White Paper Procurement needs a Digital Strategy Marketing executives across the world have very clearly been concerned with digital strategy for some time, leveraging the benefits of greater reach and impact, lesser cost and better brand management. However, there is a lack of evidence that digitization is being addressed by procurement in a similar manner. Digital technology - cloud, mobile devices, social media and Big Data - can deliver improved procurement performance through reduced costs, faster access to procurement platform solutions, accelerated access to information, flexibility in working, increased innovation and creativity, and improved procurement intelligence. To reap these benefits, organizations need to put in place a Digital Procurement Strategy for harnessing digital technology within the procurement context.
About the Author Dr. Gordon Murray Dr. Gordon Murray is a strategic procurement specialist within the Global Consulting Practice of Tata Consultancy Services. He holds an M.Sc. with Distinction in Purchasing and Supply Management, a Ph.D. in strategic procurement improvement, and is a Corporate Member of the Chartered Institute of Purchasing and Supply. 2
Table of Contents 1. Introduction 4 2. Digitization for Improved Procurement Performance 4 3. Cloud Technology: Reduce eprocurement Platform Costs and Achieve Faster Implementation 5 4. Mobile Technology: Reduce Transaction Costs, Accelerate Access to Information and Deliver Flexible Working 6 5. Social Media: Reduce Risk, Increase Innovation and Creativity 6 6. Big Data: Better Procurement Intelligence 8 7. Conclusion 10 3
Introduction A digital media influence report has found that 60% of brand marketers anticipate a 40% increase in 1 social media spend in 2013. In contrast, we find that procurement, a business function that, like marketing, straddles the boundary between the internal organization and the external environment, has not really woken up to the benefits of digitization. Procurement deals with suppliers, internal process owners, as well as the organization s buyers and partners, and can gain from the cheaper, broader and innovative networking capabilities that digital technologies offer. We believe that in a short time, no organization s procurement will be untouched by digitization. Therefore, early adopters can expect to shape the agenda and gain competitive advantage. Digitization for Improved Procurement Performance A Digital Procurement Strategy is more than using mobile 'shopping cart' applications or Twitter for advertising Invitation to Tenders (ITTs). It addresses the use of cloud, mobile technology, social media and Big Data to achieve its strategic objectives such as cost reduction, risk mitigation, innovation and CSR. It also touches upon internal adoption of this change, and developing the skills of procurement staff to take advantage of digitization. Cloud: Using cloud technology allows investing in eprocurement solutions that were previously cost prohibitive, but are now becoming affordable, quickly accessible and consumable on demand. It provides the potential for previously unimaginable instant integration between applications, platforms and social media. Mobile Technology: Mobile technology provides anywhere access to procurement executives and provides greater scope for flexible working. Social Media: Social media platforms offer organizations tremendous scope to converse with external stakeholders, enabling benefits like cost reduction, innovation, responsible procurement, and risk mitigation. Equally, the organization needs to recognize that social media presents an additional risk to the organization s profile and ability to gain and retain preferred supplier status. Big Data: Big Data enables the organization to make sense of what would otherwise be unmanageable data; organizations need to put in place analytics which deliver procurement intelligence, enable timely decisions as well as closed loop integration with eprocurement platforms to facilitate intelligent automated decision making. 1 Technorati Media s 2013 Digital Influence Report, February 5, 2013; accessed March 7, 2013; URL: http://technorati.com/business/article/technorati-medias 2013-digital-influence-report/ 4
The following sections look at each of these tools, discussing their benefits and adoption. Cloud Technology: Reduce eprocurement Platform Costs and Achieve Faster Implementation Cloud technology completely transforms the eprocurement business justification. Some years ago, most organizations could see clear benefits from eprocurement, yet struggled in constructing a robust and compelling business case for the upfront capital investment required. The cloud has fundamentally changed that business model - what used to be an unaffordable capital investment can now be viewed as a revenue investment. Typically, costs are reduced by 20-30% (excluding benefits on spend) for a contract commitment of a minimum of three years significantly less than what most organizations would have based a traditional business case on. The business case dynamics have been turned on their head largely due to the availability of 'Pay as you go' models also known as Software as a Service (SaaS). It allows organizations to subscribe to an eprocurement solution and pay on the basis of consumption. Concerns about how many licenses are required become less critical and supply can be flexed to match demand. This means that accessing what may have been cost prohibitive in the past is now affordable; for example, spend analytics, Source-to-Contract and Procure-to-Pay (P2P) solutions. Equally, it means that there is little need for procrastination and deferment due to updates and newer versions of software - the provider updates the cloud