Procurement Agility in the Age of Digitalisation

This year marks the fifth year that we have held our Productivity-in-Procurement Think Tank, in which we have dealt with top-of-mind issues such as SRM, Innovation Sourcing, Procurement as a Productivity engine, and Next-Level Procurement Skills. During this period, the more we have explored these important topics, the more we realise that we have just touched the tip of a very large iceberg.


Procurement Think Tanks?

‘But, what is a Procurement Think Tank?’ you might ask, and the answer to that takes us to the very essence of what we do. Throughout our work in the procurement field, we have strived to create an environment of real learning and interaction with business peers over topics that can be investigated in a deep way in an environment of open exchange. These gatherings are membership based and limited to 15 companies that meet three times a year to discuss a singular topic over the course of those meetings. Behind the scenes, we as organisers, search out insight, guidance and the latest thinking on the topic we are discussing. We invite practitioners, industry experts, consultants and academicians to our Think Tanks in order to get the latest insight into the issues we are scrutinizing.

This article is the summary of this year’s series. While many of the insights, perspectives and opinions come from a small group of practitioners and may vary from company to company; nonetheless, the insights can be applied across many organisations and industries.

In 2016, as we wrapped up that year’s discussion, our members pressed us into looking at the area of procurement efficiency. While it was acknowledged that becoming more efficient was a solid objective by itself, the notion was underlined by a need to be efficient in order to be able to handle the coming digital revolution. Most all of our members conceded that their ability to learn about and master digital tools was inadequate and they needed time to prepare.


2017 Focus On Driving Efficiency And Increasing Agility

The need to improve procurement efficiency (doing more with less) and at the same time master changes in technology (specifically the impact of digitalisation) are two very different objectives. They demand different resources, different thinking and different leadership, leaving procurement teams in an untenable bind; needing to contribute more but without the capability to assimilate new technology that might be a remedy for that problem. Thus, in 2017, we launched the fifth in our Think Tank Series “Growing Digital And Agility Capabilities To Drive Efficiency In Procurement” with a dozen member companies to investigate these two companion issues:

· What isthe burning platform for Procurement Agility?

· What are the major dimensions of growing agility?

· Does growing a digital capability answer the issue of procurement agility?

· Deep dive on key topics in the Digital sphere: 1) How will Big Data and IoT technologies impact procurement activities? 2) What is AI and how can Procurement leverage the opportunity? 3) What is RPA and will it replace most procurement operational tasks?

· Where is procurement now on the journey to a digitally enabled future?

· Who are the leaders in procurement digital enablement?

· How to assemble a digital roadmap?

· What talent is needed to drive digital forward?

We spent our entire first session probing the issue of Agility and what the key elements are that procurement teams need to master. The deep reflection on agility reveals that it is not just about flexibility, but rather a never-ending cycle of thinking-planning-action all in a devolved approval matrix (see my blog Agility — Making flexibility look like the plan). The four pillars of procurement agility identified were: Anticipation, Analytics, Responsiveness and Collaboration as per the below output:

Figure 1 — Key Considerations For Procurement To Master Agility

The interesting outcome of this discussion is that nowhere did the notion of digitalisation come out as a leading activity to pursue in order to become an agile organisation. Rather, the group recognised that while digitalisation underlies many of the elements that procurement needs to master, in and of itself, digitalisation is only an enabling tool of agility. When viewed in this context, the rush to become ‘digital’ is less of a frenetic all out race to do something ‘digital’ and more of a ‘pick-and-choose’ from a menu of enabling technologies that will most help achieve a business strategy.

To tackle the digital topic, given the lack of overall maturity and a dearth of best practice examples, we sought the latest thinking from a broad spectrum of experts and companies operating in this space, and specifically worked closely with EY to get a handle on the breadth of impacts of digitalisation on procurement. EY presented their model (figure 2) which links the concepts that new technologies will be the foundation of operational and tactical activities while recognising that these exist in a world driven from the top and aligned with functional and organisational strategies.

