5 Digital Procurement Transformation Ideas (to challenge your thinking)
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Nearly every company is involved in some form of digital procurement transformation, but how many are actually seeing it pay off?
The answer is fewer than you might expect. Research by Bain & Company finds that only 8% of global companies have been able to achieve their targeted business outcomes from their investments in digital technology.
It means that the majority of companies are still struggling to deliver on the promises of a technology-enabled business model.
Procurement Transformation Ideas for the Digital Era
When we apply this to the context of Procurement, one of the biggest mistakes we are seeing is not challenging the existing thinking of what procurement functions have done for the last couple of decades.
Digital procurement transformation does not mean implementing a new P2P or S2P solution like Ariba, Coupa, Ivalua, etc – this is not digital procurement transformation. As Jon Hansen explains, “The technologies today no longer pose the same problems and limitations that were present in an ERP-only environment, yet people are getting no further ahead. They seem to be stuck in a holding pattern. What this means, is that transformation is no longer rooted in technology, the technology will do what it’s supposed to do.”
There therefore needs to be bolder thinking and a willingness to challenge the status quo. The focus needs to be on the transformational aspect, not incremental improvements. So, if you are looking for inspiration, here are five ideas you can consider that are aimed at challenging your thinking around how to evolve your function.
1. Embed a supplier experience and data flywheel philosophy into all activities
Costas Xyloyiannis, CEO of HICX, states “The philosophy here is that better experiences create better data and better data creates better experiences.”
In order for data to be kept up-to-date, and bearing in mind that the supplier is most often the source of the required data, every supplier has to be engaged with its customers as much as possible. If communications are difficult, multiple log-ins into different systems are required, or information is arduous to find, then suppliers are going to avoid any information sharing until a critical point is reached and that information becomes vital – and even then, it is likely to be limited to sharing only what is necessary to overcome a current bottleneck.
On the other hand, removing the complexity and friction that suppliers face when dealing with multiple systems and departments in your business and providing them with tools such as the ability to self-serve information that matters to them means that suppliers are enabled to efficiently accomplish what is needed – and will return more often to update more information.
The key is to ensure that for every new activity, every workflow, every process and every initiative that the supplier experience has been put top of mind. Take every opportunity to review the friction points in these activities and remove them. Review whether you have the best tools for each activity. Consider acquisition of new technologies in the context of how it impacts the supplier experience and data quality flywheel. Make it central to all that you do.
2. Be more Amazon – it’s all about the data
Amazon’s ability to conquer e-commerce and redraw the retail landscape did not come about from good luck. It was due to building data into the fabric of its operations from the ground up, a feat which allowed it to achieve visibility across its business, to make data-driven decisions and to stimulate and delight customers.
Successful Procurement functions of the future will be those that follow the same model for increasing the efficiency in how they work with suppliers. In a supplier-first, data-centric model, the metrics will have to go far beyond an internal target to make cost savings.
Instead, it will need to incorporate behavioural data that provides insight into the efficacy of the supplier experience being provided. This will include data such as supplier adoption of appropriate digital tools and channels, ongoing supplier engagement rates and initiative completion rates.
As Carmen Erhardt of Henkel explains, “What I think is interesting, in this context, is to start measuring what you’re demanding from suppliers. For example, one metric would be to count the clicks – how many clicks does a supplier need to make to do business with you?”
If we pause for a moment and consider that really the function is very much like marketing but just for supply markets, then we should think about savings differently.
In the same way as marketing has a contribution to revenue, that is not the only KPI and the only way in which marketing is measured. The same applies to Procurement and Finance – you cannot place the supply market function under Finance because it wrongly over-emphasises savings. Savings is a finance KPI which is hugely reliant on Procurement’s contribution. As the supply market gurus, there is so much more value which is being created beyond savings.
3. Segmentation is dead. Hyper-segmentation is king.
As consumers, we are all used to a world of increasingly personalized content and experiences, whether this is via recommendation engines or highly targeted adverts based on browsing history and similar. It is founded on the vast amount of information that brands can access about us. The same principle holds true for suppliers.
While the Kraljic matrix enables internal decisions to be taken about which strategies to use, its function is primarily to inform resource allocation. On the other hand, the second reason we segment, as Anthony Payne explains, “is for what one might call ‘experiential’ reasons. In other words, how do we adjust the experience that the supplier receives based on their characteristics? This is a much newer phenomenon but it’s one we know that some of the most forward-thinking organizations are addressing.”
The technology is available, for instance, to enable a supplier to access an enterprise portal in their chosen language, to see their preferred currency, to see the compliance and risk information relevant only to them, or to access important transactional information at the click of a button. This is in spite of an organization perhaps having 18 different ERPs, two P2P suites and a dozen other best-of-breed applications which might need to be accessed in order to serve the supplier.
As Anthony Payne concludes, “If you combine this with intelligent self-service so that the supplier can express their own preferences – just like I can choose the language on the website of a multi-national brand – you can deliver what feels to the supplier like a one-to-one experience just for them and that removes friction.”
Hyper segmentation can therefore be used to:
- Improve supplier adoption of enterprise platforms
- Improve outbound communications
- Improve outcomes of initiatives
- Improve supplier engagement
4. Procurement needs a Head of Supplier Experience
A common reason why Supplier Experience Management does not exist in many organizations is because no one has the mandate to own it. Corporations are too often internally focused, with each function having their own silo or solutions. Only once the problem is externalized and looked at from the suppliers’ perspective can the issues be identified and solved, as the whole experience is viewed end-to-end.
As Costas Xyloyiannis explains, “The real challenge here is, there is no owner of the supplier experience. Nobody has an end-to-end understanding of what the suppliers go through. That means, for a start, organizations do not see that they have a supplier experience problem. And, if there is no ownership, there is no way that the problem can be fixed.”
5. Procurement owns the inputs into the business
Suppliers reflect the brand. And consumers are starting to move away from companies that they consider unprincipled. A study by Deloitte has found that 45% of Gen Z consumers stopped purchasing certain brands because of ethical or sustainability concerns. As this pressure continues, so too does the reputational risk for companies that don’t comply.
To this end, supplier master data, the foundation upon which all supplier-related information must be built, has to be well managed. It’s crucial that organizations gather the right information at the beginning of the relationship, before keeping it updated during the relationship. This must be done in a structured and controlled manner and Procurement is best placed to manage all end-to-end supplier-related information and to make it transparent and accessible across the business. It should be given the resource to achieve this.
‘Transformation’ is usually thought of in terms of technology, but it is really all about the way in which people think and how they approach different scenarios.
You may not think these approaches are possible within your organization, however digital procurement transformation is all about pushing boundaries.
Meanwhile, the technology is there to enable these capabilities and to help deliver against these goals.
Article updated August 2022