East West Manufacturing Blog

4 Digital Technologies Disrupting Procurement Organizations

Written by Patty Rasmussen | June 05, 2017

By definition, technology disrupts.

After all, technology is the application of scientific principles for practical purpose. It’s meant to change the way things are done. So, it stands to reason that technology has the capacity to create a seismic shift throughout every aspect of the manufacturing industry, including procurement organizations.

Procurement’s Next Frontier, a white paper by researchers at Accenture Strategy, offers a fascinating look at the ways procurement and digital technology are colliding, and how procurement organizations and operations will evolve in the next 5 to 10 years as a result.

The reports states that digital technology will revolutionize the procurement organization at the very core of the relationship between internal business stakeholders and external supply base, and that this new technology will substantially drive down operating costs, while providing greater strategic value to the wider organization.

“In the next several years,” reads the report, “Our research suggests the definition of “value” will evolve from a focus exclusively on cost reduction and savings to work that helps differentiate the company strategically. Procurement increasingly will be evaluated by more advanced measures, ones that are intimately linked to the company’s strategy and financial metrics.

Something called the “virtually integrated enterprise,” based on hyper-close, mutually-beneficial relationships with strategic suppliers, is expected to emerge with four digital technologies acting as both catalysts and enablers for this new way of doing business.

READ THE FULL REPORT: Procurement's Next Frontier

Four key digital technologies will enable these changes:

Cloud computing – Serves as a foundation in the digital procurement strategy. Use of the cloud offers greater usability, sparking higher employee productivity and engagement; offers greater access to usable content to facilitate core procurement activities.

Industrial Internet of Things (IIoT) + Analytics – The combination of IIoT with real-time analytics offers the ability to gain deeper, more valuable, intelligence to improve decision-making and identify potential problems — and (even better) solutions.

Cognitive Systems – Incorporating things like artifical intelligence (AI) into the procurement structure. In time, these systems could handle not just transactional activities (i.e. help desks), but play a role in strategic applications (including spot-buying and even intelligence augmentation for category management).

Graphic courtesy of Accenture Strategy

What's the net effect of these technologies on the industry?

First, more and better data, which results in better, more accurate purchasing decisions. Second, the opportunity to rethink operational processes

"Procurement is 50 percent responsible for innovation," said an executive interviewed for the report. "Category managers are responsible for asking the innovation question any time they're having a strategic conversation with a supplier."

Technology, in the words of the report, "...make(s) it possible for procurement to literally question everything it does, even some things that have been core to procurement for decades or longer (such as the purchase order). Questioning the fundamentals of the organization and its processes is vital to transform procurement into the organization necessary to deliver the strategic, high-value results that senior executives now expect it to deliver."

According to the report, in order to accelerate procurement transformation, companies should:

  • Use technology and culture to make transparency the foundation of strategic supplier relationships.

  • Embed procurement professionals within the business, connected to a smaller core decision-making team.

  • Choose cloud solutions that offer superior usability, and use the content in the cloud to facilitate core procurement activities.

  • Leverage the Industrial Internet of Things (IIoT) to question everything the procurement organization does.

  • Pair analytics technology tools with procurement, analytics and technology experts to make more effective, data-driven business decisions.

  • Apply cognitive computing first to routine, manual work and then to more complex activities requiring judgment and decision making.

Listen: Wherever your company or organization is located on the spectrum — from large to small, private or public, tech savvy or still learning — digital technology will influence the way you do business. The question for you is whether you'll get out in front or be swept along without a strategy. It's up to you.

Read more: 

3 Tips for Painless Supplier Agreements

6 Things a World Class Strategic Sourcing Team Must Consider