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Digitization: Towards Better Procurement
07-18-2018

The combination of new technologies from 3D printing, big data analytics to artificial intelligence is revolutionizing organizations’ administrative and operational processes. In addition, the effects from cutting-edge technologies of Industry 4.0 is giving rise to the concept of Procurement 4.0 which entails the entire value proposition of procurement to customers, suppliers and internal process partners. Especially for organizations that are confronted with price volatility, increasing global competition and cost reduction pressures, digitization of procurement processes becomes critical to business success.

The purpose of digitization is to reimagine the supply chain strategy and enhance its role of tactical procurement to a value-drive one in alignment with business goals. It enables the procurement team to be deeply connected to every tier in such a way that it has access to all data on supply availability, cost structure, financial and operational risks, lead times, and quality metrics; all of which can have profound implications on the business performance.

Driving value through digital procurement

It is possible to drive superior value through digital procurement as it allows one to be well-positioned to instantaneously adapt to its own planning, negotiate the right prices, or even switch to alternative suppliers in case of shortage. Furthermore, suppliers can spot problems early on and also more accurately, thereby proactively improving the deteriorating quality levels. If we have to describe the likely near-term impact of digital procurement processes, it can be expected, on an average, to increase annual savings, reduce value leakage, and minimize the transactional sourcing time.

Several procurement organizations believe that digitization can fundamentally change procurement for the better. However, only a few have developed a strategy. For companies to create real value through advanced analytics and digital procurement, they need to focus on two broad areas – tools that prevent value leakage and tools that create value. CPOs must discover which of the new digital procurement solutions can add real value to their organization’s need so they can raise data-driven decision-making to a whole new level.

Power of Digital Procurement Tools

The biggest advantage comes from adopting solutions and capabilities that are likely to become the core competitive advantage to procurement functions. Many of these solutions are designed to bring order to a large amount of unstructured or unavailable data. For example, a hard-copy or PDF format will not provide detailed specs, indexed pricing or negotiated terms & conditions. However, you can convert these static documents to data points by using an intelligent content extraction solution that is empowered by machine learning. Similarly, a cognitive computing solution can interpret, recognize multiple unstructured data from disparate sources, read them, and build a single source of supplier spends that is constantly refreshed. Another tool for connected sensors can digitize the transaction of raw materials, update status in real time and capture changes in consumption, demand, and delivery.

With these tools, procurement organizations can support complex analysis, create improved supplier strategies and lead to efficient operations. The challenge lies in determining the most appropriate digital strategy to introduce a technology driven-culture that aims at building an integrated approach to digital procurement. Technologies such as cognitive analysis, automation, digital reporting and cloud make the entire process simpler with evidence based options. Combining them with artificial intelligence significantly increases efficiency and accuracy in operations leading to a more agile organization supported by digital technologies.

Taking Steps Towards Digital Procurement

An agile approach is essential for delivering digital procurement. To improve the performance of procurement teams, organizations need to use emerging and maturing digital technologies. One can start small with one or two solutions and prioritize projects based on cost, impact and speed of implementation. From there, continual improvement can establish a culture of digital innovation in procurement. The journey towards reaping benefits of digitization, automation and advanced analytics starts with adopting the right digital procurement solution that supports continued evolution of procurement. CPOs must look to leverage data from real-time updates on activities from across the organization and make the switch to strategic sourcing from traditional procurement operations.

Meet the Author

Rajendran headshot

Rajendran Nair

Chief Marketing Officer
Rajendran has over two decades in enterprise software in roles ranging from development to product management to marketing. He was most recently at Rootstock, the leading ERP for Manufacturing on the Salesforce platform. At Rootstock, he was responsible for driving topline, streamlining sales and marketing operations, and substantially increasing market awareness including favorable positioning in four major analyst reports.
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