Lessons from the pandemic - embracing a new era of strategic sourcing
- Automation of sourcing and procurement will drive efficiencies and increase business agility to better manage risk, seize opportunities. Alex Yakubovich of Workday outlines how new, cloud-based technologies will enable faster changes.
The pandemic accelerated adoption of digital technologies in many industries, including sourcing and procurement. The positive impacts of these changes will extend long after the pandemic threat is gone – but for many companies, there is still much to do.
During the pandemic, disruptions to global supply chains were felt at 95% of companies who participated in a recent survey. Six in ten executives say they responded by fast-tracking plans to upgrade and automate sourcing and supplier management. The findings come from a Workday survey conducted in partnership with Harvard Business Review.
Companies have a long way to go. In the survey, 92% of global executives described the digital maturity of their current supplier management processes as less than best-in-class. One in eight are still limited to legacy technologies such as email and spreadsheets. As such, professionals spend hours piecing together fragmented information from countless transactions — a task technology could perform in seconds.
When sourcing is accelerated through automation and the procurement function works with company leadership on strategic goals, the enterprise not only yields greater savings. It also improves overall efficiency, business agility, risk management, strategic decision making and better business outcomes.
Research clearly shows that organizations equipped with agile, digitized sourcing technologies can be strategic powerhouses that drive business impact across their enterprises. A recent PwC study of 1,600 global supply chain leaders found that “digital champions” are reaping the benefits of investments into digital supply chains.
PwC described digital champions as companies that have adopted advanced supply chain technologies, sophisticated digital capabilities and are up-skilling employees. In 2019, these digital champions achieved operational savings of 6.8% annually in supply chain costs, well ahead of less advanced companies, coupled with a 7.7% revenue increase.
Automation enables faster, smarter supply chain management
Even before the pandemic, there were major shifts taking place globally to which procurement must respond. Value chains were “becoming more complex and volatile, with increased risks and opportunities,” states McKinsey & Co in a recent analysis. It estimates that more than 40% of sourcing and procurement tasks can be automated, and that the number will rapidly increase.
As digital technologies automate most routine sourcing and procurement processes, the function will change in four ways:
1. More strategic
With less time spent on routine, transactional work, procurement professionals will have more time to focus on higher-value activities like strengthening supplier partnerships, aiding in product development, and turning supplier capabilities into a competitive advantage.
In the Harvard Business Review survey, Shashi Mandapaty, chief procurement officer for the corporate group at Johnson & Johnson, says his job is to establish a procurement plan that helps the enterprise realize its strategic vision for the next decade. He explains:
Procurement is already working with our business partners at a much more strategic level. As we look out five years from now, we see a procurement function that will increase our focus on creating total value for the company in partnership with the business.
The survey also reports the story of BlueCross BlueShield of Tennessee (BCBST), which is automating supplier contract requests for new and existing relationships. It plans to leverage the cloud to show executives and the office of finance all contracts that expire in the coming three, six, nine, or twelve months and to automate the task of asking them which ones they want to renew, which they want to renegotiate, and where BCBST should be seeking new suppliers.
The automation will “help us set a road map for the year ahead,” says David Geyer, BCBST director of corporate procurement.
2. Richer in analytics
Only 21% of enterprises have strong data analysis capabilities for supplier information, according to the HBR survey. Expanding data analysis capabilities of the supplier base was listed as the number three priority after accelerating procurement automation and digitizing supplier information, the study found. With automated tracking and analytics, companies will be empowered to make more data-driven decisions.
The survey notes that Carlsbad, Calif.-based Gemological Institute of America (GIA) now uses cloud-based procurement tools that enable spend analytics updated on a weekly basis — a practice that it says yielded some “surprising maverick spending discoveries for executives overseeing GIA’s business.”
3. More transparent
To be a truly agile organization, sourcing and procurement need full visibility into every step of the end-to-end sourcing process. More than 50% of PwC’s digital supply chain champions identified transparency as a high or top priority.
New technologies enable this visibly so that users can more easily track and manage their sourcing milestones and tasks. Full visibility into suppliers is critical to being able to drive supplier performance.
One challenge to achieving optimal visibility into supplier performance is that information on suppliers is siloed between business functions or lines or business — and because procurement systems are not integrated with suppliers’ systems.
With information out of spreadsheets and in cloud-based systems where others can access it, increased visibility will enhance financial control and planning for the whole business.
4. More dynamic
With automation and analytics, companies will be better positioned to update procurement with continuous planning tools. They’ll have live views into what’s happening after placing orders, and whether everything is flowing smoothly enough for them to meet their delivery dates.
As the pandemic continues to demonstrate, rapid market changes occur, and companies need to adjust, and re-plan when they do. While the pandemic is an unusually disruptive event, a myriad of others will continue to pose challenges to a company’s set plans. Being able to see those changes bubbling through an organization and the ecosystem of suppliers that support their initiatives is key. Having the visibility to collaboratively adjust changes on the fly delivers competitive advantage to the enterprise.
Finding new opportunities
Procurement has long been seen as a cost center, and so investment in digitalization has lagged that of other areas, such as production and customer relationship management.
Last year underscored the importance of supply chain and elevating sourcing and procurement from a traditionally reactive and tactical function to a strategic partner to the business.
Increasingly, it’ll also be asked to unlock innovation. McKinsey & Co. finds that 88% of enterprises surveyed have either started or plan to start a joint innovation program with suppliers to help unlock new opportunities.
Moving forward, leaders in the field of bringing sourcing and procurement up to speed with available technologies will become a major force to help shape and realize shifting business models, and to find new opportunities up and down the value chain.