Digital transformation of procurement

By: Sanet Shepperson

The rise of the digital revolution has affected all aspects of business, including supply chains.

The Internet of Things (IoT) is beginning to connect everything and technologies such as radio frequency identification (RFID) and analytics are being combined to help companies transform their existing supply chain networks into more flexible, open, agile and collaborative digital-driven models.

But, while supply chains are embracing digital-enabled (or supported) business process automation, organisational flexibility, management of corporate assets and the control of cost, it appears procurement is failing to drive its own digital transformation.

In its 2017 Key Issues Study, The Hackett Group reported that 84% of procurement organisations believe that digital transformation will fundamentally change the way their services are delivered over the next three to five years. Yet, only 32% of them have developed a strategy for getting there.

It made me wonder if CPOs and procurement teams are unable to articulate a digital vision or strategy?

Being in procurement, I want to make clear how procurement organisations can mitigate challenges through digitalisation and digital transformation (see It's more than 1s and 0s), by considering challenges I have experienced in the last 15 years.

  • Ambiguous requirements from the business

  • Inadequate supplier due diligence

  • Inadequate supplier verification

  • Poor control or unclear limits of authority

  • Ethical practices and avoiding conflict of interest

  • Auditability of processes

  • Ensuring suitable corporate governance

  • Accurate and updated BEE tracking

  • Data accuracy

  • Standard contract negotiation

  • Turnkey contract management and visibility

The first example of the digitalization of the supply chain is ERP systems like Oracle and SAP. These systems assist to reduce risk because of enhanced visibility, which, in turn, will reduce cost.

Digitalisation of the supplier database, RFx systems and the contract creation and management process is highly recommended. The rationale behind this is that it assists with:

  • Clarification of process, procedure and specification

  • Hierarchy approvals

  • Being auditable and trackable on a single platform

  • Interactive scoring and awarding that leads into contract management

An example of the above is the digitalisation of contract creation and management, which gives the following solutions:

  • Standard templates

  • Hierarchy approvals

  • Visibility of process

  • Tracking of contracts

  • Monitoring of service level agreements

  • Compliance with governance

  • Comparing the performance of contracts

Digitalised contract management gives the ability to realise negotiated savings, minimise value leakage, monitor in real time, track contract compliance and consistently score suppliers in a centralised way.

Digitalization of due diligence, conflict of interest tracking and BEE tracking

Due diligence and conflict of interest solutions use advanced algorithms and a matrix of databases to highlight the conflicts of interest that exist in your human resource and procurement environments. The solution gives real-time updates when there is a change of status in your organisation versus your supplier base.

B-BBEE compliance solutions obtain the B-BBEE certificate of each of the active suppliers loaded on your database. It will then check the validity and expiry date of the certificate and in the event of expiry, it will ensure that the latest certificate is obtained.

The Internet of Things

The Internet of Things (IoT) is a network of physical objects embedded with electronics, software, sensors and network connectivity. These objects collect and exchange data without the need for human interaction. Each of these technologies relies on the IoT differently, providing a competitive advantage or differentiator.

An excellent example that I have seen is where an Abattoir is monitored from a central point. To maintain the required ISO standard, temperature sensors in all pallets and rooms ensure that a particularly low temperature is maintained throughout the facility. The water supply, electricity and hygiene are monitored from a single point and the tools talk to each other, for instance, entrance-door locking mechanisms will not unlock if a person trying to gain access has not washed their hands for a full 30 seconds.

IoT realises value through a more efficient use of resources and utilities, avoiding a pile up of surplus material and using demand information to develop smarter production rates. It lowers cost of ownership, supports smarter spending on things that are needed, and optimises the workforce.

Furthermore, real-time asset management shows the health and status of various machinery, allowing for pre-emptive maintenance. IoT can create a complete overview of your entire operation, digitise it and optimise it. It integrates the entire ecosystem into a single picture of all processes. IoT also gives predictive and incident analysis, which is focused on time saving.

Risks in transforming digitally

Cyber criminals are indiscriminate. Where there is a weakness, they will try to exploit it. Increasing the number of interfaces, and the intertwining of welfare and commercial use, creates a wealth of new opportunities for any attacker. An organisation must understand the cyber threats it faces, and then adopt a cyber security strategy that is proportional to the risks faced - based upon the outcomes of a risk assessment. But this requires the organisation to dive in, which is affected by the speed at which businesses can digitally transform their organisations.

Furthermore, are you able to sift through the deluge of information? Information collected by companies from multiple channels, devices and forms, and at tremendous speeds has limited potential if it cannot be analysed...

Going forward

Transitioning to the digital supply chain requires a complete assessment of current processes, leading to a detailed road map to move from current state to future state. As a result, digital forecasting will emerge.

Digital transformation will gradually replace human judgment in repetitive, mundane or non-creative supply chain tasks. This will require companies to evolve to support areas such as automated data gathering, tactical demand planning, procurement and execution.

For procurement to stay relevant and competitive, it will have to recognise and embrace the emergence of cloud, mobile, social, IoT, digitisation of data and, most of all, predictive analytics.

It's more than 1s and 0s...

A great deal of terminology is bandied about. In 'Googling' the terms, I found the following definitions:

Digitization: The conversion from analogue to digital. Atoms become bits (e.g. digitization of data). You cannot digitize people.

Digitalization: The process of using digital technology and the impact it has on business operations (e.g. digitalization of a process).

Digital transformation: A digital-first approach, encompassing all aspects of the business. Regardless of whether it concerns a digital business or not, it leads to the creation of entirely new markets and businesses (e.g. Uber).