In the past two decades procurement has had tremendous success in centralisation and cost savings. Yet that very success may make procurement organisations fearful of taking the drastic steps required to completely rebuild procurement with digital technologies to evolve and meet tomorrow’s demands. This is according to Kamendran Govender, Procurement and Supply Chain Transformation Lead at Accenture Consulting who was speaking today at the SAPICS conference in Cape Town.
The typical procurement organisation’s operating cost is approximately 0.8 percent of the enterprise’s overall spending. Some industries, given the nature of their business and spend distribution, do even better, averaging between 0.5 percent and 0.7 percent. “In the next several years, our research suggests the definition of ‘value’ will evolve from a focus exclusively on cost reduction and savings to work that helps differentiate the company strategically. Procurement increasingly will be evaluated by more advanced measures, ones that are intimately linked to the company’s strategy and financial metrics,” said Govender.
Accenture anticipates the emergence of what’s called the ‘virtually integrated enterprise’, founded on intimate relationships with a smaller group of strategic suppliers that allow both buyer and seller to derive much greater mutual and strategic benefit than in the past. In such a relationship, the demarcation between buyer and supplier becomes blurred, to the point that strategic suppliers are seen as simply part of the overall company.
“This relationship will be greatly enhanced by using technology, allowing tight collaboration for virtual integration. This tighter collaboration will be conducted, most critically, in the area of innovation. As part of the virtually integrated enterprise, suppliers will increasingly be relied on as a major source of new ideas that can help give the company a competitive edge. Within the business, we also foresee a dramatic change in the procurement organisation itself, as it evolves into a new structure featuring procurement professionals embedded within the business and uniquely connected back to a smaller, central, core decision-making team supported by advanced technology,” he said.
The embedded professionals will spend the bulk of their time addressing business issues while applying procurement knowledge. The core team will use real-time transparency of information on demand, supply and pricing to handle business strategy, global demand and supply, policy, compliance, and global strategic supplier management. This new structure, which will require new skills and roles with a more strategic focus, will enable the procurement organisation to focus on strategically differentiating activities and generate much broader value.
The catalysts for and enablers of this new vision of procurement are key digital technologies such as cloud computing, analytics, Industrial Internet of Things and cognitive systems.
Cloud computing will serve as a foundation for procurement’s digital strategy: It will be characterised by greater usability, making employees more productive and engaged; and it will provide access to more content the organisation can use to facilitate core procurement activities. Real-time analytics, paired with advanced use of the Industrial Internet of Things, will generate deeper and more valuable insights that can greatly enhance decision-making as well as identify potential issues and mitigation strategies.
And cognitive systems will serve as digital agents integrated into the fabric of procurement, eventually handling not just transactional activities – such as help desks, but also more strategic pursuits – including spot-buying and even intelligence augmentation for category management.
“Perhaps the most significant finding of our research is that these digital technologies will do far more than enable procurement to continue to incrementally improve how it works. Rather, they allow the organisation to gather and analyse more and richer real-time data to drive better, smarter and more accurate decisions.”
“Ultimately, they make it possible for procurement to literally question everything it does, even some things that have been core to procurement for decades or longer – such as the purchase order. Questioning the fundamentals of the organisation and its processes is vital to transform procurement into the organisation necessary to deliver the strategic, high-value results that senior executives now expect it to deliver,” concludes Govender.