Figure 2 — Technology in the Procurement Sphere

It is the recognition that the acquisition and assimilation of these new technologies is a menu from which procurement teams can choose which technologies are needed most, based on their strategic objectives.

However, while procurement is tasked with dealing with a very broad range of new technologies it also must deal with its traditional mandate. Bertrand Maltaverne, JAGGAER’s ‘Procurement Digitalist’, challenged the group with his perfect storm analogy (Figure 3). As procurement continues evolving toward digital mastery, e.g. Procurement 4.0, it still must manage increasingly complex supply chains, reduce risk, become more efficient, expand its influence and become a trusted business advisor. The enormity of these tasks has created a conundrum for procurement teams regarding which priority to tackle first.

Figure 3 — The Perfect Storm in the 4.0 Era … Digital Transforms Everything

The depressing upshot of this problem is that procurement teams have not taken a leadership position with respect to digital technologies, opting instead for being a receiver of whatever mandates are forthcoming from broader digital technology implementation efforts. The data shows that most procurement organisations are either unprepared or have taken a ‘wait and see’ approach to digital technologies. Those organisations that have started, often are adopting technologies in a haphazard or uncoordinated way. The sheer number of available technologies that must be evaluated for their usefulness and then implemented has stymied procurement organisations from building an effective path forward. Not knowing where to go has left procurement teams in the position of not being able to move forward.

The issue, of course, is two-fold. First, there must exist specific knowledge within the procurement teams about the technologies that are available, and secondly, leadership awareness of those technologies and how they fit together in the strategic landscape. Then and only then can a framework be developed that prioritises how and when to implement the chosen solutions. Today, most procurement organisations are not rising to the challenge in either of these areas. EY presented the field of technological solutions that procurement teams should consider for automation as part of their digital planning process.

Figure 4 - Automation Hotspots In Procurement Source To Pay Activities

While many of these technologies are fast becoming standard, the fact remains that many procurement teams are addressing these technologies in a piecemeal fashion or not at all. Often, the digital solutions that promise the quickest way of making transactional processes more efficient are no longer within the purview of procurement. These activities have been subsumed into other, often-larger, Business Services functions. While we have long been advocates of moving transactional activities to other functions, one can see the writing on the wall. The continued erosion of the procurement remit combined with automating technology, could easily foretell the doom of the function as we know it. The logical outflow of this, is that procurement is evolving towards a two-tier function; one where an enhanced set of operative activities is managed largely through digital technologies and another that is much more strategic, managing issues such as supply continuity, risk management, collaborative value creation and sourcing innovation. Several recent reports including Dr. Henke’s work with the Fraunhofer Institute and its formative work “Procurement 4.0, The digitalisation of Procurement 4.0” 2016 Fraunhofer IML und BME e.V., clearly point out this trend.

The issue, of course, then becomes how does a procurement team who is embracing the digital revolution plan and develop an effective roadmap that ultimately puts (and keeps) them in the driver’s seat as to what technologies to adopt and at what rate to adopt them. Much discussion centered around this topic both inside the Think Tank sessions as well as during conversations that continued among members outside of the regular sessions. From these conversations, a model was put forth (Figure 5) that shows how organisations move from the lowest level of automation to a full-digitalised environment.

The model seeks to describe the journey that procurement organisations are taking by acquiring new technologies and skills. One path is towards excellence in operational activities and the other feeds the hunger for greater insights used to make better strategic decisions.

Figure 5 - Building the Digital Roadmap

Our membership vigorously challenged us to collectively build a real-world model of how organisations must construct a digital path forward. A particularly useful insight was that no organisation can progress separately upwards through either of the technological towers onward to a ‘digital nirvana.’ Instead, the real-world path is one that is not sequential and organisations must cross over from one tower to the other as knowledge is gained in one arena (e.g. operations) that supports the objectives of the other tower (the application of better insights). The implication of this, is that while procurement teams should be stepping away from performing operational tasks, they cannot separate themselves from the decision making process of which technologies will be acquired. The technologies that will drive operations in the future will be the foundation of new insights, and this relationship between new technology being the foundation of both better operations and better insights progresses all the way up through the digital journey. Procurement teams must be in the decision chair as to which technologies get purchased.


