The rise of Industry 4.0 has spawned a mini revolution of its own - Procurement 4.0. By harnessing the potential of cyber-physical systems, Procurement 4.0 is empowering Chief Procurement Officers and other supply chain professionals to leverage better data to their advantage. Enter Procurement 4.0.
Most likely, when you think of procurement, it’s all a bit… grey. Faceless paper pushers in drab offices, managing tasks manually, relying heavily on paperwork and impenetrable Excel spreadsheets, making calls or sending emails for updates, and ensuring that goods and services travel from one point to another within a specified time frame.
That. Was. Yesterday.
Today, in a complex and volatile business environment, organisations that do not adopt a smart approach to procurement risk losing out to their more digital-savvy competitors. In the future, considerable impact will be created by the ability to make data-driven business decisions, and digital procurement has the potential to provide a significant part of the data relevant to these decisions.
Enter Procurement 4.0.
What is Procurement 4.0?
The fourth Industrial Revolution, also known as Industry 4.0, refers to the growth of cyber-physical systems that are increasingly bringing the physical world online. To date, the Internet of Things (IoT), artificial intelligence (AI), and other technologies have transformed what’s feasible and, through the use of data management platforms, end-to-end visibility in supply chains is no longer just a pipe dream. While this visibility has had an enormous impact on almost every aspect of the supply chain, there’s one area where it’s particularly exciting: procurement.
The current situation
While the revolution has begun, it’s true that Procurement 4.0 is still in its infancy. A recent survey by Forrester found that just under a third of businesses (30%) have digitised more than half of their procurement processes, and a large majority have only digitised around 25% of any process. Furthermore, the research found that just 16% of organisations are truly advanced when it comes to procurement transformation. In addition, while 84% of procurement organisations believe that digital transformation will profoundly change the way their services are delivered, only 32% have developed a strategy for getting there. However, the fact that products and services procured within an organisation can account for up to 80% of organisational expenses highlights how crucial it is that businesses drive their procurement departments towards digitisation, innovation, and added value.
The benefits of Procurement 4.0
Thanks to digitisation, Chief Procurement Officers now have the chance to consolidate their organisation’s competitive position on the market, as well as increase their own department’s efficiency. A recent survey by a procurement management group found that manual activities account for 60 to 80% of the workload in a procurement department. By implementing Procurement 4.0, a huge percentage of the time spent on mundane administrative tasks could instead be spent on strategic decision-making activities. Moreover, Deloitte calculates that companies with optimally structured procurement save 21% on personnel costs and up to 30% on process costs.
Other advantages include:
- Consistently standardised processes ensure an automatic flow of information
- Global networking and integration of suppliers
- Stimulating innovation amongst suppliers - research on innovation management by procurement, carried out by the Fraunhofer Institut and Ernst & Young, shows that 20 to 40% of innovation is already being generated by suppliers on behalf of another company, regardless of the innovative strength within the original company
- Increasing corporate social responsibility (CSR) by incorporating CSR into processes such as supplier assessments and purchasing decisions
- Reducing organisational risks by improving compliance procedures and carrying out supplier audits
- Increasing connectivity by creating platforms through which internal and external parties and stakeholders can access data, processes, and more.
Procurement 4.0 means that procurement will become a strategic interface in driving organisational efficiency, effectiveness, and profitability, and inspiring the creation of new business models, products, and services.
Procurement 4.0 - How to get started?
In order to digitally transform your procurement function, continually applying the following four steps is recommended:
- Identify potential and set goals
As a first step, companies need to assess their current position in the procurement process within their own organisation, including in relation to external stakeholders. How far along is your company in the digital transformation of procurement? Understanding this will allow you to identify potential, as well as set short-, medium-, and long-term goals.
- Select people and tools
Once you have set your goals, you can start working to achieve them. Which people and stakeholders are necessary to realise your goals and which technologies are needed? Digital tools can support and augment the procurement function by, for example, using automation to cut down on tedious, repetitive tasks, using digital assistants to accelerate decision-making processes, or driving innovation by using technologies that provide insights to customers and suppliers.
- Digitisation of procurement on the basis of customer, product, and supply chain
It’s essential that communication takes place between all areas of the digitised supply chain. So that the procurement department can add value and be effective, their strategy must be aligned with the strategies of production, supply chain, and the company. As Henry Ford once stated: “Coming together is a beginning, staying together is progress, and working together is success.”
- Tracking and modification
The previous three steps are meaningless unless impact and value creation are measured and evaluated. In doing this, new knowledge and insights are gained which, in turn, contribute to new goals. If your goals were not achieved first time round, you can adjust the procedure or goals or both, creating a culture of continuous improvement across the entire organisation and supply chain.
This is not some futuristic utopia but already commonplace in many organisations. Procurement 4.0 is shining a light on new potential that cannot be achieved using traditional methods.
Therefore, the question is: What do you want procurement in your organisation to look like in the future?