Looking at IoTs Impact on Purchasing

The Internet of Things (IoT) has trickled down from consumer attention to gain the attention of manufacturers who want to use machine-to-machine technologies to automate monotonous tasks and gain visibility into their supply chains and become more efficient. (See the infographic below.) Procurement, however, is trailing behind the crowd in terms of adoption.

“Procurement is not necessarily the most cutting edge part of the organization,” said Paul Noel, senior vice president of procurement solutions at Ivalua. “We are always trying to get procurement out of being tactical dealing with mounds of request to being exception managers.”

These buyers are often saddled with legacy sourcing and spend management solutions. Many even rely on manual procure to pay processes—which locks them away from the wealth of data that other parts of the organization are leveraging. However, a quick look at some consumer applications highlights some real-world examples that shows both the ways that the Internet of Things will put more pressure on the purchasing organization and the power of it to provide better purchasing systems.

Potentially, the IoT could provide information about product purchases or requirements to the procurement department. Consider vending machines in the airport selling electronics goods that report when inventory has been purchased. Think about automobiles that automatically record mileage and other statistics and proactive request maintenance. “Where IoT enters in is at the transactional front end,” said Noel. “As more devices (such as vending machines) are enabled, there's a potential for procurement to be under water with data.”

An unprepared procurement department is likely to resist the potential upside of these changes. “As IoT devices flow into the market, organizations will have to deal with backlash and pushback from procurement organizations that do not want what a procurement organization would see as a uncontrolled requisitioning device,” said Noel.

The electronics industry may be a step ahead of other kinds of organizations. Historical use of Kanban systems in manufacturing means that electronics OEM procurement organizations are less likely to see automation of this type as a loss of control. “We can learn from these systems,” said Noel. “Organizations are going to need to learn from this about how to expand this to the rest of the company. It's important to learn how it's reconciled in the manufacturing line and apply it more broadly.”

The lessons to be had are quite simple: it may be time to give up the requirement for approvers between request and fulfillment. At the same time, it's critically important to manage replenishment parameters on a more strategic level than ever before.  By using IoT data to manage the frequency and quantity of replenishment, procurement organizations can capture savings, said Noel. 

To address the advent of IoT, procurement organizations need to better manage people, process and technology, he added. “You need a center of excellence,” he said. “It's not rocket science and you don't need a ton of people.” To start, organizations should document current processes and figure out the gaps—and add technology to fill those holes.

“In the end, procurement is mired in the urgent, but it is horrendously strategic,” said Noel. “Every dollar you save goes directly to the bottom line. Further, organizations live and die by their suppliers.”

Do you see IoT helping your procurement department become more strategic? Tell us about it in the comments section below.

— Hailey Lynne McKeefry, Editor in Chief, EBN Circle me on Google+ Follow me on Twitter Visit my LinkedIn page Friend me on Facebook

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