3 Procurement Challenges Facing Digital Transformation in 2019

3 Procurement Challenges Facing Digital Transformation in 2019

Digital transformation is changing and disrupting industries everywhere. With change, however, comes challenges, and procurement teams are in the thick of things. Now filling the role of “value creators” in an organization, CPOs and procurement professionals are facing tasks that go way beyond reducing costs and conducting spend analysis. Here are 3 procurement challenges that chief procurement officers face in 2019.

Procurement Challenge #1: Digital Readiness

While procurement professionals agree upon the importance of transforming digitally, a significant portion of CPOs still have difficulties grasping why it is inevitable. According to Efficio’s study on the digital transformation of procurement, 63% of CPOs and procurement leaders have rethought their approach due to new technologies. 78% believe it should be a boardroom priority. That itself looks like a great development.

Procurement Challenges - Digitization
Taken from Efficio (2019): „Procurement 2025: Is digital transformation driving more effective procurement?“

So, what’s the catch? Nearly half of the survey respondents admitted that activity is mainly driven by fear of missing out (FOMO) rather than a deep understanding of the matter at hand. Interestingly, when asked about the biggest barriers to success, only 37% of procurement professionals think that the capabilities of new procurement solutions are a hurdle to success.

To put it simply: a large majority of procurement leaders are aware that new technologies like AI, Big Data and robotic process automation (RPA) are ready to deliver great results. Yet only half of them are fully understanding why it is crucial to their success. That’s like jumping on a train because everyone else does – just without really knowing where it’s going.

One of the procurement challenges is therefore to first embrace technology as a helping hand, a companion that drives value creation for an organization. Becoming an expert in how digital procurement solutions are capable to reduce costs and drive innovation is crucial to reach future objectives.  However, there is a second step to it. CPOs have to accept the fact that their role is changing from a procurement leader to an expert in digital innovation and usage of data.

According to Mudit Kumar, Senior Director at GEP Worldwide, CPOs are “taking a much bigger interest into the technology and data conversations. Historically CPOs either used to work with somebody in IT to drive the technology agenda, or they would carve out a technology PMO within their organization which would focus on technology enablement.” ((ProcureCon, Amazon Business et al. (2019): „Examining the Role of the CPO as a Catalyst for Digital Transformation in a Time of Disruption“ ))

Kumar is not the only one anticipating a role change for CPOs in 2019. “To be a leader, you are not necessarily managing 500 people who are all working at the procurement desk. You now need to manage the bots and outsourcing relationships. That’s a different skill set than the motivator and strategist of yesteryear who was trying to incentivize an individual with a pay check” ((ProcureCon, Amazon Business et al. (2019): „Examining the Role of the CPO as a Catalyst for Digital Transformation in a Time of Disruption“ )), says Geoff Tonini, Sr. Manager of Global Supply Chain, Procurement and Strategy at Hess Corporation.

After all, the landscape of procurement is changing – but so are industries everywhere. We’ve listed 4 Things Artificial Intelligence will Change in the B2B Industry to display what AI alone can disrupt across sectors.  The bottom line is: technology is going to be the driver for value in an organization. So making friends with said technology is the first of 3 procurement challenges to face in 2019.

Procurement Challenge #2: Overcoming the roadblocks of digital transformation

Embracing digital procurement solutions is only the beginning though. Implementing new procurement technologies such as AI and Big Data lift your processes to a digital level, yet they are only one part of the bigger picture. The end goal must be a thorough  digital transformation of procurement and supply chain management. This entails moving away from data silos, increasing RPA and the adoption of the cloud.

Procurement Challenges - Path to Digitization
Taken from ProcureCon, Amazon Business et al. (2019): „Examining the Role of the CPO as a Catalyst for Digital Transformation in a Time of Disruption“

Let’s take a look at the status quo in the procurement industry.

Again, that development looks good on first sight. 50% of procurement teams consider their digital transformation as done or almost done. 34% state to be in the middle of it.

However, as is the case with every new implementation of software in your business, there are roadblocks you need to overcome in order to use new technology to your advantage. Let’s see what these obstacles are in procurement.

Half of the surveyed procurement leaders name lack of urgency as one of their key obstacles to digital transformation. Interestingly, that ties in with the huge portion of procurement leaders admitting they are driven by fear of missing out. It again showcases a lack of digital readiness amongst CPOs.

Procurement Challenges - Digitization
Taken from ProcureCon, Amazon Business et al. (2019): „Examining the Role of the CPO as a Catalyst for Digital Transformation in a Time of Disruption“

This is especially underlined by the 43% mentioning lack of internal expertise or talent as a central obstacle. It displays a lack of confidence of leaders in their procurement team.

Therefore, one of the central procurement challenges is to overcome the inertia that keeps CPOs from digitizing their procurement tasks. It is crucial to consider digital transformation as the most important process for sustainable value creation. Moreover, further education of procurement staff is necessary to keep up with evolving technologies, as Joshua King, VP & CPO of American Water Company, stresses.

“Like any procurement department right now, we’re going through transformation. We are focusing around the concept of doing more with the resources that we have and adding more value as we shift from a tactical focus to a more strategic focus. We are seeking to take routine processes and automate those, and upskill the organization so that it is staffed to focus on broader, bigger, and more complex business challenges.” ((ProcureCon, Amazon Business et al. (2019): „Examining the Role of the CPO as a Catalyst for Digital Transformation in a Time of Disruption“ ))

If you’re curious how to upskill your department, we’ve listed 3 Steps for CPOs to Build a Successful Procurement Team.

Procurement Challenge #3: Develop and execute a digital procurement strategy

Once obstacles are out of the way, the third of 2019’s procurement challenges arises: Creating a digital procurement strategy. Let’s take a look at another stat here to put the challenge into perspective.

Procurement Challenges - Business Plan
Taken from Deloitte (2018): „Deloitte Global Chief Procurement Officer Survey 2018“

Again, the results are astounding. While 83% of CPOs are aware of the benefits of a digital procurement strategy, only 18% have already one in place. Herein lies the challenge – diving into digital procurement technologies and completing a business plan for a thorough digital strategy and sustainable, value-creating objectives.

As they say, numbers don’t lie. And in this case, they once again show why digital procurement still isn’t a thing in 2019.

And yet, the benefits of digital procurement are significant. scoutbee, for instance, has developed an AI-driven supplier discovery suite. It takes care of the monotonous, tedious scouting tasks and enables you to focus on what really matters – value creation.  But there is more to it – here are 3 things AI is going to improve in procurement.

The third of the procurement challenges in 2019 therefore is to drive a digital procurement strategy. This is going to be one of the key tasks CPOs will have to take care of, says Greg Tennyson, CPO of VSP Global. “One of our objectives is to automate our processes, so technology can do the heavy lifting. Your technology creates supplier intelligence to identify the right sourcing partners. It’s identifying who you want to source from. It’s prequalifying the suppliers from a capability, financial viability, and risk perspective. Then, it’s just queuing up events.” ((ProcureCon, Amazon Business et al. (2019): „Examining the Role of the CPO as a Catalyst for Digital Transformation in a Time of Disruption“ ))

Conclusion

So, what to make of all this? Digital transformation is omnipresent and service providers are already utilizing new technology to deliver great results. Procurement teams, however, find it challenging to adjust to the change of circumstances. While it isn’t  surprising that this transformation is a lengthy process, it shows the industry is struggling. Procurement and Supply Chain Management still has a lot of work to do when it comes to implementing digital technology. Overcoming these 3 procurement challenges might help you to get a head start.

Curious how you can scout suppliers using scoutbee’s AI? Feel free to contact us.

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