Home Articles News Product Focus Jobs Events Contact us Subscribe to Newsletter

Reforming procurement for Industry 4.0

18 June 2019

Much has already been written about the coming 4th Industrial Revolution (AKA Industry 4.0 or IR4.0), which is typically characterised (according to Klaus Schwab, founder and executive chairman of the World Economic Forum) by “a fusion of technologies blurring the lines between the physical, digital and biological spheres, collectively referred to as ‘cyber-physical systems’”.

It is the interconnectedness of technologies and the coordination with the business, its customers and consumers, that will drive the rate of IR4.0 adoption within an organisation. The key questions procurement and supply practitioners need to ask are: Are you ready for IR4.0? And how will it affect your procurement strategy and operations (beyond 2020) while sustaining procurement excellence?

Procurement excellence in IR4.0

When considering procurement excellence, one should carefully consider the main areas that may be transformed by IR4.0 technology deployments, such as robotics, digitisation, artificial intelligence, machine learning, and next-generation software solutions.

 

1. Business alignment

One of the greatest challenges for future-proofing procurement within the context of IR4.0, is to ensure that your procurement strategy is closely aligned with that of the rest of the business.

Manufacturing, IT, customer service, warehousing and logistics (to name a few) are already looking at new technological solutions that will enhance processes and help positively affect bottom-line results.

You should try and match these other divisional technology advancements by looking at leading technology solutions for procurement that can integrate with and compliment the business. Understand your business and the market in which it operates, and engage stakeholders effectively to ensure continuous alignment. The future of procurement lies in being a partner to the business.

 

2. Processes, systems and tools

Traditional ERP systems have evolved and new leading-edge solutions are now available that use innovations like machine learning and big data analytics to allow procurement to more fully understand discretionary spend data, supplier data, and contracts data.

These advanced technology solutions allow procurement to extract meaningful data and information from a number of systems, to maximise value from the supply chain, to make informed decisions about procurement strategy and garnish tactical advantages for supplier negotiations. Have you invested in procurement analytics, procurement benchmarking, working capital analysis, inventory optimisation and contract management technology solutions? These will become the bare technology necessities for procurement going forward.

Source-to-contract is also becoming ever more important to ensure a sustainable bottom-line flow through. Many organisations are already using procure-to-pay or invoice-to-pay modules or solutions, but they can enhance this further with source-to-contract to maximise value for the business. The days of using spreadsheets to analyse data are over, but – also consider – how effective are these solutions in managing contract compliance and supplier relationship management? This is where the real value lies.

 

3. Governance and compliance

Procurement departments are unfortunately still heavily focused on governance and compliance issues, with less focus on extracting value from the supply chain. Thankfully, governance and compliance can easily be addressed with the right technology or suite of technology solutions to enforce policy.

The real value of procurement does not lie in governance and compliance only; it needs innovation and value creation through out-of-the-box thinking. Technologies and services already exist for managing third-party risk, and existing ERP systems have well developed compliance frameworks using automated workflows. Compliance policies can be easily enforced in real time. In this context, let us be reminded of the “five rights of procurement”: right quality, right quantity, right place, right time and right price. This is what true procurement is about.

Bespoke's Procurement Excellence Model

 Procurement_Excellence 1.jpg

4. Performance management

With digitisation comes the ability to glean meaningful information in order to create customisable dashboards that can show performance in real-time, and then use the data analytic insights to drive performance.

Performance management in procurement includes the performance of the supplier or service provider (quality, service, delivery, etc.), the procurement unit’s performance (improved payment terms, savings, turnaround time, process enhancements, etc.) and the performance of the individual team members themselves(performance plan and training plan).

IR4.0 will enable capability building through digital platforms which may ultimately replace the more traditional ways of learning (such as on-the-job or external training). Some organisations have already adopted web-based leaning approaches using learning management systems (LMS) to develop, implement and manage skills development and talent management.

Andragogy (or adult learning) is also increasingly important for the new world that will require almost lifelong learning. Adults prefer to be given a problem to solve themselves (as opposed to being lectured on how to solve the problem), and this can be easily produced and delivered through a digital platform, such as web-based learning games and simulation environments.

 

5. Supplier relationship management

Supplier relationship management (SRM) is a key enabler for extracting value from the supply chain. Customer relationship management (CRM) is the flip side of SRM, and is entrenched in any decent sales approach. There are numerous CRM software tools available to manage a client relationship. Now we are already seeing the rise of dedicated SRM technology suites to help manage supplier relationships, including contract compliance, KPIs, balanced scorecards and relationship positioning. If one single technology solution does not cater for all of the aforementioned outcomes, there certainly is an opportunity to digitise the data through business intelligence (BI) tools to allow for meaningful and structured supplier engagements and supplier performance review.

SRM is a broad function and, although it is owned by procurement, it should be implemented and managed organisationally. Any employee that deals with a third party should be upskilled on SRM (and its associated feedback mechanisms) to manage supplier relationships effectively (including the necessary ongoing governance and compliance verification).

 

6. Strategic sourcing

Strategic sourcing is one area where dedicated technologies have been available for more than 15 years, and they continue to advance with new players capitalising on enhancements of older version solution suites. eSourcing solutions are common place, however many organisations are not using these yet or they are not using them effectively. IR4.0 will see the adoption rate of eSourcing and Reverse Auctions, increase significantly, with manual RFQ, RFP & RFT processes becoming a thing of the past.

Category management will naturally follow, with a need for agile approaches and the deployment of advanced data analytics and collaboration tools to manage complex and the expanse of categories of spend - as if the category is a business unit in itself.

 

7. Contract management

Similar to sourcing, contract management tools are widely available and range from simple contract repositories to end-to-end contract lifecycle management solutions. IR4.0 will compel these stand-alone modules or software solutions to integrate into and/or interface with other technology solutions to drive compliance, sustainable value creation and effective supplier relationship management. This will include the need for various stakeholders to collaborate more efficiently and effectively through digitisation by its very nature (e.g. legal, risk, third parties, approvals, adoption, etc.).

Procurement Excellence 2.jpg

8. People

The most far-reaching impact of IR4.0 will be related to people. The way we conduct our work will fundamentally change: processes will be radically reengineered, new systems will be introduced, and job positions that exist today may no longer be relevant tomorrow.

Ready yourself and your career by attaining the right set of skills to adapt to the new way of the world. Become agile and improve your change management and stakeholder engagement skills, and develop the right acumen to adapt to the Internet of Things (IoT). Relevant learning programmes are already available in the market that address the skills needed to prepare yourself for IR4.0.

The new challenge for procurement is on the horizon. Embrace the new technology advancements available to the procurement fraternity and combine this with the right set of skills and aptitude to identify, deliver and sustain value that can positively impact the triple bottom line. This will surely give you credibility as a skilled procurement professional and will no doubt provide your organisation with a competitive advantage.

Andrew Hillman.PNG

Contributed by: Andrew Hillman, CEO of Bespoke Group Africa

Article originally appeared in Bespoke:  http://www.bespoke.co.za/index.php/articles/366969-reforming-procurement-for-industry-4-0-by-andrew-hillman