Digital transformation in procurement departments: Digitalisation "in the business" or "as a business"?

procurement
November 5th, 2019
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The digital transformation of procurement departments is well under way. A recent study on procurement and digitalisation, conducted by Excellence HA magazine, offers new insights into this area.

However, it also reveals two shortcomings in the digital transformation of procurement departments. These two sticking points are as follows:

  • Procurement departments not having a clear digital strategy [1]
  • A lack of talent that is able to address the strategic challenges posed by digital transformation in procurement departments [1]

To guide procurement departments towards a successful digital transformation, the study suggests distinguishing between two different approaches, and shows how the second approach must complement the first:

Digital transformation in procurement departments: Digitalisation "in the business"

The purpose of this first digitalisation approach for procurement departments is to improve the organisation's agility. The idea here is to digitalise each procurement process to improve efficiency, both overall and at each individual step.

Improving the overall efficiency of procurement departments

Digitalising processes has enabled the most successful companies to limit the operating cost of their procurement departments to 1% of the total cost of purchases [2]. Some experts even claim that digital transformation is likely to cut this figure in half [3].

Automating each procurement process

Several generations of technology have emerged since the 1980s to keep pushing the limits of digital transformation even further for procurement departments:

  • The Electronic Data Interchange (EDI), which removes human input processes.
  • E-sourcing and e-procurement tools, which can be used for isolated processes.
  • Purchase-to-Pay, which digitalises the entire purchasing process.
  • The use of blockchain applications for traceability purposes.

The latest generation of technologies for digital transformation in procurement departments is only just beginning to be deployed in the most advanced organisations. These technologies automate more complex interactions in procurement processes.

  • Chatbots are responsible for assisting internal customers.
  • Robotic Process Automation (RPA) tools use artificial intelligence and machine learning to replace human involvement in repetitive tasks.

Using productivity gains to improve the legitimacy of procurement departments

With the ability to digitalise 100% of administrative tasks, which on average equate to 50 to 70% of a buyer's time, the digitalisation process is now coming to a close.

As a result, procurement officers can now choose to:

  • Satisfy themselves with this result, of having digitalisation "in the business".
  • Invest this improved efficiency into digitalisation "as a business".

Digital transformation in procurement departments: Digitalisation "as a business"

Procurement departments become more strategic once this second, more efficient approach of digital transformation "as a business" is adopted. 

Tools such as big data, data analytics or artificial intelligence are used to digitalise management in procurement departments.

Additionally, an intelligent system standardises the detection of innovative potential for the company to harness.

But above all, the "digitalisation as a business" approach aims to equip procurement departments with the ability to be a valuable partner in the company's digital revolution. This involves learning two key skills:

  • Knowing how to work with start-ups.
  • Knowing how to work with GAFA.

Knowing how to work with start-ups

Start-ups do not meet the usual procurement criteria in terms of size, readability or security for example. However, the expertise of these start-ups is often essential for traditional companies to drive their industry towards intelligent and connected value.

Procurement departments must ensure that they possess the technical means (contracts and management) and human resources (by recruiting candidates from generation Z, for example) to identify and manage the partners that are essential for their internal customers.

Knowing how to work with GAFA

The GAFA companies have become the first market capitalisations and business giants to chip away at the profitability of many traditional companies around the world. Still, their algorithms, their digital advancement (Cloud, hosting) and their understanding of current consumer expectations are often essential for traditional stakeholders.

Procurement officers must find the resources they need to set up their team to meet these complex and critical challenges, in order to grow the company and ensure its self-sufficiency.

In conclusion, the digital transformation of procurement departments must involve the entire operation and not just be limited to tools. Products, practices and team composition still need to have their big bang moment for procurement departments to rise to the challenges presented by their internal customers.

In other words, a company cannot undergo a full digital transformation without the successful digital transformation of its procurement department.

The success of digital transformation in procurement departments relies on revisiting the basics of the profession. To get an idea of the extent of the challenge that buyers will face over the coming years, take a look at the following article by Pierre-Olivier Brial, Managing Director of the Manutan group: How is the procurement profession reinventing itself in the digital age?

 

[1] Deloitte (2018), CPO Survey 2017: The cost and digital imperative
[2] Accenture (2015), Procurement's next frontier: The future will give rise to an organization of one
[3] Forrester (2016)

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