Technology's impact on a supply chain organization hinges on the adaptability of its leadership, a truth particularly salient in procurement. Successfully navigating and leveraging digital transformation demands that procurement professionals strategically consider several key factors.
The first step is a critical evaluation and potential redesign of existing procurement processes. Obviously, digitizing flawed processes merely amplifies their problems. This is followed by automation, when the refined, digitally enhanced processes are implemented. Subsequently, clear objectives and plans must be communicated across the organization to employees, customers and stakeholders. The evolving landscape may also necessitate adjustments in leadership and employee capabilities. Explore strategies for talent upskilling to align with the new digital framework. Finally, a thorough assessment of the company's digital maturity is crucial.
6 procurement process improvements
1. Build a resilient foundation. Embarking on a digital procurement journey begins with lean thinking to streamline operations, reduce waste and lead time, and ultimately meet customer demands for service and quality. Integrating six sigma principles further strengthens this foundation, enabling data-driven process improvement and delivering significant performance enhancements.
Next, meticulously map both manual and automated activities within the organization, identifying and eliminating those that offer little value. Key tasks include prioritizing processes for digitization and assembling a dedicated project team. This team will define the project's context, vision and strategy. True digital transformation transcends simply applying technology; it requires envisioning novel ways of working, even independent of technological focus, to unlock new efficiencies.
Procurement professionals must also construct a compelling business case that clearly justifies the rationale for embracing digitization. It should underscore the value proposition, highlighting improvements in speed-to-market, cost reduction and enhanced agility, responsiveness and customer-centricity — all vital for supporting the overarching business strategy. Crucially, this initial phase must also incorporate risk assessment and mitigation, integrating tools and processes to proactively identify and address potential disruptions. In particular, consider geopolitical instability, natural disasters and supplier financial vulnerabilities. Developing robust contingency plans, outlining what-if scenarios and corresponding responses, is equally essential for building a resilient procurement function.
Once a clear digital strategy and a persuasive business case are established, transparent communication with employees is paramount to foster a culture of change and cultivate internal champions. Toward the end of this preparatory stage, a resilient procurement committee can be formed to review and approve process proposals.
2. Establish visibility and sustainability. The project team then focuses on understanding customer needs and defining key metrics for measurement, monitoring and continuous improvement. Mapping the current process state is crucial, encompassing both manual operations and existing automated flows, including applications, systems and automated sequences.
Leveraging data from the data warehouse, when available, significantly enhances the measurement process. The integration of information and communication technology further strengthens lean procurement initiatives in this phase. Key activities include defining improvement areas, setting project objectives, forming the implementation team, analyzing the current environment (organization, vendors, processes, logistics), determining current and expected product and service requirements, identifying opportunities and potential benefits, and establishing implementation plans.
The outputs of this stage should be consolidated into a project charter, a master document that outlines long-term objectives and the impact of digital initiatives on the organization. It should also include process efficiency and savings targets, system capabilities, integration needs, visibility and reporting functionalities, user engagement and adoption strategies, and supplier enablement plans. This stage must also prioritize diversification of suppliers to mitigate single-source risks and build a network of alternatives. Furthermore, an effort to improve supply chain visibility through technology is vital for early identification of potential disruptions.
The second part of this stage involves defining and selecting critical quality metrics and key performance indicators, collecting sufficient data to validate the need and quantify potential benefits, determining specific project goals, and making a go/no-go decision for the subsequent phases.
Environmental, social and governance (ESG) considerations are essential to supplier selection and performance monitoring policies. Implementing supply chain transparency to track and report on environmental and social impacts, adhering to ethical sourcing practices ensuring fair labor and human rights, and exploring circular economy principles for waste reduction and resource optimization are integral to responsible procurement.
3. Leverage advanced insights. In order to continue, at this point, the project team must have demonstrated significant potential benefits from digitization. A phased, multigenerational project plan may be necessary for complex solutions. Piloting the project on a small scale allows for validating the solution's effectiveness before full-scale implementation.
