In recent years, the business function of procurement may not have been the first area to spring to mind when it comes to digital transformation, but today this is all changing. Chief Procurement Officers (CPOs) are stepping into new, exciting roles where they can make procurement more strategic.
They now have the ability to influence 40-60% of an organization’s budget and to take a lead role in making choices that support corporate ethics and corporate social responsibility. In effect, they’re becoming Chief Collaboration Officers, Chief Purpose Officers and brand ambassadors for their organizations.
To understand more about the past, present and future of procurement, especially with regard to digital transformation and the CPO’s new mission related to purpose, I recently spoke to one of the top global authorities on this topic, Dr. Marcell Vollmer, Chief Digital Officer at SAP Ariba.
Dr. Vollmer has an extensive background in procurement, finance and supply chain with over four years as Chief Procurement Officer at SAP, over ten years as a finance executive at SAP, as well as having held several executive roles at DHL. As Chief Digital Officer, his role now entails helping SAP Ariba customers define their digital transformation strategies and helping them execute on those strategies.
The Past
Dr. Vollmer confirmed the stereotype that procurement in years gone by was indeed a back-office, heavily paper-based function, with a low level of automation. He shared that while it started back in Egyptian times, and was employed throughout the Industrial Revolution, it first gained its modern-day managerial role on a wider-scale in the 1950’s and 60’s with the concept of material management. In the 1970’s, the fuel shortage crisis made procurement more essential in terms of supplier risk management as well as strategic sourcing.
The 1990’s gave rise to e-procurement, and Ariba (now SAP Ariba) was founded in 1996 with the purpose of enabling companies to use the Internet to facilitate and improve procurement processes. Over time, the SAP Ariba network has grown to its current industry scale, which supports over 3.3 million companies in over 190 countries, and which conducts over $1.7 trillion in commerce annually. That’s over two times the annual commerce volume of Alibaba, Amazon and eBay combined.
The Present
In terms of the present-day role of procurement, Dr. Vollmer sees the role moving from its prior tactical function to a more strategic function, enabled by digital transformation. It’s one of the next major business functional areas to be transformed after well-known areas such as Customer Relationship Management (CRM) and Sales Force Automation (SFA) which came well before. He sees digital transformation impacting front-office functions first and now moving into back-office functions such as procurement.
The recent CPO Survey 2018, “What’s the Next Big Thing in Procurement”, jointly conducted and sponsored by Dr. Vollmer and Prof. Karsten Machholz, Strategic Procurement and Supply Chain Management, University of Applied Sciences Wurzburg-Schweinfurt, collected 452 responses from procurement and operational leaders across the globe and was released to the public at SAP Ariba Live in Amsterdam in late April.
The survey found that 83% of participants think digital transformation will impact procurement, supply chain, and finance more in 2018, than in 2017. In terms of the potential for automation, it found that only 5% had highly-automated systems and processes today, but that 63% of participants thought that automation was important and already had it on their roadmaps.
Technologies in use today included IoT/Industry 4.0 (22%), robotic process automation (19%), artificial intelligence/cognitive computing (9%), machine learning (8%), chatbots (8%), 3D printing (6%), and blockchain (3%).
As to the impact of automation on jobs in procurement, Dr. Vollmer sees team sizes getting smaller as many repetitive, tactical tasks are automated and what’s left are the strategic tasks – meaning that procurement teams can focus more on what’s important. This includes areas such as driving supplier innovation, focusing on risk management, and focusing on creating sustainable supply chains.
The CPO survey found that the majority of respondents have purpose objectives for procurement and see the value of doing so. They closely monitor risk management issues such as corruption and child labor risks across their supply chains. The survey also found that 55% of respondents see the CPO role evolving into a more strategic role in the future, such as Chief Value Officer or Chief Collaboration Officer.
The Future
In terms of the next big thing in procurement, the CPO Survey found that robotic process automation had top-billing with 20% of respondents planning to invest over the next 12 months. This was closely followed by artificial intelligence/cognitive computing (17%) and machine learning (15%).
Dr. Vollmer personally sees blockchain as one of the most disruptive technologies for the future with the distributed ledger providing a totally different way to drive transactions, gain visibility and establish provenance. In fact, according to IBM, blockchain for invoice processing could reduce cost per invoice by up to 60%. He also sees big data analytics as highly important to help organizations better understand their data and another key area where AI and predictive analytics can assist in providing valuable insights.
In SAP Ariba’s recent whitepaper, “Procurement 2025”, Dr. Vollmer outlines several use cases for predictive analytics in procurement including spend management, contract management, supplier risk management, go-to-market risk and error and fraud assessment. Across these use cases, advanced analytics engines can “drive holistic and futuristic insights to enable procurement to become cognitive, identify breaking points early, and unmask opportunities to innovate.”
As far as his advice for CPOs wishing to undergo a digital transformation journey, Dr. Vollmer had this advice: firstly, develop a vision for the role of procurement and the role you want to procurement to play for your organization. With this vision in hand, it can help you to give guidance to your team and to get people behind the changes required. For example, whereas your role previously may have been around cost-savings and demonstrating compliance, in the future your role as a Chief Purpose Officer may be around collaboration, sustainability and driving new business models for your company.
Secondly, think about how you can undergo the transformation, the numerous enabling technologies and use cases involved. Align your use cases with the priorities of your company. Ask what makes sense at this point in time for your business. This will help you to start to drive the change management essential for success.
Finally, while building success in driving the change with your team, remember that the most efficient procurement doesn’t help if the company business model isn’t correct. Strive to align procurement with the companies’ business model, but also be prepared to propose new initiatives such as purpose-driven objectives so your organization can maximize the top-line brand reputation value inherent in the digitally-transformed procurement function as well as bottom-line cost savings.
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