Digitalization Challenges & Strategies in Procurement

Procurement leaders understand the urgency and importance of defining and execute their organization's digital transformation.

Top goals for digitalization projects include automating processes, improved data quality, cost savings, and improved compliance. A leading CPO Survey (Deloitte 2019) indicated that 68% of the respondent are improving and automating procurement processes with modern IT applications. However, the adoption of emerging technologies is low. Less than 15% of respondents leverage artificial intelligence, machine learning, 3D-printing and other emerging technologies, according to the survey.

As the survey reports, some organizations are already applying these disruptive technologies to procurement and are fundamentally altering the impact of the function. Procurement departments are empowered to develop strategic sourcing, automate transactional procurement and manage supplier relationships more proactively.

In the meantime, many more organizations are taking a wait-and-see approach before adopting emerging technologies.

Although procurement organizations face a number of internal and external roadblocks to a digital transformation - budget pressures, lack of data-driven insights and a shortage of talent — procurement leaders understand the urgency and importance of digitalization, according to the survey.

To achieve the critical goals for digitalization, including process automation, better data quality, cost savings and improved compliance, organizations must develop strategies to overcome those roadblocks and support the business case for digitization.

Business Model Transformation

While many leading companies have transformed procurement to become an integral component of their enterprise strategy, many procurement groups struggle for influence within their companies. The primary reason is that they remain trapped by the paradigms of the past. Perhaps the most significant barrier facing digitization is the mindset that it can and should be accomplished.

Traditionally, procurement organizations have focused on metrics and performance indicators related to costs. Priorities are driven by supplier spend levels, driving decisions on where to focus limited supplier management resources.

The goal is to transform the procurement organization to think entrepreneurially.

"Procurement organizations continue to evolve from a clerical back-office function to a strategic business function that orchestrates supply networks, drives innovation and growth, aligns business operations with companies' ethical and social values, and manages risk, even as markets and technologies continuously change," according to a 2019 report from the University of Mannheim Business School in Germany and SAP Ariba.

Develop a Digital Strategy

As the marketplace embraces an array of digital procurement solutions, procurement leaders must determine a strategy that maximizes the value of investments they have already made.

Your digital procurement strategy must account for the current level of technological maturity. Most organizations have invested in core procurement technologies, such as eSourcing, eProcurement, spend analytics and contract management, among others. These core systems typically require significant investment and system integration.

By contrast, many emerging technologies are built on the Software-as-a-Service (SaaS model. SaaS solutions don't require complex preparation of data or systems or integration, and can often produce results in a short time frame. These digital procurement solutions connect many more physical and digital inputs, driving better decision making and efficiency. A digital procurement strategy delivers results through improved insights and strategy, leading to process excellence and greater organizational efficiency and effectiveness.

Take an Agile Approach

It's difficult for a procurement organization to adopt the "fail fast, fail often" mantra of Silicon Valley. Still, your organization can take an agile approach by using emerging technologies. These SaaS solutions are not resource- or capital-intensive, and results can be seen in a few weeks or months, not years. Organizations can start small, targeting one or to aspects to start the digital journey. The agile approach is built on short, iterative sprints. That means selecting and deploying a solution, gauging results, and deciding on the next step. If the solution does not meet your needs, try another one. Or, if it does work, then move on to the next target. Use the success to build momentum, and use challenges to engage the team to solve the next problem.

With the sprint methodology, procurement leaders establish a vision and priorities and ensure rapid adoption to deliver value. The procurement organization can develop a culture of innovation and continuous improvement to drive substantial, measurable impact for the enterprise.

If you'd like to learn how leading procurement organizations have overcome barriers to digitization, don't miss ProcureCon Indirect East 2020, taking place March 23-25 at the Omni Orlando Resort at ChampionsGate in Orlando, Florida. Download the agenda today to plan your schedule.

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