hosted solution. The other aspect of cloud technology is that it enables the use of applications, or apps as they are commonly known. The impact on procurement is that apps can now be accessed and developed to reflect specific needs. The challenge therefore is to define the appropriate applications portfolio needs and, if a suitable app doesn't exist, to incentivize its development. The procurement professional now needs to become both a visionary and a discerning selector of the ever-increasing range of available apps. Cloud technology also enables apps to talk to each other, so, customers apps, marketing apps, suppliers apps, and supply chain apps all have the potential to be interconnected. Visualize the Olympic stadium having the capacity to instantly exchange information and 'know how' with every person in the stadium, including the athletes and the coaches, and every person watching the Olympics throughout the world - that's the sort of reach that cloud interconnectivity has the potential to deliver within a Procurement Strategy as well. A cloud based eprocurement platform can be put in place in two months and delivers the following benefits: 1. Reduces investment cost and risk in technology; 2. Accelerates access to eprocurement solutions; 5
3. Changes the business case for eprocurement; 4. Enables the use of apps and interconnectivity between apps; 5. Helps improve contract management, innovation and creativity, and new supply sources; 6. Harnesses the potential of cloud to transform procurement. Mobile Technology: Reduce Transaction Costs, Accelerate Access to Information and Deliver Flexible Working With mobile technology, there will no longer be a need for procurement executives to be linked to a desktop to access eprocurement systems. Even processes that require paper records for data input can be digitized for mobile platforms with the help of Quick Response (QR) reader codes. Apps on mobile phones can enable remote approval of shopping cart requests, making the process faster and cheaper, in turn reducing P2P time and increasing productivity. Mobile technology, thus, reduces transaction costs as well. Mobile technology also enables device flexibility. Mobile phones, tablets, and laptops can all access eprocurement systems. Indeed, the concept of Bring Your Own Device (BYOD) stretches that flexibility even further with the employee providing their own device at their own expense, at the service of the firm. This benefits the organization by freeing up costly office accommodation and location. However, implementing BYOD involves certain risks concerning minimum specifications, loss, insurance and most importantly, security. None of these need be showstoppers, but a Digital Procurement Policy and Strategy needs to address these issues, and, more specifically, how productivity can be improved, risk reduced and costs managed through mobile technology. Social Media: Reduce Risk, Increase Innovation and Creativity The cloud and mobile aspects of a Digital Procurement Strategy provide the means for social media engagement. Social media provides procurement the ability to carry on a meaningful conversation with the supply market. Of course, that assumes procurement has recognized the strategic advantages of 'talking with' as opposed to 'talking to' their supply chain. Consider having to handle a point of clarification with an RFP releasing it in the form of a conversation with the market through micro-blogging sites such as Twitter or Yammer will be easier and less open to challenge. Benefits gained from conversations over social media are the same as those gained through direct conversations. It is fair to assume that often direct conversations have resulted in suggestions that save money, trigger a better of way of solving a problem and even avoid crises. Thus, social media conversations with the supply market, existing suppliers and potential suppliers, product and service users have the potential to generate suggestions on how to reduce costs, be more creative and innovative, and reduce risk, and the Digital Procurement Strategy should set out how it will happen. 6
On the other hand, social media changes the market place dynamics. The buyer may not shape the conversations but become the subject of the conversations. The potential for the buyer to be 'named and shamed as a bad payer and also for the market to make comparative assessments of buyers are very real. Those conversations about the buyer may be beyond the buyer's control but are new risks that need to be recognized and reflected in a Digital Procurement Strategy. While there are a plethora of social media sites which can be accessed and have their place in a Digital Procurement Strategy (such as Blogs, Yammer, Twitter, YouTube, Facebook, LinkedIn, Slideshare), starting from the perspective of available channels is an easily made mistake. Instead the starting position should be: who are the audience you as an organization want to converse with, and, what is the desired outcome? Also important is the identification of conversations that are to be exposed only on company internal social media, as against conversations that can be had on public fora. Table 1 highlights some potential uses of social media in procurement: Internal consultation on potential specifications to clarify the problem to be solved Business case development and critique Co-production of specifications Internal collaboration on category management including demand management and scope for aggregation 'Closed sites' of approved suppliers Cross-function bid evaluations Reverse marketing Identifying opportunities of 'piggy backing' contracts Risk identification, assessment and management Supplier references and appraisal Supplier feedback on buyer performance Contract management including feedback from users External consultation on the outcomes to be achieved Widening the scope of potential options to be appraised Soft market testing Dynamic publication of forward procurement plans Consulting on evaluation criteria and weighting Supply market research KPI consultation and reporting Use of expert Delphi panels Internal and external customer insight and feedback Issue of procurement 'challenges' Publicising evaluation criteria and weighting Posting RFPs and ITTs 7
