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The Winds of Procurement Change are Blowing Strong

As business continues to become increastingly global, the definition of end-to-end is changing.  Companies formerly thought of processes like procure-to-pay as internal only. However, as supply chains stretch further around the globe, they are fast realizing that it has greater strategic promise. And they are using the more accurate term source-to-settle to describe a process that includes collaboration across multiple external partners, including suppliers, customers, and banks.

In addition, the process, which used to be confined to just sourcing, now includes design. Suppliers – and their supplier’s suppliers – are becoming part of the real-time fabric of the digital economy – because customer expectations continue to rise and the ‘market of one’ is becoming a reality.  Business processes that start on the edge of the enterprise, move through the core and are likely to traverse several process areas and lines of business before they are complete.  That’s putting incredible pressure on product design, product iterations, and the shrinking cycle time of products from design to in market to obsolescence.

 Imagine you are a ‘traditional’ manufacturer, that has been casting brass for 100 years and you now find yourself having to include electronics and software in your devices to compete in an Internet of Things (IoT) reality. Your sources of supply in a global geography have just gotten exponentially more complicated. Add in the requirement that all of this needs to happen in real-time and you’ll quickly see that most companies are faced with a business reality that their current processes and capabilities cannot meet. As a procurement or supply chain professional, you still need to do your day job of generating savings, ensuring process and product compliance, managing relationships, and being an innovator.

So, given that context, what are the top three operating imperatives for procurement in the digital framework and how will they move companies forward?

  • Make sure you are solving the whole problem
  • Digitize business processes inside and outside your four walls
  • Be ready and able to scale up and down based on the internal and external partners capabilities.

Make sure you are solving the whole problem

It’s probably not as important where you start your journey (your business case should guide you on this), but it is critically important that you understand the end-to-end game plan.  procure-to-pay is no longer.  It’s a piece of the larger Source-to-Settle business process and modern companies with a focus on speed and agility need to understand that.  As mentioned earlier, collaboration in the design and sourcing of new products will differentiate winners from losers in the new digital economy.  Relying only on your existing network of supply may limit the innovation you deliver.  Being open to the opportunity of discovering new sources of supply is critically important for design, cost, supply chain efficiency, and long-term service capabilities.

‘Settle’ and ‘pay’ are subtly different.  For most people, the ‘pay’ in procure-to-pay means creating an ‘ok-to-pay’ file.  Stopping there leaves incredible opportunity (aka money) on the table.  Strategies like dynamic discounting, supply chain financing, and even how suppliers receive remittance are all key to extracting maximum value from your supply chain process and your hard-earnedcash.  That digital thread is also best when it is unbroken.  Leveraging a single platform can allow you to:

  • Provide short and long-term value by mining your own data for process and performance efficiency and effective. 
  • Be able to architect and re-architect business processes to take advantage of opportunities in the market.
  • Operate with speed.

Digitize business processes inside & outside your four walls

Getting rid of paper provides immediate process cost efficiency.  But moving to processes like EDI does little more than automate paper processes.  EDI is far from real-time and does not provide the sender or receiver with more information than they could get out of a spreadsheet.  Digitization today is about immediate transparency – from product design through the execution of the manufacturing process.  It’s about seeing costs, real-time netting of material flow against production plans, and tight collaboration with the suppliers whose actions can have a positive or negative impact on your capabilities. That’s real digitization.

This not only benefits you, but your suppliers who gain insight into your production plans and a complete view of their obligations in one spot.  That means you have the ability to focus on more than cost reduction in the next contract negotiations and drive win-win conversations.

Be ready & able to scale up or down based on partner capabilities

It would be nice if everyone had best-in-class infrastructures.  The reality is that your global supply chain ecosystem will go from firms with only pfm technology (phone, fax, mail) to partners that want to connect machine to machine.  You’ll need to have a platform solution that can scale up or down to accommodate all of those scenarios.  It’s not just big companies that you’ll want to collaborate with in real-time.  Smaller suppliers can be critical constituents in your supply chain. The ability for you to not lose any of your new internal digital capabilities but simultaneously being able to work with your suppliers wherever they are on their digital journey will be of critical importance.

I go away for five minutes & everything is different

Procurement is a much different function than it was even two years ago. And there will no doubt be significantly more transformation happening in this area at an accelerated pace..  Companies that embrace a digital framework enabled by a business network will gain material and long-term advantage.  Those that don’t will be left behind.

Make sure you are solving the whole problem

It’s probably not as important where you start your journey (your business case should guide you on this), but it is critically important that you understand the end-to-end game plan.  procure-to-pay is no longer.  It’s a piece of the larger Source-to-Settle business process and modern companies with a focus on speed and agility need to understand that.  As mentioned earlier, collaboration in the design and sourcing of new products will differentiate winners from losers in the new digital economy.  Relying only on your existing network of supply may limit the innovation you deliver.  Being open to the opportunity of discovering new sources of supply is critically important for design, cost, supply chain efficiency, and long-term service capabilities.

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