Advice for Procurement in the Digital Age

By James Marland

Entering a new decade that begins with the year 2020 gives rise to thoughts about what “2020 vision” means for procurement in the next decade, during which supply chain and procurement operations will digitally transform at a rapid pace. The trouble is, observers have been predicting “the changing world of procurement” for many years now and, according to the latest research from CIPS, the results have been disappointing. This article looks at why procurement is failing with many tech initiatives, and how leaders can turn this around.

To Compete Today We Have to Abandon Yesterday

There’s a great series of podcasts on the BBC at the moment called 50 Things That Made the Modern Economy, and one of the episodes is about the first spreadsheet (Visicalc). A grid on a computer screen took the world of accounting by storm in the early 1980s. A big part of what these “bookkeepers” did was literally to keep the books: add up ledgers, copy a number to another ledger, and when one number changed, re-do their calculations. When the spreadsheet first came out, it made 400,000 accountants redundant ... but only redundant in that they didn’t have to perform such mindless tasks anymore. They all found other things to do, more strategic, and all earned more money. Procurement needs its Visicalc moment.

Here are two examples of how we're still acting like pre-spreadsheet bookkeepers.

Consider the typical RFP, with which you ascertain all the requirements of the business, write them down, and ask vendors to comply. It’s a classic example of focusing on the inputs, not on the outputs. Surely the true value is to dig into the value chain and see what business outcome the stakeholders desire. Then share this information with potential suppliers and ask them to solve the problem and deliver an outcome, perhaps in a different way.

The second example is around long-tail spend, the some 20-plus percent of spend that typically goes unmanaged in organizations. The 80/20 rule applies more than ever, but too many expensive procurement resources are being deployed in the long tail. Procurement departments have lost credibility trying to inject themselves into this process.

To solve this long-tail problem, procurement needs to re-invent itself and move from the “Age of Mandate” to the “Age of Guidance.” Here are some practical ways to do that:

Accept the search engine. Allow access to marketplaces which have tens of thousands of suppliers and millions of items. Provide some light guard rails, but make the experience easier than googling and paying on a Pcard.
Go easy on approvals for small items. Focus on employee experience and live those “trust” values that companies espouse on their websites. Use artificial intelligence (AI) behind the scenes to spot fraud.
Allow end users to conduct “three bids and a buy” for items where they're the expert. For many service categories, the knowledge always lies with the end user. Let them select who they want to do business with, bringing a category manager in only when asked.
Enable a simple mobile navigation experience so users can find the correct path, for whatever they buy, wherever and whenever they need to buy it.

Technology Isn't Disruptive, People Are

Automating tasks doesn't mean they're dehumanized. Research by CIPS in Digitalisation in Procurement and Supply gives a list of a dozen technologies that procurement teams have experimented with throughout the years. The list includes the usual suspects: machine learning, AI, augmented reality, Internet of Things, and blockchain. But the research showed that although 97 percent of procurement teams had started using at least one of them, impact was “mixed” at best. Why? Sam Achampong of CIPS hypothesizes that’s because “we haven't focused on the human side, and not taken emotional quotient (EQ) into account.”

In other words, as these technologies become more pervasive, we must remember to focus on the people impacted more than the whizz-bang tech.

This means that procurement leaders need to develop enablement and growth plans for their teams. Many procurement teams underuse the corporate facilities that are available to develop skills such as data-based decision making and algorithms. In a recent blog, I gave examples of how people and machines can work by looking at the concept of “Centaur Chess,” when a human and a machine combine together.

In procurement it can be tempting to "pave the cow path" — automating a business process as is without thinking too much about whether that process is effective or efficient.

Sometimes we have to be bolder in thinking through the implications. You may decide that scanning invoices is something that a machine could do. The next stage would be to imagine a supplier sending the document electronically. The next might be to rethink the process completely so that there was no need for a typical invoice.

But changing people’s behavior is more disruptive than changing the technology.

There’s No Such Thing as 'Back Office Any More

I came across an interesting story of a sugar factory in Baltimore. Making sugar is a simple process: cane comes in on railcars from one end, and crystals go out on railcars on the other end. But this plant was stopped so it was losing production with all of its expensive assets (like locomotives) standing idle. The plant manager had a malfunctioning machine, but the supplier responsible for maintenance was refusing to fix it because, “You haven’t paid the last five invoices I’ve sent you. I can’t go on like this, I have to run a business as well.”

Suddenly, that accounts payable department became extremely important, as its inability to pay the invoices led directly to an expensive shutdown. In this example, the invoices weren't being paid as part of some grand strategy from Treasury to keep more cash on the books. It was just the same old story of bureaucracy in a large company: missing paper, unanswered emails, people on vacation, mis-keyed data, over-burdensome checks and balances.

“Leading companies understand that they're in the customer experience business, and they understand that how an organization delivers for customers is beginning to be as important as what it delivers.” — McKinsey

This is the reality of the experience economy, where businesses now more than ever focus on the customer experience. If, in procurement’s modern, digitally transformed age, you want to improve the customer experience, then you really must also consider the vendor experience, because the two are inextricably linked.

James Marland is global vice president of the SAP Centre of Excellence for Spend Management.