Disruptive Technology Meets Strategic Procurement: Short-Term and Long-Term Outcomes

digital business transformation

Blockchain. Robotics. Internet of things. Big data. Peer-to-peer connectivity. These are some of the newest and most talked-about technologies that Spend Matters expects will prove disruptive to the spend analytics, sourcing, supplier management and contract lifecycle management markets.

They are collectively referred to as strategic procurement technologies in The Impact of Disruptive Technologies and Solutions on Strategic Procurement Technologies (Analytics, Sourcing, Supplier and Contract Management), a new research paper from the Spend Matters analysts (Jason Busch, Pierre Mitchell, Michael Lamoureux and Andrew Karpie).

But first of all, what exactly is disruption? Spend Matters defines it as “change driven by technology — specifically, technology that transforms or displaces solutions, processes, etc., across a supply chain or parts of it.” Not only do disruptive technologies enable innovative solutions, they also bring about new business and process models.

Blockchain, for example, is a decentralized digital ledger that records transactions across numerous computers distributed across the globe, enabling a secure process for conducting online transactions. When used in supply chain management, blockchain technology could make it possible to trace any product back to the origins of its raw materials. And decentralization means that no one party can own the ledger and potentially alter the data.

The Short-Term Look

Disruptive technologies’ main influence on the strategic procurement technology market “will be the increasing emergence of functionality, from both established, and in certain cases, new providers,” Spend Matters’ analysts wrote in the research paper, before going on to provide four examples of how these early changes may unfold.

We’ll share one of them here, again on the topic of blockchain. As the analysts put it, blockchain “fundamentally changes the implementation of a system of record for data.” It can also allow us to move beyond the single-ledger accounting system to a shared ledger between organizations, creating “a new system of trust.”

If, like me, your understanding of blockchain doesn’t go much beyond that of Dilbert’s pointy-haired boss, our analysts explained the technical components of blockchain thus:

  1. Public-private key transactions that use underlying cryptography to ensure security between parties and the blockchain itself
  2. A transaction record (i.e., the blockchain) that stores all associated transactions from the past across a decentralized network of hosts (who need to “agree” or synchronize with each other whenever a change to the blockchain is made, such as the transfer of ownership of an asset or the issuance of a purchase order from one party to another as a legally binding order)
  3. Process and workflow that dictates activity that can occur within a blockchain, including the ability to create the equivalent of straight-through processing such as payment approval and issuance without recourse when certain conditions are met (e.g., a three-way match)

“A blockchain could augment or replace the architecture of EDI and supplier networks and procurement technology applications today, combining the capability of product modules and feature/functionality with the communications vehicle between parties itself,” the analysts wrote.

Indeed, the potential of blockchain is already sparking considerable excitement and activity from both the public and private sectors. The U.S. Department of Defense’s Advanced Research Projects Agency is looking into blockchain technology to create an unhackable messaging system. Former British Prime Minister David Cameron said earlier this year that blockchain has the potential to “fight corruption and to deal with failures of governance and governments and the rule of law all over the world.”

On the private sector side, this week SAP Ariba announced a partnership with Everledger, a London-based provider of blockchain technology, to extend blockchain capabilities to the Ariba Network.

The Long-Term Look

The adoption of these disruptive technologies is already underway. But what will it mean in the long run for procurement and supply chain? Spend Matters expects that “traditional enterprise requirements (e.g. security, workflow, process management, services/partner ecosystems) will have to complement the disruptive technology components of these solutions to build sustainable scale.”

These solutions are likely to lead to changes in existing frameworks and processes, including the following:

  • Value-based optimization in sourcing
  • Prescriptive contract analytics
  • Supplier management solutions where “data drives the process”
  • Truly open networks and platforms
  • Internet of things for real-time inventory and distribution visibility
  • Smart returns management

While these disruptive technologies may seem unreal, the example of blockchain shows that they are already becoming mainstream. (Even the tiny state of Delaware is exploring uses for blockchain.) In the words of Spend Matters analysts, “these solutions may very well disrupt our role in procurement if we do not appreciate the technology inputs that make them effective before everyone around us does.”

For detailed analysis on these disruptive technologies’ near- and long-term impacts, examples of disruptive technology providers and seven actions procurement practitioners can take right now, download the research paper, available for free.

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