Maximising Value from Digital Technologies
New innovations in digital technology are already changing the way we work. But with so many new solutions on the market promising to transform your processes, how can you ensure you get the best outcomes from these solutions?
We speak to Simon Lipscomb, who has 18 years’ experience with various procurement technology companies and is now Sales and Marketing Director at Efficio, the world’s largest specialist procurement consultancy, about the changes in procurement technology and how it can be used to boost your existing processes and enhance the future of procurement.
How are emerging technologies set to change the face of procurement over the next 5-10 years?
"There’s currently a great deal of talk about how digitalisation in procurement is set to radically change how we work. But I recall having meetings and conversations with procurement professionals 10 to 15 years ago when the internet and other technologies were forecast to change the face of procurement.
Today, technologies like artificial intelligence, machine learning and blockchain can all provide access to huge amounts of quality data – faster, and on a much larger scale than ever before. Yet as well as providing huge opportunities, they can also raise complex challenges.
The key challenge of procurement technology has never been about capability – rather about implementing the technology within the organisation and using it effectively to derive the full breadth of benefits. This is likely to continue to be a major problem. There has, however, been a noticeable shift among leading procurement organisations, from focusing specifically on the technology to understanding the skillsets and capabilities their procurement teams require to get the most out of increasingly large datasets.
As time goes on we’ll have the technology to collect more data, but without traditional procurement skills and knowledge, that data is unlikely to deliver real benefit. As the market matures the conversation will be less about the technology modules and more about the knowledge – either residing within those technologies or, more importantly, with the procurement teams themselves.
In ten years’ time, we are likely to see procurement use AI, machine learning and clever predictive analytics. But all this is predicated on having a basic understanding of where you’re spending your money and who you’re spending it with. For many organisations, gathering this information is still a challenge. So, despite the hype, there are more immediate issues that need to be addressed before procurement teams can fully benefit from these technologies."
What sort of significant data should companies be using to enhance processes?
"All companies should have a firm understanding of where they spend their money and who they spend it with. By expanding spend data out or dividing it into different groupings you can really get to know your suppliers based on categories, currencies, geographies and so on. Similarly, you might want to identify your spend data by department and then examine it more closely to get a better idea of your spend profile and the types of benefits you can access. You can also start to do more complicated mapping of potential risks.
Technology can only enhance your processes if you have this core spend data at the heart of your knowledge base. You can then begin to build out more in-depth datasets depending on where your strengths and weaknesses lie. It’s also critical to engage those communities of users who will be using these solutions. Unless you get them on board, you’ll never have enough valuable data available to use."
How can companies ensure that the data captured by, and for, these new technologies is used to its maximum?
"The implementation of procurement technologies – whether focused on sourcing, supplier management, invoicing, P2P, or all of these – typically touches a wider population of users than any other system your organisation might implement. With an HR system, for example, you’re likely to get the entire organisation logging in at some point to, say, book a holiday, but you don’t have to worry about managing another 10,000 external suppliers using the same application.
The reality with procurement technologies is that to guarantee success, not only do you need to engage a large group of internal users but you also need to get buy-in from a swathe of external suppliers. They may need to interact through a supplier portal or log in to a system to update their name, address or payment details. Whatever the requirement, getting two large communities of stakeholders engaged is, in my experience, the biggest procurement challenge for any organisation.
Coming back to the point that data alone is not enough, it’s crucial to remember that data is only valuable when it’s combined with knowing what to do with it and how to interpret it in a meaningful way. Reams of data is not helpful but knowing how to exploit it for the benefit of your business is hugely powerful.
Procurement is a uniquely knowledge-driven profession – understanding supply markets, accessing in-depth insight into specialist industries, knowing the dynamics of pricing in the conductor market in China and so on, is the kind of knowledge that most successful procurement professionals need. Bearing this in mind the profile of an effective procurement professional is likely to become more diverse. They’ll need to be capable and effective people who can engage with the internal organisation and negotiate with suppliers. As well as the people skills and soft skills needed to manage stakeholders, they will need to be highly analytical. This mix of people skills and strategic and analytical skills will make procurement essential to all forward-thinking organisations."
How can procurement professionals ensure that investing in new technology will bring real, measurable value to their processes?
"The technology is nice to have but by itself, it won’t add value. It’s the knowledge and skills of the procurement professionals using the technology that will create the real value – not the other way around. They’re the ones with the ability to transform the information into an outcome – whether that’s lower cost and/or better service. The measurable benefit of the technology and the procurement team is: can you pay less and get a better service for the organisation?
At Efficio, we have over 400 people focused on analysing spend and trying to reduce costs quickly. Our job is to use our understanding of a vast range of categories to add value to clients of different sizes and in different regions. We run high-impact projects all the time, so we can run several sourcing exercises very quickly. We are typically cost-driven, helping organisations make savings quickly and efficiently. But the benefits go far beyond this.
For example, we are currently working with a company that has a large fleet of vans which it uses to carry out its business. The work is ultimately about increasing the company’s bottom line by looking at the way the business structures the maintenance of these vans. Yet there is also the opportunity to take a more strategic position and completely restructure the way the company is working so that it ends up paying less in costs while providing an improved service and faster turnaround times. So, the value is not always just about the numbers but a better way of working."
Is there a disconnect between innovative companies looking to the future with their procurement strategy and suppliers who may be working in a more traditional way?
"It’s an interesting challenge, particularly in large multinational organisations with complex supply chains typically made up of suppliers of different sizes located across different geographies. You would usually have a small number of large multinational suppliers and then a bigger number of smaller suppliers. So, from a technological perspective, how do you engage with this diverse group of users in an effective way?
The starting point is knowing that you do need to engage your suppliers if you’re going to achieve the best possible outcome for your project. And given the potential diversity of your supply chain, you will need to engage them in multiple ways to convince them to buy into your process.
A poor strategy is to say to your supplier: “This is my technology solution, go and use it now”. It’s unlikely that your solution will fit with all of your suppliers’ business processes, in which case, they won’t use it and you won’t see any benefit from implementing it. When undertaking a new project, think about what will happen if your supplier says ‘no’ to your technology solution and how to ensure participation with whatever alternative you can offer. You will need to consider a range of techniques, for example, using different technologies to get suppliers on board or being practical and accepting that for certain types of suppliers within certain areas, a fully electronic end-to-end process (while desirable) might not be achievable.
The challenge then is looking for the compromise which will still allow your organisation to benefit. Just because you’re unable to have an all-singing, all-dancing, end-to-end digital process it doesn’t mean there isn’t real value in the middle ground. Focus on your top-tier suppliers with whom you could implement a complete end-to-end solution. Collaboration between organisations and suppliers, with a focus on you both achieving your respective goals, can still yield strong results.
It’s worthwhile exploring new technologies, but there’s also value in looking at what you already have and using it more efficiently to produce a greater, more immediate result now.
Procurement technology doesn’t have to fix every problem immediately – instead you should be aiming to get better over time. Look at it from a five to ten-year term. Move things forward over the next few years where you’re able to get some processes to fully electronic and some to somewhere in between. This is still a great result and you haven’t had to force your suppliers into ways of working which aren’t feasible for them and which ultimately doesn’t get your organisation the results it needs. You then still have time to carry on implementing changes and improvements for you and your suppliers."