The Model Explained

The foundation of creating a digital path forward always starts with a fundamental, ‘why’ which is represented by the burning platform in Figure 5. It is important to identify the Strategic Digital Imperative that must be addressed (e.g. increased customer satisfaction, better innovation, improved quality, higher margins, …). Only then can an organisation begin to decide what technologies to adopt. The progressive steps of each tower are outlined here.

a) Operations Efficiency Tower

· Stage 1 — Individual automation: Optimization of single “pieces” at user level

· Stage 2 — Functional automation: Integration (people, process, tech.) at functional / x-functional level. This can be done without today’s Digital offering

· Stage 3 — Smart Workflows / Robotic Process Automation: Based on modelisation and templates, where technology performs standard activities, and people control parameters but act on exceptions

· Stage 4 — Cognitive / Artificial Intelligence: Self-learning, new knowledge, Proactive collaborative in decision making process

b) Data Insights Tower

· Stage 1 — Descriptive: Reporting WHAT HAS happened? Used for check & control purposes, and fraud prevention. This is typically already outsourced or automated in most organizations

· Stage 2 — Diagnostic: Understanding WHY did it happen? Increasingly seen as a commodity

· Stage 3 — Predictive: Anticipating WHAT WILL happen? This starts to support growth and innovation, as it uses data to seek new opportunities. It is helpful at this stage for Procurement Intelligence to have a dotted-line into Business Intelligence

· Stage 4 — Prescriptive: Automating Decision on WHAT SHOULD we do? Needs a high level of acceptance from business and trust from users, obtained through quality reliability

Automation begins at the individual or functional level (stage 1 and 2 in Operations tower). This allows for data gathering and analysis as well as freeing-up resources to use the data for descriptive and diagnostics insights (stage 1 and 2 in Insights tower). From better data, Smart Flows and Robotics Process Automation (RPA), can be developed, freeing-up even more resources thus increasing the amount and quality of data, which then enables predictive insights (Stage 3 in Insights tower). In turn, this allows further progress to reach the highest level of the two towers, which becomes a continuous improvement loop between cognitive/AI technologies that enables progressively more complex prescriptive insights. It is at this point we can consider a function truly digitally enabled.


So What Skills Are Required To Drive Digital?

“Like most disruptive technologies, benefits do not necessarily go to early adopters. Success goes to those companies who know how to absorb and manage change”

Very few Procurement organisations have a digital strategy and roadmap, partially due to the broad range of technologies available. Simply put “there are too many digital options to know which to tackle first”. Even fewer organizations have talent and leadership to run their digital transformation. It is therefore imperative that Procurement build its own digital roadmap that addresses specific technologies in a sequential format that is aligned with the company’s over digital strategy. We need to understand, recruit and develop specific digital skills at all levels recognising that the senior leadership is often most lacking

A recent publication, “The Digitally Savvy CFO,” Essaides, Willman, Frank, Feb 2017, The Hackett Group, points out this issue very clearly. The same thing stands for procurement. We fully concur that there are four key attributes required from Procurement professionals to adequately embrace and drive the digital transformation:

· Intellectual curiosity: To deliver faster insight and build sophisticated models for business decisions, analytics skills will be in high demand. In addition to modelling, staff need to know how to ask the right “why” questions, detect patterns in data, find cause-and-effect relationships and challenge status quo.

· Technology savvy: Professionals don’t need to become data scientists or programmers, but they do need to be familiar with new technologies so they can have intelligent conversations their IT peers and quickly adopt new tools that do not require IT intervention.

