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Digital transformation – why procurement needs to sit up and take notice

(Image credit: Image Credit: Chombosan / Shutterstock)

Procurement departments need to take centre stage in any digital transformation initiative. The real challenge here is not just about what procurement can do more efficiently, it’s what they are doing that they don’t need to – and what they should be doing that they’re not. Winning over internal stakeholders – not something procurement and supply chain leaders have traditionally regarded as one of their strengths – is imperative if digital transformation is to succeed.

For procurement and supply chain leaders digital transformation is no longer a ‘nice-to-have’ – it is the essential first step on a journey that will require onboarding new technologies – from big data, robotic process automation and blockchain, to AI, virtual and augmented reality and 3D printing. Procurement must be at the heart of these changes in order to manage and maximise return on investment. To make that happen, procurement and supply chain leaders may first have to confront some inconvenient truths.

Unmissable opportunity – all change, some change or no change?

This glut of new technology is giving chief procurement officers (CPOs) a once-in-a-working-lifetime opportunity to rethink and reinvent their function. So, for example, they may consider whether outsourcing payroll would be beneficial, how procurement could become more agile and whether they are really harnessing the power of big data throughout the organisation.

Digital transformation is an all-pervasive change-management project, so a thorough and honest assessment of how the business and its procurement function currently work is essential groundwork. With a full understanding of business objectives, procurement is much better placed to align itself with those goals and define ambitious but deliverable targets that take the function out of its comfort zone. As part of this process, external expertise can help inform internal debates and shed light on how other organisations are addressing this challenge in a procurement context.

Take opportunities as they arise

The old mindset, where companies invest in technology at set periods, will no longer suffice. This is not always an easy case to make – internal competition for resources is always intense – but it’s worth noting that Amazon is estimated to have spent $22.6bn on R&D in 2018 – slightly more than the GDP of Iceland. Technologies can protect and create value. For senior management to conclude that what they already have is sufficient is a bit like deciding that the company is efficient enough. This is where the CPO must become a strategic enabler.

New territory – procurement must learn to win stakeholder approval

Digital transformation of a business is not possible if nobody outside procurement believes they have the right solution. Winning over internal stakeholders will be vital to unlocking the success of a digital transformation project.

Success starts with clarity. Digital transformation sounds obvious – it’s about using digital technology to transform the business – but different stakeholders will almost certainly have different priorities. That’s why senior management, guided by the CPO, needs to define, agree and repeatedly communicate their strategic goals.

That will save senior managers from becoming embroiled in unnecessary internal wrangles during implementation, help to map out the impact of digital transformation on systems, processes, departments and hierarchies across the business, and monitor success. It could also make it easier to develop, at this early stage, alternative strategies that might help achieve the same goal.

Choose what to capitalise on and where

Digital transformation can often feel like a journey with no fixed destination. You can’t simply buy the technology as you might have done with an ‘old-school’ turnkey system, plug it in, then sit back.

Take blockchain for example. New blockchain applications are being developed on a daily basis. Some companies are using it, others experimenting with it, and a few are ignoring it. The timescale for implementation will vary immensely according to the size of a company, the sector it operates in and, quite possibly, the country in which it is based. However, any digital-transformation programme has to be flexible enough to embrace what could prove to be a game-changing technology.

Procurement departments must learn to be flexible

In the age of cloud computing, technology is evolving so rapidly that companies need to build the internal capability to understand emerging technologies and how they might – or might not – improve corporate performance. The two functions that should have a pivotal role to play in building that capability are procurement and IT. The more innovative the change is, the more likely the project is to encounter objections from those who can’t – or won’t – see the benefits of abandoning the tried and trusted ways. The inevitable temptation is to stop and chase another rainbow and, when that project stalls, the rainbow after that.

Yet often, all that is required to salvage an initiative – and turn failure into success – is to make a few appropriate adjustments. Seeking external advice may help to resolve the deadlock and identify a way forward. An agnostic and experienced third party, accepted by all sides as having no particular agenda, can help change the conversation. It may be necessary to reflect on exactly what has changed since that initial vision of the digital transformation was articulated and agreed, whether genuine progress has been achieved, where the roadblocks are – and how they can be avoided in future.

Procurement is an enabler – a strategic part of any business

Cutting central services to the bone looks like an easy, morale-boosting win for CEOs and CFOs as they seek to impress external stakeholders, and that may encourage finance chiefs to support systems that promise to automate procurement.

The best way to prevent this is for CPOs to show that their function is a strategic part of the business which, through cost-cutting, lateral thinking and smart use of technology can enhance competitive advantage. A strong opening gambit may be to start with procurement itself.

Traditionally, many CPOs, like other heads of department, have regarded headcount as an index of their influence. Changing that mindset can help procurement drive change, rather than being driven by it. They can then make a more persuasive case that they can implement cost reductions and efficiencies elsewhere that will free up investment for areas that are key value drivers for the business, such as customer experience.

Beware the consumerisation of shopping online – combat it with digital transformation

Cumbersome technologies and bureaucratic systems will undermine procurement’s reputation inside the business, reinforcing the tired old negative stereotypes about the function primarily existing to prevent things happening, rather than enabling them.

The more complex a company’s procurement processes are, the more incentive there is for other stakeholders to buy their everyday supplies on Amazon. Even if staff resist the temptation to do that, their expectations are still being defined and influenced – sometimes almost subliminally – by their experience of shopping online.

There are many other tasks Amazon can’t do – from auditing your supply chain and identifying the presence of forced labour to sharpening your social media strategy and tracking how cost-effective the business really is compared to its peers. Procurement departments must embrace digital transformation as an opportunity to become a strategic part of their business, as an enabler for their stakeholders and, above all, as an ongoing process.

Peter Corning, Client Relationship Manager and Project Specialist, ERA