Digitally enabled procurement: A practitioners view of the world

In setting the scene, currently it doesn’t seem like there is a week that goes by without discovering that another digital platform with additive or complimentary functionality or a derivative of pre-existing platforms. The platforms are a far cry from the very early days of setting up e-auctions in the mid 1990’s (platforms designed to set up packages for suppliers to bid upon in a real time auction successively bidding lower until the end of the auction timed out either through a fixed time, timed extensions or no further bids). However, this complex landscape deserves attention and critical review and understanding as due diligence and clarity of purpose/need will pay out even in the short to medium term in this dynamic space.

Over the last two to three decades the progression has been quite steady and, in some ways, very linear at times moving through the end to end process of procurement (sometimes called sourcing, buying, contracting, etc.). Further, there have been parallel advances in logistics, demand planning, supply chain management, et al. Additionally, the need for digital systems providers to create generic interfaces to the finance back bone systems, supplier portals and so forth are a given as well as the need to reinvest anything from 30-40% or more of sales back into their R&D pipelines. Lastly the “entry tickets” of having a SaaS proposition, SSO (Single Sign-On) for users, minimum standards of cyber security encryption and of course the ease of use for those that need to utilise the platform(s).

Reviewing the commentary from management and academic research and surveys over recent decades, we can see those intentions to invest further are beyond doubt. The forecast is to reach $2.8 trillion in digital transformation spend by 2025, more than double the amount allocated in 2020. This is supported by research from Mordor Intelligence: “The global digital transformation market was valued at USD 998.99 billion in 2020 and is expected to reach a value of USD 2744.68 billion by 2026, at a CAGR of 17.42% during the forecast period of 2021-2026”.

The Procurement and Supply Chain Management (P&SCM) journey has evolved gradually with emerging customer and organisational needs, as summarised in a 2016 report by PWC;

Procurement 1.0 mainly focused on maintaining an arm’s length relationship with suppliers and slashing costs; however, organisations began to understand the importance of procurement and developed better supplier relationships that gradually evolved into supplier relationship management.

Procurement 2.0 is all about establishing fair value and developing collaborative relationships for managing supplies.

Procurement 3.0 is based on e-procurement systems and manages the complete purchasing cycle with multi-company capabilities.

Procurement 4.0 involves digitalisation in procurement by integrating data across supply chains. A framework for Procurement 4.0 includes a range of processes and changes within a firm as they work to develop new procurement value propositions and embed supplier management within purchasing software; the firm must ensure they enable digitized service procurement management and develop new digital tools and associated processes.

Taking things, a stage further, and seeing P&SCM (Procurement & supply Chain Management)is positioned at the centre of digital transformation, perhaps we should see the progression to Procurement 4.0 (DT) a natural evolution, as I have outlined below, a step beyond the stage declared some 4-5 years ago? On critical examination we can see that The World Economic Forum (WEF) has emphasised that skills will have a half-life of 5 years and procurement and supply chain functions have pivoted significantly to deal with supply risk, resilience, hyperinflation, disruptions, and a complete shift in their way of working. I have termed this getting to “GRIPPS” with new Procurement paradigm, fit for a world where Digital Transformation will be much more the norm given the planned projection of investments. This is conceptualised in the illustration below.

Perhaps some key features that start to make the difference begin to link dynamic data sets, contract enabling software embedded in the platform, point of use learning to ensure accuracy, real time collaboration throughout the supply chain community, consistency of use and data integrity (and encryption) as a result and bubbling under blockchain (better suited to materials, commodities and products). There are of course some things in the pursuit of more complex and inter connected digital eco systems as the procurement paradigm shifts that we must not lose sight of; data integrity, stability of the networks, cyber-attacks, data governance, reporting standards (driven by legislation), and diversity of legislation across the globe.

Further, the profession is beginning to recognise that investment in digital capability will not be a one-off activity, even though there will still be those “back bone” systems as the imperatives through legislation, reporting, supply chain resilience, ESG requirements and more are and continue to accelerate. With successive layers of change and evolution, the need for an integrated ecosystem of complementary systems will be an absolute imperative to ensure competitive advantage going forward. However, above all the benefit to the enterprise is in fact the key objective, which is a direct function of the level of adoption: both in terms of users and depth of penetration of the functionality of the platform being provided. This should not be confused with user compliance (creating the basic set up but no more). Programmes are often labelled as “digital transformation” but the change that is at the front and centre of this will be the people! In this equation, and not an algorithm, for me this equates to;

Procurement + behavioural sciences (soft skills) + dynamic fully integrated platform = Enterprise-wide competitive advantage

The harsh reality is with remote working comes remote project teams, virtual war rooms, collaboration software to work through those architectural set ups and so much more. Predicated by a work population that is currently cognitively loaded as a consequence of demands beyond the work/technical/professional/business environment dominated by the social dimension of a worsening geopolitical stability, ongoing covid-19 pandemic, personal finances, family & relatives, political over tones, adapting to diminished social inter action, loneliness and declining mental health and wellbeing for some and of course because we are all individuals the configuration of the cognitive load will be unique to each.

The current socio-economic environment has been described as VUCA(an acronym derived in 1987 from leadership theories of Warren Bennis and Burt Nanus reflecting the Volatility, Uncertainty, Complexity and Ambiguity of general conditions and situations and in the US as well as the US military to reflect the end of the cold war). Therefore, our new and unfamiliar context demands a different approach to all that have preceded and for those that succeed will see the real benefits of not just system adoption but a recognition from an engaged business population. Delivering the essential WIFM factor, What’s In it For Me. Hence the future and vanguard for procurement technology will be a conscious and explicit collaboration between skilled procurement professionals, enterprise architects, data scientists (pulling static and real time data) and behavioural scientists.

Author: David L. Loseby MCIOB Chartered, FAPM, FCMI, FCIPS Chartered, MIoD, FRSA

David is currently the Managing Director of Aquitaine Strategy Limited and previously the Group CPO for Rolls Royce plc. He is also a doctoral researcher in Behavioural Science and a Visiting Scholar at the University of East Anglia. Joint Editor in Chief for the Journal of Public Procurement (JoPP), Editor for the International Journal of Physical Distribution and Logistics Management (IJOPDLM). Further he is  the author of thought leadership in P&SM and the book: Soft Skills for Hard Business, Cambridge Academic, 2018 ISDN 1903-499-93-3