- It’s getting harder for even the most experienced direct procurement teams to buy with confidence.
- Traditional ERP and BI systems can’t keep pace with the demands of modern procurement.
- Experts say digital technology will redefine the procurement function – enhancing human expertise, rather than replacing it.
For industrial raw material buyers, buying well has always been about:
- Sourcing the right suppliers based on price, quality, geography, compliance rules...
- Understanding market dynamics and price trends, hopefully anticipating the next turn with confidence and reacting fast when the right pricing opportunities appear.
- Staying aligned with the supply chain and production requirements of their company.
These business imperatives are still very much valid, but it is getting more difficult to respect them, for three notable reasons.
Three big factors adding to the complexity
The first factor is that raw material markets are increasingly volatile. And while this makes it more difficult to anticipate price trends, business leaders still expect buyers (i) to execute with speed and certainty, and (ii) to contribute to company-wide cost savings efforts.
Buyers of directs must now work to offset inflationary prices as well as generate additional savings through more complex levers in order to continue to meet their annual targets.” - Procurement Leaders
Second, the volume of direct procurement data is exploding: from professional information providers, financial markets, the company's ERP system, supply-chain management systems... We often assume that more data will lead naturally to deeper insights. But all too often, it proves too much to process – stifling buyers’ ability to add strategic value.
And third, procurement teams are increasingly required to factor non-financial criteria into the buying process: ethical guidelines, emission reduction targets, the impact of raw material mix on industrial yield... These criteria potentially contradict each other, generating complex optimization problems and lengthening execution.
"But we already have systems in place for all this"
It’s an understandable thought. But in reality ERP systems, Source-to-Pay software, and even business intelligence tools simply aren’t able to organize and analyze internal and external data the way a modern procurement team needs.
Which is why more and more businesses are looking to modern data management and analysis technologies for ways to help their employees anticipate market trends, build a more efficient buying process, and unlock new value for both the procurement function and the wider business.
AI-enabled systems can improve the enterprise’s decision-making capabilities and enable a level of efficiency and productivity in direct materials procurement that cannot be achieved by legacy systems or multiple point solutions.” - Gartner
The adoption of new technologies is growing – for good reason
Leading analysts have suggested that advanced digital technologies will soon be part and parcel of the procurement function.
In 2018 for example, Gartner forecasted that robotic process automation (RPA) would become widely used within just 2 to 5 years. And that was before COVID-19 began forcing supply chains in businesses all over the world to accelerate digital transformations plans and transform ways of working on the fly.
Looking just a bit further ahead, McKinsey’s analysts see a complementary trend developing. By 2030, they expect Western Europe’s procurement teams to spend 52% more time using tech skills, alongside a 17% reduction in the use of manual skills. Perhaps most exciting to me, they also project a 7% increase in emphasis on a buyer’s higher cognitive capabilities – which suggests a significant growth in the importance of strategic thinking.
A long overdue opportunity to add lasting value
This is something the procurement function has long been hungry to deliver – and something business leaders have been eager to see. Team leaders should be chasing this opportunity to improve the function’s reputation and boost business value.
Digital technologies like machine learning are only going to grow more essential to the procurement function – reducing the burden of time-consuming tasks like manual data processing.
So now is the time to begin the transformation. The leaders that do their research and act fast to support their buyers with a modern digital solution will be well-placed to drive new efficiencies, make more informed and more cost-effective decisions, and fulfil their team’s strategic potential.