The Future of Procurement – What to do today?
Dr. Marcell Vollmer
CEO, #KeynoteSpeaker 🤖 #Futurist 💻 #C-Level Exec, #Tech & #Advisor
In my first article The Future of Procurement - One Perspective I discussed how procurement goes digital and concluded that the CPO might evolve to a Chief Value Officer to create impact and drive measurable value for a company.
Most studies, reports and future trends focus on data, benchmarks and projections based on interviews from experts. The question I had a lot of times by reading the latest trend analysis or studies was, what to do now? In this release I will try to translate how the disruptive technology trends will impact the procurement function and how procurement could evolve to transition successfully into the future based on some concrete examples. I would like to invite everybody to provide feedback, own insights and contribute to a lively discussion. I don’t expect to find the ultimate truth or even be able to predict the future. I’m a strong believer in the quote from Niels Bohr that "prediction is very difficult, especially if it's about the future."
How will the disruptive trends in technology impact the procurement function?
Let’s use the example of Internet of Things to start with. When sensors are connecting all devices, incl. manufacturing material with the production machines, a warehouse might do the ordering of supplies in a highly automated way based on demand and based on new incoming orders. This example could even be taken one step further. As sales is using a CRM system, which can be linked to a calendar, like Outlook, the upcoming contracts and dates to sign a new deal are already in the system and the data can be used to plan production and to order the production material in time. The machine-to-machine communication allows fully automated process steps.
If a materials or spare parts can’t be ordered in time or a defect occurs, a 3D-printer might be able to support short term demand. In the future even entire supply categories might get printed.
On the administrative side, we are seeing more and more automation in operational tasks such as the source-to-pay process. Employees are ordering goods or services as well as travel using an online system. Purchase orders (PO) get created electronically, sent out to suppliers and converted to invoices, which get paid according to the agreed-on payment terms as soon as the goods receipt is in the system.
Automation in the demand, ordering purchase and invoicing processes will lead to lights-out transformation across administrative and operational processes as well. A lights out shared services for accounts payable might become reality to a large extent of what’s happening with PO and invoice processing. It is still fascinating that even the smallest businesses are creating an invoice with a computer today, an invoice still gets printed, put in an envelope, mailed and the receiving company has to open the envelope, scan the document and tries to capture the information by an optical character recognition system. The missing or not recognized data has to be entered in a system manually – mostly by people in a shared service center. The interesting observation is, that the quality will never be 100%. The process is error-prone and inefficient by design and creates a lot of inefficiencies. But there is huge potential for this to be optimized and even eliminated by avoiding paper and transportation, which will drive lower costs and greater sustainability.
The impact of all this automation and optimization on procurement, finance and the shared services that support them? They’ll become more strategic. The more things get automated, the fewer people are needed to perform tactical work such as processing POs, scanning paper and typing information into an ERP system. These resources can be shifted to more strategic activities such as planning and forecasting and supplier collaboration.
How can this automation – and ultimately optimization - be enabled? It starts by creating end-to-end process ownership from the purchase requisition to the payment (source-to-pay). Process governance is key to ensure the optimization and automation potential gets leveraged across the organization.
Then the systems have to be integrated as the end-to-end process gets defined. The cloud provides further potential to build on standard solutions, predefined processes by competitive and reduced total costs of ownership.
What’s happening today… What is the impact in the future…
Internet of Things with sensors and Operational and administrative tasks
high potential of automation from will get fully automated and by that
purchase order to invoice processing the procurement, finance and shared
to payments services organization will shrink
Processes are getting optimized and Lights out shared services by high
manual process steps assessed for automation and end-to-end source-
automation potential to-pay process optimization without
paper or non-digital process steps
across all organizations and
companies performing tasks
A lot of different systems are in use The demand of cloud systems
and operated by IT. A mix of systems and standard solutions will continue
and mix of on Premise IT solutions to increase and provides the potential
and partially selected cloud solutions to reduce the system complexity and
coexists. High pressure on costs forces the total costs of ownership, as
IT and lines of businesses to optimize cloud solutions can be considered as
and consolidate the system landscape less expensive than maintaining an IT
to reduce the total costs of ownership infrastructure only for one company
Time to create the future for procurement, finance and shared services
The (r)evolution in technology and disruptive new trends, like machine-to-machine communication will continue – and have a huge impact on existing businesses and business models. New technology will further increase the need for organizations to be agile, flexible and adapt to accommodate both current and future needs. Procurement will have to keep up with the changes and focus on the value the function can create for the lines of businesses.
Today is the time to consider how to structure and prepare your organization for transformation. And this means thinking about driving end-to-end process ownership, governance and optimization and an IT strategy that integrates clolud-based solutions with enterprise resource planning systems to support your efforts.
It is impossible to predict the future. But with the massive amounts of data and groundbreaking technology available today, you can plan for and shape it to your advantage…
Procurement Category Leader for Software, Applications, Information Security and Cloud/Hyperscalar Technologies including associated Professional/Technical Services
7yYou are absolutely correct Dr Marcell however all this is going to impact transactional and procurement operations work. The core sourcing, especially for indirect sourcing will still need to be done by experts and sourcing leaders. I think all this automation is driving procurement to move towards core strategic sourcing.
Senior Director Purchasing
7yLeave your thoughts here…Dr. Marcell, fully agree that technology will disrupt the S2P ecosystem. It will allow the procurement professional to (1) drive higher productivity through efficient management of lower value adding activities (2) focus to be better at what they are supposed to do at the first place i.e. strategic sourcing, bringing external-In and Internal-out; (3) get better at relationships with external partners as many transactional tension points get out of equation and (4) drive higher level of transparency and visibility in the organization which leads to higher value creation opportunities. It will not be an easy journey for many companies but I am sure a rewarding one!
Supply Chain , Sourcing and Procurement
7ySuch a good article thanks for sharing
Head Procurement at Baxter Pharmaceuticals | Ex Amneal, Piramal, Claris
7yYes I do agree that we must go into automated process of SCM as we can reduce our overhead cost of both (organization &a our partners) by this means and which can be helpful to both the parties.. System can be established from Requisition to payment to vendors which will be fully automated. Strong ERP will play major role here.
Procurement | Supply Chain | Logistics | Foreign Trade | Organizational Excellence | Continuous Improvement | Quality Assurance | Sky's the Limit!
7yI have read the two articles and both seem interesting to me. The split between the strategic and transactional procurement is relevant, since the transactional part will be increasingly automated (from the placement of the purchase orders to the payment to suppliers). It is important to mention that the correct alignment of the procurement strategy to the business strategy will be of vital importance, which will allow a better identification of the contribution to the business. To do this, it is important to strengthen some activities such as stakeholder management, early management for new product introduction, project management and supplier relationship management in order to have a full identification of the needs and be able to offer customized solutions obtaining the best quality, delivery time and the lowest total cost of ownership. I also believe that the repetitive and/or standardized purchases of many goods and services will be managed as commodities, which will significantly reduce the resources needed for their acquisition.