Digital Procurement – Some Practical Considerations

“Digital” is such a hot topic at the moment – and becoming a bit of a buzzword in procurement as we aim to digitise or digitalise (we’ll get to the bottom of the difference one day) every relevant process, system, product or service. This is about procurement adapting to a technological revolution that will change the way the function works with suppliers, customers and internal stakeholders, from how we raise a PO to how we communicate value to the CEO.

The word has become so closely associated with IT, our software implementation partners, and procurement strategists, that sometimes it’s hard to see what it really (or specifically) means for the procurement person. So it was good to listen to Trevor Tyler at eWorld last month. He talked about what ‘digital procurement’ means at the coal face.

Trevor, Principal Consultant at Xoomworks, was also Head of Procurement Systems for IAG (owner of BA and Iberia). He has led the implementation of Ariba buyer, sourcing, contract and spend analytic modules into British Airways, among other things. He has also been busy helping to deliver a single Group Procurement function as part of IAG’s procurement transformation programme, which involved the creation a new operating company based in eastern Europe to execute the Procurement function for British Airways, Iberia, Aer Lingus and other operating companies within IAG. Suffice to say he’s pretty qualified to talk about digital procurement transformation in a practical way that we can all relate to, and what to think about at the start of your ‘digital’ journey.

To begin with, he told us that for anything we want to ‘digitally transform’ we must expect to invest time – it doesn’t happen in weeks. And it needs investment in people and skills, primarily to physically put the tech in place, run projects but mostly to make it deliver. Underinvest in people, he warns, and they will come back to haunt you!

Then, don’t underestimate the cost of change management. In his experience, it always exceeds expectations. Bringing in experts is costly, but might it be more effective in the long run? It’s important to consider whether your organisation is ready for that type of commitment. Even if Procurement’s answer to that is Yes, you need to think what your internal stakeholders’ answers might be. It’s quite often, he finds, that they are not ready for that level of commitment.

A member of the audience rightly suggested that a key consideration is also your suppliers – are they all ready? Probably not, so it’s just as important to invest in them, otherwise your transformation project will break.

So, in response, Trevor recalled an example of when he was implementing an eInvoicing platform in Spain. Getting all suppliers to move across was difficult. What we did, he said, was offer to pay all the fees that they incurred – surprise surprise, uptake increased. Now normally, you pay for it in the end anyway, through your contract. But, at least this way, you get the efficiencies upfront.

Another simple but useful piece of advice he gave was not to do what many organisations do, and that is to focus on the tactical side, or just ‘getting the job done,’ like POs going through some kind of digital system or AP (which might be outsourced) happening electronically. In most cases it won’t all be 100% electronic anyway, especially the more global you are. It’s just as important to think about the less tactical things that need to happen, like online approvals.

One particular area he mentioned on which to focus your ‘digitalisation’ is the Category Planning process. It’s the one area that can bring everyone together to achieve some procurement savings. And it’s a prime target: your information is already there; you have forecast and historic values; you have risk information. From that you can generate category plans that will show where the opportunities lie. Digital category planning can make a direct impact on the procurement function, because it gives insight that doesn’t have to be refreshed manually. And remember, category planning and sourcing are a circular process, so link them to make a single function.

And what might seem like a small point – but one which is really quite important: it’s all about value and savings, so decide what you mean by savings upfront. For example – do you consider cost avoidance a saving? And once you’ve decided what it is, and how it will be calculated – agree it with Finance and other interested parties. That way you can prove your value.

So for those not already blessed with a full, digital procurement model, he summarises his advice:

  • Review you current target procurement operating model – put digital at its heart
  • Examine all your procurement processes in conjunction with your system/platform and prioritise the non-system activity
  • Look at the holistic procurement practice not just the transactional
  • Look at your cost function – identify how automation can reduce manual admin tasks
  • Head for a single data model, consolidating sourcing, contract, spend and external data into a useable model

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