Technology in Procurement and Supply as prevalent today and scope for future.
By: Dr. Ashok Chopra (CIPS Membership No.: 005698311 M)
Supply Chain Management involves the planning and managing of all areas of an organization dealing in sourcing and procurement, transformation, and all Logistics Management activities. Importantly, it also includes synchronization and cooperation with channel partners, which can be suppliers, intermediaries, third-party service providers, and customers. In essence, Supply Chain Management incorporates supply and demand management within and across companies. In this procurement in terms of percentage is least (approximately 5.5% depending upon industry) but plays the most vital role. The role IT plays in procurement in an organization would depend upon the objectives of procurement, the field of organization and the core business. The last two fields mentioned would influence the volume and requirement of the organization. The main goal of procurement is reduction in buying prices, however other priority include are Optimization of total costs of procurement, Internal process optimization, Securing supplies, Visibility in cost transparency, Meeting quality guidelines, Minimizing warehouse costs, Reduction of the number of suppliers (Having Strategic Suppliers), Product development with suppliers, Outsourcing of operative procurement processes, if possible Outsourcing of strategic procurement processes. As Graham et.al, (2013) states, IT involves software, hardware, firmware and middleware as well as network infrastructures, platforms, operating systems and the worldwide web. IT in Procurement Prevalent Today and Scope for Future:
The IT definitely contributes to all the factors as mentioned in introduction section but extent depends upon organization to organization and also objective and strategy of organization including its IT strategy. Following are important IT tools used by organizations used consistently over past few years, Materials management module (ERP-System), Reporting & controlling tool, Electronic data interchange (EDI), Tool for supplier evaluation, Catalogue management tool for indirect goods, Desktop purchasing of indirect goods, Contract management tool, Online invitations to tender, Online purchasing auctions, Web platform for scheduling and planning with suppliers, Web platform for product development with suppliers. ERP system enables n organization to efficiently and effectively manage the use of resources such as materials, human resources and finance by providing a total integrated solution for the organizations information processing needs (Wang and Nah, 2001).
Enterprise Resource Planning: Various established (SAP, Oracle, JD Edward, People Soft) and local grown ERPs are in use with particular focus on material management module in SAP it is mainly known as Enterprise Buyer Professional (EBP) and its preceding version (BBP). ERP systems such as tally and pastel to integrate activates such as finance, manufacturing, inventory control and purchasing. They also use electronic data interchange to exchange electronic documents such as invoices, RFQs, purchase orders and waybills. There is also use of extranets and internets that allow sharing of information between employees, management, suppliers and customers (Ackerman’s, et al, 2003).
Electronic Data Interchange: Today Organizations use IT in design of processes beyond the company’s borders in interchange of structured, electronic business documents with suppliers. The documents exchanged include Purchase orders, Invoices, Order confirmation, Request for quote/bid, Dispatch advice, transportation documents, delivery advices, advance manifest etc. As of today, organization’s B2B documents which are exchanged electronically when compared with the total number of documents, including those in paper form, orders and invoices achieve the highest values especially B2B market place and B2B transaction platform. Organizations also offer their suppliers a web portal (Web EDI) for the reception or provision of electronic data by means of web browser via such a service provider. In future B2B marketplaces could accelerate the integration of suppliers with the procurement system. Lot of studies reveal that despite of a growing share of purchased services, the management of these costs and processes is not yet very advanced compared with cost management of direct and indirect goods. The support of services procurement by means of information technology is, in comparison, not very developed. The process efficiency in the procurement of service is high as compared to products. IT support is integral to success of E Procurement. The challenges as of today are high introduction costs for new solutions, poor master data.
Today Supplier Relationship management is not as comprehensive as Customer Relationship Management. Functional Chain of optimization in Procurement is as follows:
But scenarios are changing fast. Today the heterogeneity of procurement processes and systems due to decentralized procurement structures which evolved over a period of time makes not only transparency more difficult but also the detection of weak links and the accumulation of demand. The gain of control of central procurement should enacted, which is to say that procurement as a whole should be decentralized. Investment in IT should lead to procurement efficiency. IT investment pays for itself more quickly when used in a broader way, where possible with organization wide application. It further increases transparency because performance indicators are uniformly raised and benchmarks should be set.
