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The Future of Procurement in the Age of Digital Supply Networks Digital Procurement

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The Future of Procurement in the Age of Digital Supply Networks Digital Procurement The Future of Procurement in the Age of Digital Supply Networks Digital Procurement Procurement on the verge of change Rapid advancements in digital technologies are remaking business supply chains, and are poised to transform how the procurement function delivers value. Low-cost computing and data storage have enabled advancements in mobile technology and the cloud, constant connectivity is the norm, and sensors bring devices and machines to life in the Internet of Things. The application of these disruptive technologies to procurement is already fundamentally altering the impact of this function. Strategic sourcing is becoming more predictive, transactional procurement is becoming more automated, and supplier relationship management is becoming more proactive. All of these are integrated through intelligent procurement operations. Digital procurement solutions are enabling this future by providing access to previously unavailable data, or bringing order to massive (but unstructured) data sets; driving more complex analysis and better supplier strategies; and enabling more efficient operations. Spend categories are being digitally enabled and the markets they access are being digitized. New agile operating models are evolving to accelerate and deliver digital and analytical capabilities. For organizations looking to embrace digital solutions, the path has never been easier. Many of these emerging technologies work to enhance the value of legacy systems, involve minimal investment, have low requirements for integration, and have payback periods measured in months not years. 2 Digital Procurement Defining digital procurement Digital procurement is the application of • Automatically sense material demand and The Impact: SM becomes proactive, as disruptive technologies that enable Strategic requisition replenishment deliveries from supplier performance and risk mitigation is Sourcing (S2C) to become predictive, suppliers now preemptive, allowing professionals to Transactional Procurement (P2P) to become focus on continuously optimizing operations, • Eliminate repetitive processing through automated, and Supplier Management (SM) as opposed of conducting damage control. robotic process automation to become proactive (figure 1). Leveraging better data from the S2C, • Trigger payments utilizing real-time signals The possibilities are striking. Professionals in P2P, and SM processes, accessing of material delivery the Strategic Sourcing or Source to Contract supplier innovation through collaborative (S2C) space—who worry about sourcing • Execute automated secure payments platforms and innovation labs; advanced goods and services, selecting suppliers, and analytics, increased computing power, and • Exchange goods through validated and securing the best value and prices for their improved visualization technologies, digital trusted decentralized ledgers organizations—are already in a world in procurement ultimately provides better which it is possible to: The Impact: P2P becomes automated in evidence-based options for decision making the digital world. Transactions (processing and improve the accuracy of • Categorize and manage spend in real time, purchase orders, requisitioning goods and strategic decisions. leveraging machine learning services, validating reception of materials, • Predict demand with artificial intelligence paying invoices, etc.) become routinized and require minimal human intervention. • Know landed cost for any commodity for all alternate countries of origin Finally, professionals in Supplier Management (SM)—who develop • Predict future sources of supply strategies to increase the value of supplier • Act on timely alerts from all negotiated relationships and mitigate risks—are in a agreements (e.g., indexed pricing, world in which it is possible to: penalties, renewals) through smart • Monitor potential supplier risks in Figure 1: The characteristics of digital procurement contracts real-time through the aggregation and The Impact: In the digital age, S2C becomes visualization of third-party data feeds predictive, with supply bases, prices, and • Conduct supplier visits from costs all visible, empowering professionals their own office utilizing to reach transparent agreements with high- augmented reality value suppliers. S2C becomes • Enhance supplier audits Professionals in the Transactional PREDICTIVE through crowdsourcing Supply base, prices, and Procurement or Procure to Pay (P2P) costs are all predicted, space—who enable operations, process empowering transparent • Collaborate through agreements transactions, and ensure goods and services supplier networks are delivered and rendered—are now in a world in which it is possible to: P2P becomes SM becomes AUTOMATED PROACTIVE Transactions are all Supplier Management automated, requiring strategies are minimal human preemptive, allowing intervention to address you to continuously incongruity optimize operations 3 Digital Procurement Digital Technologies and Capabilities Procurement technologies are evolving administrative burden on the procurement events impacting supply chains and rapidly, from emerging, to maturing, until organization. supplier performance. widely adopted as core solutions (figure 2). • Intelligent content extraction: Uses • 3D printing: Additive manufacturing, or Most organizations deploy several forms Optical Character Recognition (OCR) and 3D printing technology, can quickly make of core procurement technologies. These learning algorithms to read unstructured a physical object from a digital model platforms usually include a combination documents such as PDFs of contracts, by laying down (i.e., adding) layers of a of spend analytics, eSourcing, contract specification drawings, and Bills of Material, material. Currently used mostly for rapid management, and eProcurement (eCatalogs, and rapidly extract critical pieces of data prototyping of goods, the technology has eInvoicing), among others. The solutions like pricing tables, payment terms, and the potential to eventually eliminate some are procurement mainstays for many termination clauses that would have taken kinds of stocking activities for low-volume organizations and will remain relevant for days or weeks to assemble. items, replacing them with on-demand the foreseeable future. production. Rapid prototyping will become • Predictive and advanced analytics: an integral part of the strategic sourcing These core systems have typically been Combines modeling, statistics, machine process for direct materials. characterized by deployments requiring learning, and artificial intelligence with healthy amounts of capital spending and multiple third-party data sources to • Robotics: As it relates to procurement, significant of systems integration work. predict most likely scenarios for cost/price Robotics Process Automation is software In contrast, today’s maturing and emerging fluctuations, demand, supplier/country that recognizes and learns patterns solutions tend to be much quicker to deploy. risks, etc. and enable proactive and can perform rule-based tasks. This Many use Software as a Service (SaaS) decision making. process is used to automate multiple models, do not need significant preparation repetitive manual tasks (e.g., some P2P • Visualization: Transforms data into user- of data or systems, require no or light tasks), driving efficiency and reducing friendly, executive-friendly, visual formats integration, and can produce results within errors and risks in execution. that can simplify decision making by days or weeks. organizing information and delivering fresh Four additional emerging solutions are The following digital solutions and insights and recommendations. expected to impact procurement in the capabilities have entered the maturing future, and procurement leaders should • Collaboration networks: Platforms that phase; CPOs that have not already be educating themselves and preparing for provide buyers and suppliers with visibility embraced them for competitive advantage adoption: into all elements of their joint value chains. should expect them to quickly become Users can maintain supplier information in • Blockchain: This cryptologic data table stakes: the cloud; measure, analyze, and manage structure uses a trusted peer-to-peer • Cognitive computing and artificial supplier performance; uncover joint network to create digital transaction intelligence: Leverages pattern process improvement opportunities; and ledgers which can verify and validate recognition software and iterative machine identify, monitor, and escalate transactions in the P2P process (or any learning algorithms to rapidly categorize supplier risks. other supply chain process) and then be unstructured spend, cost, contract, and used to trigger automated payment. • Crowdsourcing: Through the capture supplier data (e.g., information like raw of large and diverse inputs (e.g., data, • Sensors and wearables: Devices that AP records or T&E systems extracts not sentiment) and usually leveraging mobile detect, capture, and record physical data. within the traditional structure of an technology, organizations can access new These devices can note the movement of enterprise resource planning system) to supply markets, draw on the crowd to goods and inventory levels for reordering, deliver new insights and opportunities. develop and collaborate on new products and enable audit tracking during site visits. Leverages cognitive agents like chatbots and ideas, and access consumer and to automate answering a wide range • Cyber
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