The next time you book a hotel room online, pause for thought. The digital business model of Booking.com has not only revolutionized the travel industry, it’s also raising questions about procurement processes in other industries. After all, in a digital world, where a digital signature can serve not only as confirmation but also authorize the release of funds, are invoices still necessary?
Indeed, within the next five to seven years, digital platforms and technologies are expected to totally transform the way most procurement organizations do business. They will not only operate at a radically lower cost but also drive more strategic value for the enterprises they serve. All because they will leverage digital to become what are, in effect, procurement organizations of one:
- “One” with the business as an embedded, strategic team: Procurement leaders foresee a more prominent strategic role for the CPO, and a dramatically different organizational structure —a structure enabled by digital where procurement professionals work within the business, using app-based technologies to gain real-time visibility into demand, supply and pricing. Analytics will be a key feature of the underlying infrastructure deployed by the procurement team of the future, enabling dynamic data management.
- “One” with an expanded ecosystem of suppliers: Procurement leaders plan to leverage digital technologies to extend their supply networks into an “ecosystem of 3”: strategic, transactional and uncharted (new, or not yet known). This is a step away from the vertically integrated enterprise of the past and towards a portfolio of external organizations, which operate physical assets and processes on behalf of the company. These strategic suppliers will also act as a major source of innovation, having a direct impact on the company’s ability to grow profitably, for example, a supplier network including innovation centers and startups.
- “One” with re-imagined processes as digital evolves: Procurement leaders expect digital technologies to allow them to re-evaluate and re-imagine the entire procurement process, even down to the most fundamental of procurement processes. For example, it is not inconceivable to imagine a future where embedded sensors in an Industrial Internet of Things (IIoT) enabled system are so commonplace that demand signals on 90% of regular purchases are sent directly to suppliers, without the involvement of the buying company or responsible employee. These purchases would then arrive on site, where embedded sensors could auto-receipt them and inform the IIoT-enabled system of delivery. The system could consult a digital contract with the supplier to determine the correct price based on on-time delivery—and then authorize the transfer of funds using digital currencies. No purchase order or invoice needed. In short, a revolutionized process.
As the above proves: digital is no longer just an enabler; it is creating an entirely new way of doing business, also for procurement. So, where do you begin?
- Consider how radically digital will change the structure of your procurement organization.
- Identify the digital components that will enable the virtually integrated enterprise.
- Challenge the status quo by reconstructing your source-to-pay process with digital in mind.
Read the full report here
