Procurement Transformation with Digital

“The first step in getting what you want is to have the courage to get rid of what you don’t” goes a quote. A recent MIT Sloan Review titled “Implement First, Ask Questions Later (or Not at All)”, states that across industries there is broad consensus that opportunities to reduce costs and digitally transform are the biggest factors behind the shift to a more rapid implementation.

The procurement organization is seeing rapid advancement in the shift to digital disruptive technologies in its objective to bring down costs as well as support top-line growth. Industry 4.0 cannot happen without Procurement 4.0. According to some research, fully automated procurement function could save Global 5000 up-to $86 billion annually led by procurement headcount savings, reduction in cycle time to process, early payment discounts, risk reduction, and better visibility.

Here are some of the new digital trends in procurement that large enterprises are carefully evaluating and adopting:

Solutions like Robotic Process Automation, Invoice Automation and Spend Analysis significantly accelerate the pace to the procurement process allowing procurement personnel to spend more time on value added activities such as identifying low cost, niche suppliers and better ways of supplier engagement. Right from requisitioning, to creating work orders, purchase orders and accounts payable, these solutions could enable end to end automation. Coupled with improved traceability and audit trails, these solutions also ensure good governance. Sourcing strategies built around the outcomes defined as a result of spend analysis will help enterprises make sound purchase and supply chain decisions. While spend analytics solutions have been around for some time, enterprises are now using machine learning and artificial intelligence to learn about supplier performance, demand breakdown and other outlier analysis before, during and post event to then include this into their sourcing strategy. AI could be used to identify the best solution in the case of a complex negotiation that involves several suppliers. Other use cases of AI include better demand forecasting and gathering market intelligence.

Cognitive Procurement is the application of self-learning systems that use data mining, pattern recognition and natural language process (NLP) for conducting various procurement processes.

The Deloitte global CPO Survey 2017 highlights that data analytics and mining are the future trends and can be best used in areas involving intelligent and advanced analytics for negotiation, process efficiency improvement, market intelligence and supplier portfolio optimisation. It is expected to become the procurement manager’s advisor, assistant and analyst performing activities such as creation of an RFP/Purchase Order, checking inventory levels, initiation of workflows, processing invoices and making payments. With most of the procurement function getting automated, humans will be required primarily for approval and decision making. Just like a virtual assistant like Alexa or Siri offers instant assistance to any queries or transaction initiation, cognitive procurement will complete tasks within the procurement function seamlessly talking to various applications.

While it does look promising, getting to this level of automation is still some time away as there are several dependencies including:

  • Dependency on human assistant for past data.
  • Dependency on legacy data which may not be accurate or detailed.
  • Dependency to solicit information from human counterparts on contracts and benchmarked prices.

The quality of output from such systems is likely to depend a lot on the legacy systems in the context of organizational processes.

In a recent survey, 75% of respondents claimed that they had targets this year in terms of managing supplier risks and increasing engagement. Several large enterprises would like to earn a preferential treatment from their suppliers and make conscious efforts to get there. They believe this adds value in the form of better end customer engagement, as they partner with their suppliers and forge stronger supplier relationships to achieve this objective. The first step is to have formal sourcing processes that not only defines which suppliers should be considered but also how many are required in each category, processes to conduct the reviews and risk assessment. The supplier management process starts upstream from sourcing and supplier selection criteria and goes all the way towards contracts, orders and payments. Supplier portals have now been enriched with intelligent chatbots to ensure constant communication, transparency and visibility to suppliers. Seamlessly integrated to various back end applications, these bots not only deliver the job, but also leverage learnings via AI to further improvise and deliver better. Enterprises have also started to track shipments to make informed decisions. With chatbots and robotic process automation, the supply chain gets seamless information in terms of status of shipments and the likelihood of possible delays.

Block chain enables business to store information in a decentralised and secure data base on the cloud which cannot be tampered, building trust in the chain. Blockchain can be applied to several supply chain processes including secure collaboration for contracts and preventing counterfeit products. The block chain time stamp builds a lot of transparency in the bidding process, transactions could be verified with smart contacts before execution and it also mitigates the risk of money laundering due to visibility of untampered data in the ledger. Tracking component quality, critical parameters, pilferages and trade financing are some other use cases of blockchain. Some of the biggest advantages of blockchain include saving costs, improving transparency and traceability.

While several consumer product companies have invested in this technology for supply chain, enterprises are still not comfortable to share information with unknown network partners. The bigger challenges that organisations face is around the uncertainty relating to laws and regulations governing blockchain and the non-standardisation across countries. Most deployments are in experimental / POC stages and only likely to mature over time.

A well thought through digital procurement strategy is at the heart of achieving intended benefits. It is estimated that over 80% of procurement executives believe that they need to do more to deploy and take advantage of these technologies. Procurement teams that can leverage this early will stand to immense benefits as they gain huge shifts in efficiency and getting closer to their customers.

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