· Business Acumen: Staff assigned to partner with the business (in some cases embedded in business units) need to have a thorough understanding of the company, its operations, its value drivers and competitive environment. The imperative for the Business Partnering capability was amply covered in the output from last year’s Think Tank in this article.

· Storytelling skills: Data is the mechanism that makes digital business possible, but the delivery mechanism is a “story.” Even the best pattern recognition software won’t change the mind of an executive if the results are not expressed in the form of a story, a business problem or solution.

A Broader Perspective Corroborates Findings

In looking at the current level of “digital” progress of procurement organizations in a broader context across many industries, the picture that emerges is consistent with this year’s outcomes.

These findings (available in the report “Digital Procurement 2017 — Just hype or the new standard?”) come from the survey done by JAGGAER from August to October 2017, which received input from 168 Procurement professionals and indicated that approximately half already have the basics covered. They use eSourcing, eProcurement and SRM solutions. Their next priority for investment is how to get better insights from their digitalized core processes.

These organizations are on the path highlighted in the Digital Roadmap Model:

a) Moving from the “Enterprise / Functional Automation” in the Operations tower to the “Descriptive / Diagnostic” steps in the Insights tower

b) Already planning next investments in technology in Operations tower (Smart workflows and RPA)

c) Have recognised that the digital journey is the product of a strategic plan closely linking technology and insights enablement

Figure 6 — Current vs. Short-Term Levels By Respondents

Digitalizing processes is a massive opportunity whose real challenge is to integrate technology and insights in a way that is both progressive and supports business needs at each step of the journey. Too many organisations view the automation of processes as an endpoint in itself without reaping the strategic benefits from the insights gained. Sadly, the outputs of automated processes do not automatically link to the strategic processes that depend on them.

Figure 7 — Integration Of Data Between Processes

The inability to “connect the dots” has huge consequences for Procurement teams. Either they spend a great amount of time manually collecting data or they simply do not use the data they need because the effort is too high. This effect is seen across many industries and results in poor procurement effectiveness. This is especially critical in Category Management where decisions are complex, relying on multiple dynamic factors and inputs. Having complete, up-to-date, real-time information for decision-making is a must in becoming agile. It is the “Holy Grail” that organizations should target with their digital roadmap more than the simple automation of processes.


The Way Forward

The digital enablement field is wide open, with no single right answer on how to proceed. However, there are ways that can help organisations plot a way forward. CPOs must define a roadmap for change and align it with enterprise-level digital transformation initiatives. This is done in a three-step approach:

1) Define a digital roadmap and vision: Strategy needs to support organization’s overall approach to leveraging digital technologies to transform its business model and ensure that each investment in a digital capability must have beneficial business outcome. Favourable business benefits will help drive a new cycle of technological investments that in turn create greater benefit.

2) Align with organizational strategy: On their own, big data, or predictive analytics or any of the other so-called ‘digital’ enablers are not valuable as stand alone technologies. Outcomes need to help the business make decisions and drive actions that are consistent with the overall company objectives and digital plan. Any discrepancies between the two can create “technology islands” and put procurement at odds with corporate objectives.

3) Build a Digital competency within procurement to understand, master and lead the prioritised acquisition and implementation of digital tools.


Conclusion

While we closed out the 2017 series acknowledging that most organisations are at the very beginning of their digital journey, it also left us with a strong impression that procurement teams have an intense desire to lead this effort in collaboration within the organisation’s overall digital strategy and not be a victim of it.

In our 2018 Think Tank, we will drill down from the strategic level to one where we can examine how individuals and teams build knowledge and capability to bring digital insights to a wider ecosystem. We will also be tackling specific topics on how the procurement process is changing at operational levels including the purchasing of services in the ‘gig’ economy. Stay tuned, as I mentioned at the beginning, this is a big iceberg and we have a lot more to explore.

This story is published in The Startup, Medium’s largest entrepreneurship publication followed by 291,182+ people.

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