Where is Manufacturing Procurement Technology Headed? An Interview with Keith Baranowski, Global Vice President and GM, Direct Materials Sourcing, SAP Ariba

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Our sister site MetalMiner recently started a series of interviews with a range of experts at technology vendors. Our line of questioning centered on the technology renaissance which is in its early days of taking shape, as more firms leverage specialized manufacturing-centric procurement technology. We will feature this series on MetalMiner and Spend Matters in the coming weeks.

This interview features Keith Baranowski, global vice president and GM, direct materials sourcing, SAP Ariba, which works with leading manufacturers such as Ford, Microsoft and Johnson & Johnson.

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Spend Matters: Why are we hearing about a “direct procurement” renaissance of sorts in terms of procurement technology. What’s changed?

Keith Baranowski: It’s like the invention of smartphones. The basic consumer problems of storing numbers, making calls and browsing the internet were around for years. Then along came smartphone technology that simplified all of this and spawned use cases like Uber that few, if any, would have imagined when it was introduced. The same thing is happening in direct materials sourcing, where new technologies like networks, machine learning, artificial intelligence and cognitive computing are driving innovations in the way sourcing gets done, giving way to a much more connected, intelligent and efficient process. 

SM: What are the top challenges your customers in the manufacturing sector are facing right now?

KB: In the direct spend space the top issues vary markedly by industry. In high-tech, multi-tier supply chains and short product lifecycles are top of mind. For life sciences, it’s all about regulatory risk and compliance. In consumer products, price fluctuations and supplier surcharges due to commodity price fluctuations make invoicing and cost tracking a challenge.       

SM: What technologies are most “in demand” for procurement in manufacturing today? Do you see this evolving/changing in 2H 2017 and 2018?

KB: Machine learning and AI will become a reality and companies will embrace them to drive faster, more intelligent sourcing. At SAP Ariba, we are already seeing this with a number of our customers. Take for example a common high-tech scenario where a certain vendor’s lead times are extending or quality is dipping. The normal process of identifying the issue, understanding the impact across multiple product lines and plotting a resolution like qualifying another vendor is typically too slow to impact a product with a 12-18 month lifecycle. Machine learning can analyze millions of data points, identify a trend and surface a resolution to sourcing with lightning speed.

SM: How do you see procurement and supply chain applications overlapping (or not) from a technology perspective in manufacturing? What is “the line” between them (if there is one anymore)?

KB: The lines are definitely blurred. At SAP, supply chain collaboration and sourcing technologies are integrated and work together with supply chain tools because they have to. No company is an island. To make things go in today’s global economy, businesses need to work with thousands of suppliers, partners and customers across supply chains that have become increasingly complex. It’s a mind-blowing task. Particularly when it comes to direct materials. That’s why SAP’s Leonardo and digital manufacturing reference architecture, for instance, contains solutions from SAP supply chain planning/execution, IoT and SAP Ariba Collaboration and Sourcing — so that companies can connect with partners and manage all of their direct materials procurement activities in one place.

SM: What is your view on commodity price volatility? What are you hearing from your customers?

KB: Commodity price volatility is an issue in certain industries where it affects their top line (mills, mining, oil & gas) and where commodities comprise a large portion of product cost (consumer durables, food and beverage). Most large companies are addressing these issues through hedging and other mechanisms driven by their treasury departments.

Given global uncertainties like Brexit, Frexit, border taxes, etc. the larger commodity this makes sense as risk is less structural (supply and demand) and more about politics, exchange rates and taxes. A case in point is last week’s Executive Order from U.S. President Donald Trump to investigate aluminum importers for unfair trading practices. Given that the majority of aluminum consumed in the U.S. is imported, a tariff, tax or other penalty could be a shock to aluminum prices.

SM: If you had $100 to invest in different procurement technology centric solutions in a manufacturing context, how would you divide it up (assuming only MRP/ERP as a baseline). In what areas would you place your bets and in what order?

KB:  

  • $55 – Digitize the process: move direct spend sourcing and supply chain collaboration to a digital environment (e-mailing POs and invoices or using a portal with no ability to output the data for ML/AI does not count)
  • $30 – Deploy data model analytical framework to harmonize procurement and other enterprise data (quality, costing, treasury, NPDI…)
  • $15 – deploy ML, AI and optimization framework and begin focused, outcome-based experiments

SM: Trump/Mexico/China: Where do we end up from a trade perspective in 12 months? Can technology help mitigate any trade risks?

KB: I am optimistic that no large scale trade war between the U.S. and China (and now Canada) will emerge. Instead, current trade agreements like NAFTA will be renegotiated to be more favorable to the U.S. This, combined with public shaming by President Donald Trump (think ford and Carrier) of U.S. companies who currently heavily outsource or plan to increase outsourcing and the ‘hire American, Buy American’ mantra for Federal spending, will slow or even reverse and domestic production will increase. Many companies who heavily outsource also have large vendor management and procurement arms overseas aligned with plant locations. Insourcing to the U.S. will require more trained people and technology stateside.

Spend Matters would like to thank Keith and SAP Ariba for his thoughtful input and analysis!

Please follow Jason Busch on Twitter @jasondbusch.

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  1. Elsie:

    Great Article!

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