Why Digital Procurement Still Isn't a Reality in 2019
Across the world, businesses of all sizes have been making moves to maximize the benefits of digital technologies. Procurement, however, is a different story. Despite the many exciting promises of digital procurement, very few organizations are serious about embracing it.
Digital procurement – A status quo
As revealed by the Deloitte Global Chief Procurement Officer Survey 2018, a lack of implementation of digital technologies is among the primary limitations of today’s procurement strategies. Despite the fact that technologies like analytics, blockchain and automation provide positive impacts, the vast majority of organizations continue to put the digitalization of procurement on the back burner.
In stark black and white, the survey shows that a number of issues are at play when it comes to implementing digital solutions in the world of procurement. Some key points from the survey include:
- Around 17% of procurement leaders have no digital strategy in place for procurement.
- Among organizations that have such strategies in place, less than one third of respondents believe that digitizing the process will improve procurement practices.
- Only 3% of procurement leaders believe that the personnel has the necessary skills.
- Just 18% have a digital procurement strategy supported by a complete business case.
Digital procurement – The benefits
These findings are particularly unfavorable because digital procurement does provide numerous benefits.
- Source-to-contract process is more predictive – Thanks to AI and other digital technologies, predicting demand is more effective. Spending can be managed in real time. Purchasing agents can understand the full cost of commodities more easily. Organizations are better prepared to predict future suppliers.
- Purchasing to payment becomes more automated – Through digitization, material demand and the resulting requisition delivery can be automatically detected and initiated. Repetitive processes are eliminated, increasing productivity and efficiency, and payments are triggered in real time.
- Management of distributors becomes more proactive – With digital procurement practices, organizations can monitor distributor risk in real time. This allows for improved risk management activities. Visits to dealers can be conducted via augmented reality, which saves time. Audits of suppliers can be accomplished quicker through crowdsourcing. Sustainability can be monitored through automated reporting and visualization.
The future of digital procurement
According to the Deloitte survey, 66 percent of procurement leaders cite the following as areas that are poised to change the most over the next five years: sourcing and operational buying, business planning and strategic development and dealer management. Over the next two years, areas that are poised to have the greatest impact on businesses include analytics, the renewal of operational processing tools and the renewal of strategic procurement tools.
Data transparency: A key outcome of digital procurement
As procurement becomes increasingly digitized within an organization, data becomes increasingly transparent and thus more useful. This results in improved supply chain transparency and delivers the following benefits:
- Improved insights – Through the process of digitization, previously unavailable information becomes readily available. This allows for improved data-driven insights that help purchasers make more confident buying decisions.
- Better use of resources – With real-time information available with a click, organizations can be more strategic and efficient regarding the use of available resources, leading to less waste and more savings.
- More efficient operations – As various procurement processes become automated and digitized, operations across an organization as a whole become more efficient. As a result, less time is spent managing these tasks. AI in procurement, for instance, will manage a lot of repetitive and tedious work.
- Improved decision making – The timelier and more accurate that the available data is, the easier it is for an organization to make informed and strategic decisions.
To drive home the importance of information and supply chain transparency, consider this: In the survey, 45 percent of procurement leaders cited a lack of integration and poor-quality information as the biggest hindrance to implementing digital technologies in the procurement process. Without digitization, however, access to all of the necessary data is not feasible.
Digital Procurement: Doing it right
Obviously, there are procurement challenges facing digital transformation. The survey shows that the majority of organizations are lagging woefully behind when it comes to digitizing their procurement processes. However, some companies have done so successfully. These companies tend to share certain characteristics that make it easier to implement effective digital procurement strategies, including:
- They invest in digital technologies – Put simply, an organization can’t hope to realize the true benefits of digitization without directing enough money towards making it happen.
- They prioritize finding top talent – Companies that come out winners in the digitization of procurement tend to place a top priority on building a successful procurement team consisting of digital natives.
- They develop a digital culture – Organizations that do well in this area focus on creating a digital culture that emphasizes the use of technologies at every level of the enterprise.
- They are savvy about implementing such strategies – The most successful organizations in this area take an agile approach to implementing these strategies. For example, they introduce small, experimental changes into enterprise-wide initiatives to assess their impact more effectively and efficiently.
- They have leadership that embraces digital technology – At the end of the day, no organization will succeed in this area without the right leadership mindset. Leaders are embracing and prioritizing digital technology.
Will 2020 be the year of digital procurement?
Although few companies are actively embracing digital procurement, things are starting to change. More and more organizations are becoming aware of the positive impacts of digitization. Companies like Audi, Airbus or BASF are already using artificial intelligence to scout suppliers faster and more efficiently. With some of the most prestigious organizations leading the way, 2020 might well be the year of digital procurement.