'Whistle blowing' Collecting lessons learnt Procurement training Soliciting suggestions for cost reductions and quality improvement Collecting benefits realized Supplier briefings Supplier tier 'dating agency' Table 1: Potential Social Media Opportunities within a Digital Procurement Strategy The ability of procurement to leverage social media, of course, depends on whether the organization as a whole has a social media policy in place which is yet to be achieved in many companies. The necessity for organizations to make social media a part of their market interactions is the subject of many discussions today; suffice to say that a company that is not social yet has no idea of its real brand value or perception. In summary, with respect to social media, a Digital Procurement Strategy needs to: 1. Set out how the organization will use social media as a means of conversation, problem-solving, innovation, risk reduction and learning, both internally and externally; 2. Set out how social media will be used to achieve procurement objectives; 3. Set out how the organization will manage the risks of the market conversing about 'procurement'; 4. Set out the target audience to be conversed with; 5. Evaluate and set out the social media challenges to be used. Big Data: Better Procurement Intelligence When adopting digitization, organizations need to also recognize the risk of being overwhelmed by enormous amounts of data. A Digital Procurement Strategy essentially removes an information deficit, but in its place there is a risk of information overload and clutter - clutter that needs to be captured, curated, stored, made retrievable and searchable, shared, analyzed, and visualized. The potential benefits gained through conversations and listening within a global supply market stakeholder community have been discussed above. In the digital space, the conversations are linked and taking place simultaneously - a cacophony of amplified noise. But conversations are only part of the digital equation; integration with the eprocurement systems is the other aspect, making it necessary to process a phenomenal amount of information. The Digital Procurement Strategy needs to address this need and make it possible to process all input and siphon off what is important to procurement decision making and respond proactively. 8
Given that cloud technology offers an integrated approach to systems, the potential for closed loop automated intelligent procurement decision making systems is now available this potential needs to be carefully thought through and optimized. Big Data analytics provide the means for making sense out of the clutter and harnessing the opportunity. The Digital Procurement Strategy needs to define the Big Data adoption approach for the achievement of outcomes. If we were to capture data, mine it and uncover patterns, we could, for example: Predict the demand or level of consumption of a good or service and profile demand; Predict the optimum supplier capability and capacity required to deliver a required outcome in a given situation, and therefore reduce paying for over-capacity; Identify the costs which could be removed to deliver a given solution; Predict supplier behaviour and their likely negotiating responses; Predict the optimum form of contract pricing, for example, fixed price, index linked; Predict the optimum contract term; Predict the most advantageous time to 'go to market'; Predict the optimum period required to solicit the best bid; Predict the optimum budget and whole life costs; Predict the key areas to focus on in contract management; Predict procurement risk profiles and optimum mitigation strategies. Even a marginal improvement as a result of these predictions could have a radical impact on effectiveness. 9
Conclusion Organizations need to avoid being shaped by the digital technology, and instead shape their responses to it proactively. To do that a Digital Procurement Strategy is required. Some recommendations on moving forward: 1. Review your eprocurement investment plans and challenge the business case based on the availability of SaaS platforms; 2. Review your applications portfolio, as is and to be to make optimal use of integration potential; 3. Review your applications portfolio for business needs if a business need exists but a solution is not presently available, issue a design challenge to the market; 4. Review your use of mobile technology to determine investment plans, establish opportunities for cost reduction and have a clear policy on BYOD; 5. Review your approach to flexible working to gain maximum advantage of digital technology; 6. Ensure your social media policy reflects procurement needs; 7. Review the potential positive and negative impacts of social media on procurement, develop a proactive plan to use conversations to achieve strategic objectives and mitigate the risk of profile damage; 8. Understand what the business needs are for procurement intelligence and develop an integrated approach to Big Data analytics; 9. Complete a training needs analysis and factor in to a learning and development plan; 10. Develop a Digital Procurement Strategy and performance manage its implementation. 10
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