Process redesign may involve eliminating non-value-added activities, restructuring operations to eliminate bottlenecks, outsourcing or centralizing low-value tasks, simplifying and standardizing processes, and optimizing and automating manual activities. Resist the urge to rush; continuous progress with regular, smaller wins is more conducive to long-term success.
Maintaining open communication with all stakeholders, especially supply chain partners, through clear and detailed communication plan is essential. Sharing successful milestones facilitates effective project management and reduces the risk of failure. Securing stakeholder buy-in ensures broader support and considers diverse interests and requirements. Engaging customers early in the design and selection processes is equally important, as their adoption rates significantly affect overall project success. This stage should also emphasize the power of real-time data and dashboards for informed decision-making and the application of advanced analytics techniques, such as statistical modeling and optimization.
4. Integrate intelligence. The architecture design phase focuses on creating the "to-be" process, outlining the sequence of activities for the future. The team must meticulously plan the technical and functional characteristics of all manual and automated components and services. Designing seamless interfaces and synchronizing process flows to ensure consistency and user-centricity is critical.
Internal and external integration are also paramount. Identify opportunities to eliminate unnecessary activities, enhance visibility and strengthen supplier relationship management through e-procurement systems. Continuously measure and enhance performance using the metrics defined earlier, alongside ongoing automation efforts. Removing administrative bottlenecks, such as unnecessary approvals, should be prioritized. For instance, the transformative impact of supply chain machine learning and AI must be considered. This includes leveraging predictive analytics for demand forecasting and bottleneck identification, AI-powered supplier relationship management (SRM) tools for risk scoring and collaboration, AI for procurement fraud detection, and intelligent automation for complex tasks.
5. Implement and engage. This stage involves developing the new physical infrastructure, software and interfaces. Vendors participating in the pilot should be prepared for the changes, potentially with incentives to ensure compliance. Maintaining a robust communication plan remains critical, with regular updates throughout this phase. Clearly communicate the new processes to internal teams before installing and configuring the supporting technology.
Finally, launch the pilot and begin using the new process. Remember that vendors and internal teams are not mere cogs in a machine; their feedback and concerns are invaluable. Empower the operational team to voice concerns. The primary challenge in any significant digitization initiative lies not in technological complexity, but in managing the human element and resistance to change. Replace one-way communication with enterprise-wide engagement through webcasts, internal social networks, discussion forums and blogs.
6. Agile talent and continuous improvement. Continuous monitoring of the implemented process is essential. Unlike previous stages, verification is an ongoing commitment. While procurement leaders should establish deadlines and targets based on savings and efficiency, a culture of continuous monitoring and improvement, with regular reviews and adaptations based on performance and evolving circumstances, is paramount. The ability to adapt swiftly to changing market conditions and disruptions necessitates flexible procurement processes and strong collaboration and communication with suppliers and internal stakeholders to enable rapid responses. Once the pilot is verified, it can be scaled across the organization.
Ultimately, the success of digital procurement transformation hinges on skilled and engaged employees. A common hurdle is the lack of necessary talent. Procurement directors can address this by engaging external consultants with relevant experience, hiring new leaders with the requisite digital acumen, or investing in learning and development opportunities for current employees. This not only enhances digital skills, but also increases engagement and fosters loyalty. The evolving digital landscape demands specific skills, including data literacy and analytics skills, technology proficiency, change-management skills, and strategic thinking and collaboration abilities.
Achieve procurement transformation
Throughout this journey, procurement directors must remain open to new ideas and empower individuals with the skills to champion emerging initiatives. Building upon a strong foundation with a forward-thinking and people-centric approach will ensure a successful and sustainable digital procurement transformation.
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Editor’s note: Some of the information in this blog has been updated to reflect current research and insights. The original publication date was November 21, 2019.
