Predictive Procurement Gets Real

Spend Matters welcomes this guest post from Dr. Marcell Vollmer, chief digital officer at SAP Ariba.

The physical and digital worlds have officially collided. In the old days, we’d get the morning paper delivered to our doorsteps and read it on the way to work while drinking the coffee we made upon waking up. Today, the news we care about is automatically delivered to our mobile devices and we scan it while enjoying the beverage that we ordered via mobile app to have ready and waiting for us when we arrive. We used to attend events after work to expand our professional networks. Now we link to our peers — and their peers — around the world online in real time.

Connecting the Dots

As a society, we are more connected than ever. Thanks to the internet of things (IoT), we can see and be seen like never before. We can know things about the future and use this information to shape it to our advantage. There are plenty of examples of this playing out in the consumer world. Consider the refrigerators that will predict you’re about to run out of milk and automatically order and have it delivered before you even notice. Or the devices that know you’re on your way home and turn on the lights before you get there. But it’s happening in procurement as well — and transforming the function as we know it.

Procurement is a complex and involves lots of moving parts, from sourcing and manufacturing to transportation and logistics. It’s an intricate web of systems, processes and relationships that must be coordinated and managed, both internally and externally, to ensure that goods and services get delivered on cost and on time.

Predicting the Future

Over the years, procurement has made great strides, leveraging disruptive forces such as business networks and cloud technologies to evolve from a tactical, manual process to a strategic, digital one. Paper orders and invoices are all but dead. Electronic payments are taking hold. Buyers and sellers are meeting and collaborating online.

Yet the transformation has only begun. Aided by big data and the IoT, procurement is becoming smarter and more predictive than ever.

Data is the lifeblood of any organization. From structured information on production, marketing, sales, HR, finance, facilities and operations to transaction-level data on suppliers, customers and partners, it tells the story of a business. For years, companies have been mining data simply to figure out what it all means. To essentially learn from the past and perform better in the present.

Now, they are leveraging advances in technology such as in-memory computing, real-time analytics and the IoT to create assumptions as to what will happen in the future and take actions that drive optimal outcomes.

Eliminating Risk

Supply chains are more global, and as a result, fraught with more risk than ever. Many companies are turning to the IoT to anticipate and mitigate this risk before it disrupts their business. Take the mining industry. Trucks are the critical link to transport raw materials to either further process or sell them on the market. If one of these trucks stand still due to maintenance issues, losses to the company could run into the millions, as they only can sell what they get out of a mine and deliver.

With the help of sensors, companies can continually monitor their fleets and receive notifications on upcoming maintenance needs to prevent breakdowns before they occur. Critical components such as engines and braking systems, for example, can be connected by small IoT sensors that monitor their temperature, hydraulic pressure, container angle, position or vibrations. The sensors transmit all data to a live dashboard. And if a key parameter such as temperature changes, it will trigger an alert for the radiator. This information is then automatically routed to the procurement system, where a replacement order for radiator hose and radiator cleaner is automatically processed in line with the company’s procedures and policies, and related maintenance service is scheduled with a qualified technician who will arrive as soon as the material arrives and perform the work prior to a fatal defect of the radiator causing the truck to literally stop in its tracks. Risk avoided.

Delivering Value

Supply chains are no doubt complex — and the data within them even more so. But data is the new global currency. And the IoT holds the key to unlocking its value. With the IoT, companies can not only spot patterns and trends in their business but anticipate risk and changes and adapt their businesses to gain advantage.

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