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The digital future of procurement
TECHNOLOGY and digitalisation are dramatically changing customer experiences and expectations. As organisations seek to future-proof themselves, they also seek to be more responsive to their customers.
The procurement function, whether in the private or public sector, primarily aims to seek cost-savings while procuring the goods and services needed for operations.
Rather surprisingly, an upcoming KPMG report on procurement suggests that almost 80 per cent of chief procurement officers surveyed do not believe digital technologies will disrupt legacy systems.
With digitalisation driving change across all sectors of the economy, it is important for procurement teams to look beyond their traditional roles of cost reduction and compliance.
Digital transformation and disruption can present organisations with opportunity to innovate by leveraging existing data to enhance the procurement process.
Some opportunities where the use of 'Big Data' can help to improve decision making include:
- Analysis of data to identify procurement trends
- Automating purchases on a needs-basis based on the data
- Improve budgeting with real time updates to the amount of purchases
- Use of data analytics to identify any anomalies easily
However, the objectives underlying the digitalisation of the procurement function need to be clear. Any technology implemented should improve processes as a whole and not only in part.
For instance, layering on automated controls does not fix inherent process inefficiencies. Instead, organisations need to take a step back and review the entire process and seek new ideas for a more efficient and effective process.
Procurement functions can consider employing the Alphabet of technology adoption -
- A is for Artificial Intelligence, including robotic process automation (RPA) and cognitive automation (CA). Traditional buying activities, transaction execution as well as the management of suppliers, contracts, transactions and sourcing activities may soon be replaced by robots and e-procurement platforms.
Some of the first places to look for activities suitable for automation would be repetitive, duplicative or standardised tasks. Relative to other options, intelligent automation is lower cost, non-invasive and has richer capabilities. This will derive greater efficiencies in processes that were previously deemed too costly and/or complex to automate.
- B is for Blockchain - possibly the next evolution of the internet, and sometimes seen as the internet of value which reduces the cost of transactions. A blockchain is a decentralised public digital ledger distributed across digital networks so that records cannot be retroactively altered without the alteration of all subsequent blocks and the consensus of the network.
Establishing smart contracts can be one way of streamlining the procurement process through incorporating back-to-back contracts aligned with the operating model.
- C is for Cloud Services, which has today developed beyond being just a storage utility or low-cost server.
Solutions such as infrastructure as a service (IaaS), platform as a service (PaaS), and software as a service (SaaS) can help organisations become more self-sufficient, reducing demand for traditional technology and freeing up resources to work on more complex and higher value initiatives.
- D is for Data Analytics or 'Big Data', and its use to identify procurement trends, spot anomalies and improve decision making. It enables organisations to harness data from all transactions in the system, gain real-time visibility into demand and consumption patterns on a cost per transaction, per unit, or per supplier basis.
This should ultimately lead to better, more market-responsive decisions for the organisation.
- E is for Emerging Technologies. While offering compelling value, many, such as the 'Internet of Things' or IoT, can also pose new risk and threats, in particular with cybersecurity.
Many multi-national corporations and government agencies around the world have suffered reputational damage in recent years due to increasing incidences of cyber-attacks and financial crimes.
In drawing up the procurement digital transformation roadmap, organisations could relook existing procurement roles, capabilities and the collaboration model as technology adoption increases.
They need a clear procurement strategy, clear ownership of data, linking data and information in a unified way within the organisation. The right blend of people, skills and organisational structure is therefore required.
Organisational culture is another area to be addressed. This can significantly impede the successful implementation of large scale transformation projects. However, culture change requires individual engagement and accountability and the correct tone from the top.
As the function evolves, greater emphasis should be given to how the procurement function can continue to attract, retain and manage talent. For example, business leaders could create engaging experiences or a clear career path and progression in the organisation.
Also required is a proactive effort to have an open dialogue with employees and offering to retrain or redeploy those affected through specially designed programmes.
Controls and oversight
A successful procurement digital transformation also requires proper controls and oversight. So before embarking on the journey, think risk and governance.
For example, organisations can help employees demystify the risks of new emerging technology and develop an agile technology risk framework.
Dynamic risk assessments can also help combine risk appetite with adoption of new technologies. Data analytics and continuous monitoring can also be deployed to change how technology risk is managed.
Procurement teams need to review existing roles to transcend transactional processing, and process efficiency or productivity to remain relevant. They should consider how emerging technologies can better serve their customers, and help their organisations be better connected.
At the same time through technology enablement, consider active participation in the supplier and vendor collaboration activities, merger and acquisition decisions or in innovative product development and manufacturing processes.
Indeed, the digital disruption is not to be feared but embraced.
Procurement functions can play an essential role in helping their organisations drive digital transformation across the organisation, as a strategic business partner to internal stakeholders, vendors, suppliers and alliance partners.
- The writer is Partner and Deputy Head of Advisory at KPMG in Singapore. Views expressed are his own.