Digital Procurement – Five Points for Procurement Leaders to Consider

Our new briefing paper Digital Procurement, Digital Transformation - Five Points for Procurement Leaders to Consider comes from independent spend management solutions provider, Jaggaer.  It was produced in conjunction with Peter Smith, Spend Matters Europe co-founder.

There is no doubt that most procurement functions are already in the process of “going digital” to one extent or another. So this paper offers five digital transformation actions to help procurement leaders: develop a digital procurement strategy, use data, think about the skills and capabilities needed and to turn their minds to the opportunities of AI and Blockchain.

But first, and for the sake of clarity, in this paper we start by defining the terms used around ‘digital transformation,’ which tend to be thrown around rather carelessly. There is plenty of confusion it would seem about the use of the word “digital” in procurement and wider business circles, so we take a look at this in our introduction.

Part 1 – Introduction, Definitions and Current Digital Procurement Status

Starting with definitions does not sound like the most exciting way to kick off a briefing of this nature. But in this case, it is important and relevant, because there is considerable confusion about the use of the word “digital” -

Digitization is the conversion (of an image, object, document) from analog to digital or “numerical” format. Atoms become bits in the case of digitization of data. You cannot digitize people (well, not yet…) or a process.

Digitalization is the process of using digital technology to restructure and run processes; the term can also be used to describe the impact of digitization.

Digital transformation is “the integration of digital technology into all areas of a business resulting in fundamental changes to how businesses operate and how they deliver value to customers”. (That is according to the Enterprisers Project, a CIO community).  It leads to the creation of entirely new processes, markets, customers, and businesses.

Some sources use “digitalization” to cover what we have described above as “digital transformation”. But to make the distinction, it is useful to consider this example in the procurement field.  Digitization can mean simply using a pdf invoice instead of a paper document. Digitalization could indicate running a purchase-to-pay (P2P) process entirely electronically, from requisition to payment.

But digital transformation implies re-engineering of that traditional P2P process – for example, asking why we need so many approvals within the process, introducing digital assistants to help user ordering, suggesting regular suppliers don’t need to invoice at all as they can be paid automatically by linking to the buyer’s production data - and so on.

Thinking this way leads us to the conclusion that much of what we have seen in procurement over recent years has been significant digitization and quite a lot of digitalization accompanying that, as in the case of our electronic ordering process example.  Much eSourcing development has seen digitalization of the previous paper-based supplier selection process. But simply running a traditional RFP process, with tender questions and price enquiries evaluated though a scoring mechanism is not transformation – it merely takes what has been done in an analog form for many years and makes it digital.

However, there are genuinely transformational options. For example, moving to advanced sourcing and optimisation processes, where suppliers can propose many different supply options, is a fundamentally different digital approach, and one that was simply impossible in analog days.

There is no doubt that the digitalization work in procurement has delivered benefits, but much has been incremental. The challenge for procurement leaders now is to consider where digital transformation can lead to step changes in efficiency, effectiveness and ultimately in the value that is delivered to the buying organisation by suppliers – because ultimately that is what matters.

(You can download the paper here) - free on registration

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