When it comes to determining the most effective of procurement companies, the crucial factor comes down to technology. While technology has always played an important role, it will be the digital transformation in procurement that separates the wheat from the chaff when it comes to world class performance and world class operations.
Digital supply chain procurement comes in the ability to outpace and outperform companies that aren’t taking advantage of the technology. According to a report by the Hackett Group, a typical company with $10 billion in revenue that uses a top grade digital procurement system can save upwards of $6 million a year.
What Is Digital Procurement?
It’s one thing to read about the advantages of digital procurement and it’s another to see them in action. There are a number of companies who have benefited from digital procurement services across a wide number of industries.
Nouryon (formerly AkzoNobel), for example, a multi-product, multi-divisional and multi billion dollar global chemical company, ship a wide array of polymers, inorganic and organic chemical products from their 43 factories worldwide, with an annual container usage of 55,000+ TEU's. However, with their 55,000 TEU's spread out over 6,000 shipping lanes, Akzo found it difficult to use this volume to obtain competitive ocean freight rates according to a case study from Xeneta.
However, Nouryon's digital procurement program enabled the company to maximize the understanding of their own information, freight procurement data and compare them not only to the development of the market but also to that of their peers.
These are the main areas benefiting from digital procurement:
1. Stakeholder experience
2. Developing procurement-as-a-service portfolio
3. Analytics/data and insight
4. Accelerated transformation with technology
Actionable data offers invaluable insights for companies looking to optimize their operations. The final result is improved operational efficiency combined with reduced operating costs which can make a considerable difference for any business that’s seeking to do more than simply break even.
Digital Procurement Trends
Digital procurement trends have also lent a hand in letting companies cater more to their customers’ needs.
“Past technology-driven transformations automated processes within and between enterprises. In contrast, digital transformation uses technology to engage internal and external customers through interactive cloud-based tools and portals, to provide better service to stakeholders, and to leverage big data and predictive analytics for better, faster insight,” according to the Hackett Group report.
Access to data in real time means creating a predictive or “what-if” model which can be invaluable to risk mitigation and management. For example, what if a bottleneck in the supply chain would cause a massive delay and risk putting delivery times behind schedule? Knowing what could happen, can make the difference in actions taken if it does happen. Predictive modeling is just one of the many advantages to be gained by having access to more data in a timely manner.
Procurement Digital Transformation
The freight industry has been fairly static for quite some time, even at the risk of becoming stagnant. Digital procurement and digitalization in the industry are changing that. In fact, it is the digital transformation that is increasing the speed of change. As companies gain access to more efficient practices, information and actionable data, the pace of technological evolution is accelerating as is the speed of adoption and adaptation to these new technologies. What once might have taken years to adopt and integrate can now be done in a matter of a few months, if not weeks or even days.
“Analytics-driven insight, or a procurement function that relies on big data and advanced analytics to drive insight and bolster decision-making will be best-in-class. The hallmarks of information-centric, world-class procurement organizations are the presence of a sophisticated information/data architecture that makes effective data analysis possible; planning and analysis capability that is dynamic and information-driven; and performance measurement that is aligned with the business. Without an advanced information management capability, agility is impossible. Agile operations require a “sensory” system that monitors external conditions, plus analytical capabilities that comprehend this data within the business context. This flow of feedback information is the basis for business decision-making,” says the Hackett Group study.
ROI - A Self Fulfilling Strategy
Return of Investment represents a major consideration for most companies when it comes to implementing new technologies. The shorter the ROI, the faster companies can start making a profit on the new changes. According to the study, for world-class procurement groups that embrace digitalization and establish a digital procurement system the ROI is significantly higher. Payback on investment of 10.4X, versus the 4.6X rate of peer group companies. However, even the ROI for the world-class group is starting to slow down. As cost reduction and savings are expected to level out over the new few years, companies, even world-class, will have to find other methods of creating value.
Success in this rapidly changing market will be measured in how well companies can adapt to the technological evolution. It’s no longer simply a matter is of getting a freight cargo rate from A to B. Customers are hungry for more actionable data to feed their own processes and as a result, the supply chain needs to be more connected than ever.
From start to finish, every piece of useful information that can be gleaned needs to be marked, filed, and processed into something useable. Understanding this and implementing it will create the hallmark for success, while failure to do so will put companies at risk of being outmoded and outdated. Whether it be for procurement purposes or simply making your company’s supply chain more efficient, digitalization already is and will be your key to the future.
However, as always we must be mindful of the training needed to make this a reality. The intent is not to have misplacement of workforce, but rather train the workforce to think differently by understanding how digital procurement practices can improve and optimize everyday work tasks. Technology, AI, machine learning and the rest of the innovative technologies are not going to alone run the logistics and supply chain management. Human interaction will be needed at different stages for quality control and other unforeseen actions. Therefore, the talk about digitalization, not only in our industry, but in all areas, must never leave behind the point about training and a smooth transition for all parts involved.
Related reading: Supply Chain Talent Crisis | The Imbalance in Future Logistics