In Next decade, more than sixty percent of the world’s population will access the internet exclusively via portable devices, with the number of such devices expected to reach more than five per individual on an average. Over ninety five percent of all data available today was created in the past three years, and this number is expected to double every two years. With Big Data being future Artificial Intelligence is going to play major role and procurement is shifting gears to ways. Data is becoming key for large organizations. So much so it is believed that the kind of data being generated over last decade is going to be generated every two years. Mobile would the way to success. Examples of Uber and such services worldwide have changed business norms. Traditional way of doing business soon would be game of past. Organizations would deploy AI even in Procurement and supply. IoT would be way to speed the supply chain and customer demand satisfaction would be key. As we move into every new year things like digital client relationship, blockchain technology, robotics, data management, new economic models, robotics, AI connected objects, drones and 3D printing would replace current way doing business.
The way organization would capitalize would be New Cost Performance way meaning challenging traditional supplier to pure digital way. Accelerating adaption of digital way. The evolution to digital way is going stay and advance. Capitalize on technology to maximize procurement controls Using of big data to test demand and suppliers more effectively. Utilize blockchain to protect transactions. Leveraging of new economic models. How to evolve a strong digital vision and culture within the procurement community? How to ensure that procurement effectively manages resulting limits and implications? The next level of challenge would be executing initiative around, Chief Product Officer, Chief Data Officer, Chief Information Officer. Procurement and supply need to ensure how to ensure agile resource allocation and engage prescribers and suppliers? The challenges and next steps for Procurement and Supply would be as follows:
Capitalize on New Cost Performance metrics: Digital revolutions driven by technological innovations are paving way to new performance perspectives for company business lines and external suppliers. To make the most of these distractions, purchasing faces three main challenges:
And these are business integrate new opportunities and challenges to their operations. Challenge traditional suppliers on their digitalization levels and integrate pure digital suppliers to organizations updated digital platforms.
Next Frontier of Procurement Performance due to Digitalization would be as follows:
In achieving above what steps Procurement and Supply take in digitalization of businesses to maximize advantage, the procurement heads have already tackled easy saving through initiatives by ERP, SRM, Vendor evaluation, supplier integration etc. however their next focus should be on digital supplier relationship (DSR) there are endless opportunities through E-commerce, online banking, digital marketing, connected objects, robotics, artificial intelligence, 3D printing, and drones: The digital world and its host of innovative technologies offer businesses unprecedented opportunities to rethink their practices and operate with completely new cost structures that are more attractive than previous models. That is the reason banks worldwide are shrinking their physical branch numbers and paving way for Online and digital banking. Walmart the American giant retail chain closed more than 265 branches in 2016 and Amazon the Online Retail expert moving to Amazon Go Concept store leaving Cash Registers and cashiers to impressive combination of technologies that leverage mobility, the digital and social consumer ecosystem, connected objects, captors, radio?frequency identification (RFID), and big data with machine?learning algorithms.
AIDR Artificial Intelligence, Robots and Drones: Robots are paving way for human labor, performing tasks once considered beyond their capabilities, including customer?facing functions. These trends are particularly prevalent in industry (collaborative robots) and logistics (AGV – “auto-guided vehicles”, such as autonomous handling equipment), as well as shipping (self-driving trucks). Following are few of news flash in support of AIDR
Connected objects: For procurement directors, the game is on: Performance improvement can
be supported through a variety of novel means, and these must be harnessed. IoT offer countless yet still unexplored opportunities. growing capabilities of Holon based mechanical equipment to self-detect defects and send out relevant notifications allows maintenance resources to be mobilized on an as-needed basis. These resources can then be reallocated to higher?yield initiatives. Notably, BP, the oil and gas giant, has engaged with such technologies.
3D Printing: In the areas of construction, maintenance and engineering 3D printing drastically reduces the cost of designing and production allows specific customer demands to be met by ability of manufacture near to customer sites radically challenging the logistics, transportation and storage cost. Procurement may also find adoption of new emerging technologies difficult, especially where their cost-effectiveness and overall positive influence has not been well established. Finally, new suppliers and providers may have scant track records and thus pose significant risks in partnerships.
For Procurement and supply to be more efficient need to support organization at many fronts like engaging in getting regular market intelligence and collaborating with all concerned stakeholders.
