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Why digitization will transform what and how we buy

Why digitization will transform what and how we buy

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The digital era has brought about a sweeping change in the way businesses operate. Affordable networked storage, sensory, and processing power has not just transformed operations, but has also revolutionised corporate ideologies and strategies. For example, in the field of procurement, cost savings and cost avoidance, though important, are no longer the primary KPIs for organizations. Instead, organizational transformation through innovation and collaboration between the company and its supplier has given lead to new disruptive business models. And to remain relevant in this business environment, it is important to acquire new competencies and look into the future.

How to navigate a digital future

The digital world is constantly expanding and changing the way businesses operate. Companies are discovering that they need to spend less on traditional spend categories including office supplies, print, overnight mail and so-on, and more on software, process automation, cloud computing, mobile technology, data security, networks and the like. Even marketing, travel and facilities management processes and spend are transformed, with the increasing use of digital storefronts and virtual workers. As the lines between direct and indirect spend blur, technology interfaces will become the core component of the customer experience.

According to the IT research firm Forrester, by 2020, companies will either be Digital Predators, Transformers or Dinosaurs. Predators are those that drive change, focusing on capabilities that deliver business outcomes to customers, while the transformers aggressively pursue and invest in change, leaving behind the dinosaurs. But companies can equip themselves for a digital future by maximizing their capabilities through
  • Sourcing and buying digital enablers for their companies,
  • Selecting key suppliers best positioned to support a digital evolution, and
  • Using digital technologies themselves as tools for sourcing, procurement operations and vendor management.

Enabling growth and success

Procurement decisions need to become more sophisticated as processes will determine if critical suppliers are predators or prey in the digital age. And in order to be effective in leading change, procurement should become proficient as users of digital technology, including Robotics Process Automation (RPA), Big Data/Analytics, Cloud, Social and Mobile. Use of these technologies will not only make procurement more efficient and effective, but will also improve procurement’s understanding of challenges faced by client organizations and how well they are adapting and how capable they are – as a company – of changing using similar technology.

Bridging the digital divide

Amazon, Uber and Airbnb are excellent examples of innovation and collaboration between the company and its suppliers, resulting in a new business model, without traditional "brick and mortar" assets. Amazon sells without physical storefronts, Uber does not own its vehicles and Airbnb does not own any of the overnight facilities that it leases to its customers. All three are driven by software and accompanying technology infrastructure which enables them to collect diversified information about customer needs, desires and habits, and the suppliers’ offerings, capacity, availability and performance, matching complex data sets to provide higher levels of customer satisfaction and convenience.

The digital era has redefined success, no doubt. The Alsbridge research report, commissioned by GEP, a leading global provider of procurement services and procurement software, is a good reference point detailing the key success factors for operating in the digital era. Yes we are in an age where algorithms can search the market for different products, compare pricing and supplier track records, and do all the optimization without a person ever having to create an RFP. So where does procurement add value? "Go back to what people do better than machines – managing relationships, adding context and providing creativity" says Bill Huber, the Chief Procurement Officer of Wachovia.

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