but it doesn’t mean one can’t learn from, and feel like, the other.
The procurement function isn’t broken, but as is often said, not everything that needs fixing is.
So where is the hang-up? Companies seem to be stuck in a procurement process that predates the Internet. Purchase orders and invoices are lethargic and burdensome, and while companies may think they have gone digital because they now use e-mail or walk around warehouses with a barcode scanning device, they are mistaken.
However, after decades of what seems like almost complete stagnation in procurement innovation, there is light at the end of tunnel. Within the next five to seven years digital platforms and technologies will most likely be totally transforming the way most procurement organizations do business. Companies can look forward to a faster, leaner and digitally driven procurement process that has another hallmark benefit—it will operate at a radically lower cost, and drive more strategic value for the enterprises it serves.
But there is no point in waiting—leading companies are already reaping the benefits of digitally enabled procurement. In fact, digitally-enabled consumer goods companies are expected to incur procurement costs of just 0.22% against net revenue compared with 0.50% for their peers. This of course just begins to scratch the surface of the added value that better, digitally-enabled procurement strategies and processes will bring to the table for companies across the board.
An Organization of One
To join those already making major strides toward better procurement processes, companies need to consider a few things. Some are hard, some are easy, but all are fundamental changes that must be implemented to usher in an era of better procurement.
The deployment of a world-class procurement organization isn’t about expanding, hiring big new management teams or making massive institutional investments. It’s about becoming something much simpler: an organization of one.
• “One” with the business as an embedded, strategic team.
For example, in the case of one company, procurement resources were embedded in different business units, thereby taking on the metrics of the business as their own (e.g., speed-to-market, growth and cost and efficiency). While they are still linked to the central procurement mandate, these procurement resources partner with the business to attain their goals—following whatever business and supply actions are required to bolster that business unit’s objectives.
• “One” with an expanded ecosystem of suppliers.
Consider a business that creates supplier councils and focuses them on new product development in specific categories or a business area, as some companies are currently doing. As a result of such co-innovation between suppliers and joint teams of procurement and product development specialists, new products are produced at acceptable price points and with increased efficiency.
• “One” with re-imagined processes as digital evolves.
For example, due to the Industrial Internet of Things (IoT), we can imagine a scenario where embedded sensors would send out “auto-receipts” providing notifications if deliveries are late, immediately consult the company’s digital contract with the supplier to determine a discounted price for late delivery, then authorize the transfer of appropriate funds directly from the supplier to the company, thereby eliminating substantial transactional documents (e.g., purchase orders, invoices, etc.) that cost time, money and effort.
Yes… Analytics Again
When talking about digital adoption, there are usually two different types of technology that need to be put in play. One is technology that makes doing work faster and more efficient, like using robots in a warehouse or a tablet for placing orders, and the other is technology that helps management make better, more intelligent decisions—analytics.
Analytics is the force driving the changes necessary to enable the procurement strategies and processes of the future. Without it, none of this is possible. With new advancements in technologies, companies can lay down an infrastructure that will allow them to fully realize the procurement processes of the future and the business results it will generate.
Interestingly enough, research shows that companies’ implementation of analytics in the procurement process lags far behind its implementation in other functional areas. For instance, in finance, 59% of organizations are using analytics or customer service where 55% of organizations are using analytics. That’s only true of 40% of procurement organizations.
Leading procurement organizations that recognize the benefits of analytics to manage data dynamically are only beginning to innovate new ways of leveraging analytics to create insights.
To the Drawing Board with the Industrial IoT
In order for procurement process innovation to occur, organizations need to question every step, even the most fundamental of steps and processes in procurement. Companies need to ask, “Is this necessary?” If the answer to that question is no, it must go.
The innovation this is likely to lead companies to is the adoption of the Industrial IoT, the culmination of combining sensor-driven computing, industrial analytics and intelligent machine applications into a single universe of connected products, processes and services. Like analytics, the Industrial IoT has the potential to be extremely disruptive and beneficial to the next generation of business practices. Digital innovation can open that door for those who pursue it, but for those that fail to accept the change, it may be the grim reaper.
Soon enough though, the Industrial IoT will usher in the change business innovators have dreamed about. Evidence of this emerging is apparent, with Accenture Strategy’s research showing that 32% of C-suite executives recognize that this digital game-changer will significantly improve supply chain transparency, and boost the value of analytics.
These executives understand that that the Industrial IoT revolution will improve processes, enabling companies to do the same things significantly better—but also, and more importantly, it will help them completely change processes for the better.
Go Forth and Conquer
It’s time for procurement organizations to participate in the digital revolution. By leveraging new technologies and digital platforms, companies can begin to see the art of the possible and ultimately lower costs while becoming faster, leaner and smarter than ever before.
So where do companies begin?
- Consider how digital will radically change how your procurement organization does business.
- Identify the digital components that will enable the virtually integrated enterprise, and start planning for them today.
- Question everything about your current processes, and reconstruct them with the Industrial IoT and robust analytics that deliver useful information for management.
New platforms and technologies are more than just enablers; they are the driving force behind entirely new ways of doing business. Don’t let other companies beat you to the punch. Leading procurement organizations are already imagining how they can be leveraged to create procurement organizations of one—totally in sync with the business, and recognized as critical contributors to competitiveness and growth—and procurement organizations that have not yet taken this step need to start now, lest they be left behind.
Kai Nowosel is managing director, procurement & sourcing practice lead, with Accenture Strategy.