Qualify and quantify performance objectives, provide efficient and agile support to business lines by POC (Proof of Concepts), conforming to business lines projects, supporting and finding new comers who can offer valuable innovations. Streamlining relations with pure players, Rejuvenate exiting suppliers
Use of Artificial Intelligence and Big Data to Maximize Procurement Initiative: The most important aspect of AI is why type of data procurement and supply should focus on. Obviously first should be on procurement and finance related data which can be captured through ERP in use. The next important would be department wise cost data like HR, Finance, Procurement/Supply Chain. The next focus is on in depth Data visa – Vis external sources, from suppliers (such as integration of supplier inventory), customers (identification of cost-generating customer profiles), or third parties (raw material prices and supplier certifications). The reason for doing so would be to understand consumption pattern, to challenge and track demand, maximize negotiation initiative,
Using Block chain to secure Supply Chain:
Today one can find Block Chain in many areas including financial sector, however IT organizations are continually developing and working in Supply Chain and Procurement sector. In fact Wall Mart and IBM are jointly working on Block chain system to trace meat/pork from producer to customer. For retailer to have such information from producer to customer including storage and shipping temperature conditions gets them competitive Advantage In Terms Of Customer Confidence, Product Quality and Food Safety. The Mining Giant, BHP is testing to track the movements of rock-drilled shafts and fluid samples. Block chain technology allows all involved parties to share sample location data in real time, taken from suppliers at every continent.
Block Chain is available in privately owned servers as well clouds IBM block chain-certified Linux ONE servers which make organization/developers to use extensively. The security impacts on data are also high, because block chain-type databases can contain much more information than retail distributors currently possess, the door is open to the next generation of data analytics.
How Block Chain works is:
Block chain arranges data in a mode that makes it possible to create and share a digital journal in which all forms of transactions are recorded. Data in Block Chain technology can’t be altered thus makes it one of the safest way.
Applications of Block Chain Technology in Supply Chain:
Overall approach of Block chain Technology is data authenticity and integrity. In Supply chain and Procurement it used to introduce previously not attainable transparency in sourcing and distribution channels. Currently, such information will be partial, not verified, not authenticated, and most importantly, held Block chain structures data in a way that makes it possible to create and share a digital paper in which all forms of transactions are recorded by each of the numerous players in the supply chain. Data quality thus degrades with every transaction, and the end user has but a fragmented pixel of the full picture on the purchased product. Block Chain can be used to trace not only manufacturer but also parties involved in value adding, handling, shipping, storage, and product enhancement… IBM along with Food Safety Collaboration Centre in Beijing in association with Tsinghua University is improving the tracking of food products meant for Chinese consumers. The security impacts on data are also huge, because block chain-type databases can contain much more information than retail distributors currently possess, the door is open to the next generation of data analytics.
New Sources Capitalization:
The development of intermediation platforms, the sharing economy, and programmatic media procurement are three major examples of these new models and the new sourcing options they generate. Digital revolution (Consisting of tracking, mobility and connectivity) have brought about intermediation platforms between ultimate consumer and offering which were previously were scattered and fragmented. Uber is classic example of same. The latest supply-and-demand growth models now constitute real sourcing alternatives for procurement in a wide variety of domains. Uber and Airbnb are now also offering competitive alternatives to taxis and hotels for business trips and travel through their dedicated “for business” offerings. In the field of logistics, retailers and delivery puts retail distributors in contact direct with shipping operators to ensure last-mile transportation, thus simplifying subcontractor relations that were yet complex in a fragmented, non-transparent market of variable quality. For procurement, the challenge is how to incorporate these new intermediaries, structure the relationship, gain bargaining power, and advantage of the potential benefits of these new sourcing opportunities.
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The sharing economy or Performance economy: The emergence of intermediate on one hand has brought transparency and simplicity on other hand assets are offered by non – professionals at extremely low marginal profit. For procurement, these new economic models offer the emergence of new sources, new types of partners, and new ways to obtain services. Conversely, such platforms, which represent the potential suppliers of tomorrow, could also enable companies to monetize underutilized or idle assets, generating complementary revenue. It’s up to procurement to shed light on all of these potential applications e.g.
Programmatic buying: When it comes to procurement media space, digital transformations have driven the beginning of programmatic buying. There are veritable online exchanges that have transformed a previously long, unresponsive, and complex procurement process into an almost instant transaction based on the analysis of a complex combination of data, machine-learning systems, and practically instantaneous contacts between buyers and sellers.
E-Commerce B2B: the “low value spot buying” revolution: In year 2015, Amazon brought Amazon Business, an online marketplace devoted to companies, offering a catalogue of products specifically adapted to B2B needs, estimated at several hundred million Stock Keeping Units. The potential benefits of this new offering are tremendous and may literally transform how procurement manages / or fails to manage its class C procurement. Such initiatives can help large corporations to deploy e procurement system or outsource which normally remains challenge for mid – sized organization. The benefits for mid – sized organization are tremendous and are as follows: save time, consolidate suppliers, price negotiation integration, payment integration, efficient management of complicated work approvals and profiles, demand tracking and complete information on products.
