The digital transformation of procurement and supply chains is altering the marketplace in general, executive roles specifically and the very structure of some solution providers.
SAP recently has consolidated its separate business units SAP Ariba, SAP Fieldglass and SAP Concur under its new SAP Intelligent Spend Group division. So it seemed like a good time for me to catch up with an industry insider to shed light on the issues.
Dr. Marcell Vollmer is now the chief digital officer of the Intelligent Spend Group, after filling the CDO role for SAP Ariba since 2017, when I talked to him in a series of Spend Matters interviews about digital transformations and about his stint as the chief procurement officer for SAP.
Recently, he said one area of opportunity that he sees is in procurement, where CDOs should spend more time.
“I have not seen many cases where a CDO is focusing on procurement, but I see that the impact procurement can create is widely underestimated,” said Vollmer, who joined Spend Matters in exploring a range of issues in this Q&A.
Jason Busch: As a former CPO, what would you have done differently if you had all the technologies available to you then that are available to CPOs now?
Marcell Vollmer: I think I would have executed on the vision faster: Help SAP buy better and deliver best-in-class business partnering for all lines of businesses by establishing the right structure for the future organization, an end-to-end source-to-pay process, and the cloud solutions needed to transform procurement for the future. By that, I would have used an integrated suite of cloud solutions for procurement and enabled the people to work more strategically in the new set-up.
When you speak to SAP customers about digital procurement, do you see the same priorities across geographies and industries?
I see some differences across both geographies and industries. A recent survey with Professor Christoph Bode from the University of Mannheim confirms that North America is leading by driving digital transformation and adopting new technologies. Asia is very open to new technologies, and smartphone adoption is very high — the same is valid for Australia/New Zealand. Europe is on its way, but still behind North America.
Latin America is catching up in procurement but might take a while to catch up with the other regions. What’s really impressive for me is Africa with the exclusive use of smartphones. Africa skipped the PC/laptop area and moved right away to mobile.
On the industry side, probably this slide is best explaining it and you can see that the High Tech/Software Industry is more open and very active in adopting new technologies. The same is valid for telecoms. The others are a bit more adverse, but you can see that the pressure on either margin or technology disruption, like automotive is setting the pace:
Should companies have a chief digital officer who either oversees or collaborates closely with procurement? What are you seeing in this regard to date?
I see the role of CDOs in a range, from running internal IT to defining new business models. In either way, a CDO is a good position to drive the digital transformation for internal function — and this could include procurement. I have not seen many cases where a CDO is focusing on procurement, but I see that the impact procurement can create is widely underestimated. Freeing up financial resources to invest in the future of procurement plays a key role. The core value contribution is to leverage the purchasing power to get high savings and automate transactions to contribute to the margin of a company. Procurement can generate much more value by driving supplier innovations, like improving products — examples are the Gorilla glass of smartphones or the ceramic brakes of sports cars — or defining new business models, like the coffee tabs that Nestle invented.
So procurement can and should play a key role to drive value by focusing on supplier innovations, mitigating risks and securing a sustainable supply chain.
When you think about direct procurement, how do you draw the line between "procurement" and "supply chain" — or should we even draw a line in the future? Is digital about blurring these lines?
Great question, and procurement is part of the supply chain. I define a supply chain as plan, source, make and deliver. With that, the sourcing of direct and indirect materials is a key pillar of any supply chain. In some companies the procurement role is outside the supply chain function. In companies where the main spend is indirect, this makes sense and we can see procurement as part of the finance function. In manufacturing companies or companies with the majority of their spend in direct materials, procurement should be fully integrated in the supply chain.
Let's turn to SAP now. S/4HANA is not often thought of as part of SAP's procurement portfolio. What role does it play? How should CPOs look at it?
S/4HANA is the core ERP system as part of the “Intelligent Enterprise.” To keep it simple, HANA is the database, and S/4 is the ERP as the platform to integrate Intelligent Technologies. This includes cloud solutions, like Supply Chain, Manufacturing, Total Spend Management, but also Customer Experience, Workforce Management or Digital Core (Finance, Controlling, …). So, the Intelligent Enterprise is the foundation and platform, where total spend management integrates with it.
For a customer of SAP, we try to keep it simple: The backbone ERP and database is S/4HANA, the cloud applications helping you to run total spend management are the integrated set of solutions of SAP Ariba (goods — direct, indirect and MRO), SAP Fieldglass (services) and SAP Concur (travel).
What do you see as the biggest opportunities for SAP overall (SAP Ariba, SAP Fieldglass, SAP Concur and S/4HANA) in procurement in the next decade?
SAP has the unique portfolio to provide an integrated set of cloud solutions to run all spend management activities fully integrated in ERP. This is a great set, and the most complete set of solutions in the cloud combined with the Ariba Network as a marketplace for 4 million connected companies and 2.8 trillion of commerce to collaborate between business partners and automate transactions end-to-end.
What excites you most about the future of procurement?
Procurement has a beautiful future as a function, by providing a strong and compelling value proposition. Core elements are:
- driving supplier innovations
- risk management
- securing a sustainable supply chain
By that, procurement has and/or will have a seat at the table of the business. Transactional processes are getting automated and disruptive technologies, like machine learning, will create a new purchasing experience in the future. It is not only having a state-of-the-art catalog system, it is using predictive analytics and prescriptive guidance to provide solutions and goods to the requestor in the future.
Procurement can be much more than a back-office function by providing value to the business and being a talent pool for an organization. There is no better place than procurement to prepare for a career in the future, as there is no better function providing a full overview on the business model of the company, including their lines of businesses.