Collaboration and Digitization of Procurement process:
The objective behind digitization is making procurement free from physical interferences with all concerned stakeholders in order to liberate resources for higher value tasks. The digitization process also creates new data which can be used for evaluating supplier transactions, consumptions model and analyses of procurement practices. How Source to Pay Process Activities Work is diagrammatically works is shown as follows:
Source-To-Pay Process and Activities
Activities and Objectives concerned with Procurement Digitation are:
Efficiency: Enhance resources spent on all activities, specifically in regard to growing pressure on procurement costs and personnel, to achieve the attainment of the best possible output at the lowest possible cost, and to focus the efforts of buyers, whose time is an expensive resource, on higher-value tasks.
Effectiveness: Improvise the impact of data analysis tasks by improving their accuracy and comprehensiveness; maximize the impact of collaboration by multiplying points of contact within and outside the organization, in order to work on descriptive optimization levers and maximize the level of control over consumption (volume driver) by ensuring the reliability of transactional systems. And when it comes to IT resources provide them to Procurement as we provide to IT, Supply Chain, Warehousing, marketing and manufacturing. Today P2P (Procurement to Payment software is being adapted at very rate. The following Chart shows adaption is USA:
Ariba, Emptoris, Zycus, and Bravo solutions, to name just a few who have developed various suites and modules focusing only on procurement… Generally IT investment is limited, level of adoption is low and deployment remains complicated and high prices/expensive.
In order to improve procurement digitization all need to address issues like improving analytics, introducing next generation E Procurement solutions, target paperless office special procurement and supply, Virtual Collaboration through Video conferencing by PC/mobile/tablet, screen sharing, and synchronized online collaboration with unique documents are practices that can be institutionalize at affordable cost with trying achieve tangible gains. Technological advances, coupled with the outburst of mobility, data, and cloud computing, make these approaches more relevant than ever. There are many approached to achieve this and few of them are using of reverse CRM, develop best of the category solutions, join hands with innovative startups.
Here is Landscape of Leading Procurement Solutions Providers and of Most Influential Procurement Startups
Robotize Sourcing Task through (RPA) Robotics Process Automation:
The advent of AI and Robotics presents huge opportunities for repetitive and complicated transactions. We are just 4 to 5 years away from next generation of robots who are going provide innumerable solutions to process automation. In area of procurement RPA would enable industrialized data analysis, understanding consumption prescription patterns; producing analyses; classifying expenditures and benchmarks; and helping us in preparing vendor negotiations.; taking care of Decision support systems, providing cognition to repetitive and automated tasks.
The Benefits of RPA (Robotics process automation) And Robotics Process Automation Types and Applications are as follows: RPA is useful for older generation systems and new digitized addition to older systems by automation. RPA would also be useful for small scale processes consuming large resources. Repetitive, rules-based tasks that rely on structured data (Taskbots) used to retrofit legacy processes would require substantial configuration, adaptation, and maintenance, given that they operate on the front-end. They are extremely sensitive to changes in front-end layouts and in interactions with other applications. This is particularly true in the context of the wide number of small processes that might be equipped with RPA.
The Challenges and Advantages of RPA in Procurement:
RPA Adoption in Procurement to Pay:
To sum up on RPA in the medium term (five years) from now, when AI solutions and machine-learning processes reach significant development, the talent management and organizational implications will be more visible.
Designing a Digital Procurement Transformation Plan:
To take comprehensive advantage of AI and digital revolution complete procurement plan need to be revamped. This includes developing digital vision and philosophy in supply and procurement, articulate the actions of the Chief Data Office, Chief Information Office and Chief Procurement Officer triangle, Focus on New Capabilities, Rework and Rethink on SRM, Focus on AI and Big Data Analytics, Develop and Implement a systems and data integration roadmap.
AI, Robotics, SRM, New Supplier Resources, Block Chain Technology going to change the face of Procurement. Next four to five years Procurement would see new IT start ups offering suite of IT services to Make Procurement not only robust but also cost effective and productive. The members of procurement organizations would be contributing to other priority tasks as automation and robotics would make procurement automated to extent. Majority organizations would need to focus on balancing internal and external pressures and the evolution necessary for procurement so to reach a sophisticated equilibrium. To be ahead in procurement organizations need to get into strategic collaboration with procurement organizations. Procurement organization is consultation with their IT department negotiate for better IT services, procurement related software, cloud and hybrid infrastructure, this would reduce risk and achieve desired outputs. Collaborate among procurement, sourcing, asset management, finance, vendor relationship and management, Transform procurement to remain digitally relevant and efftice.
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