Rethinking the Procurement Business Model Supply Optimisation in Technology Era

by Michael Koh, Head of Procurement, Asia Pacific, Dimension Data and Dr Koh Niak Wu, Founder, Cosmiqo International

It is time to rethink the procurement business model. Traditional key performance indicators are evolving. Companies have to better manage their costs, grow their revenue and profits, and keep loyal customers by leveraging technology. According to Deloitte Global CPO Survey 2016, the top four corporate priorities for CPOs in 2016 are cost reduction, new product/market development, increasing cash flow, and organic expansion. The traditional levers used by CPOs are consolidating spend, increasing supplier collaboration, increasing competition, restructuring existing relationship, reducing total lifecycle/ownership costs, specification improvement, restructuring the supply base, reducing transaction costs, reducing demand and outsourcing of non-core procurement activities. The survey is conducted with 324 of the most senior procurement leaders in organisations from 33 countries around the world that have a combined annual turnover representing US$4.4tr.

The value proposition of procurement is clearly evolving. Top procurement organisations are running extremely lean. These organisations are expanding their value proposition in other areas, such as supply chain optimisation across the supply ecosystem, to better differentiate themselves from the traditional cost savings measures.

Technology evolution era

Procurement must play an active role in articulating the unique value proposition they have with global shared services, such as payroll, account payable and sales. Disruptive technologies present opportunities to build capabilities beyond traditional levers for value creation, better transactional efficiency, greater data accuracy, execution speed, effective approval workflow, and better outcomes. This technology disruption applies to sales forces, channel management and consumer engagement. Procurement technologies started during the e-commerce revolution in 1990 and it has traditionally focused on spend visibility, e-sourcing, contract management and requisition-to-pay. The message from C-suites is loud and clear.

Procurement must deliver more insights on demand and supply enabling businesses to make the most strategic decisions. Concurrently, procurement has to make operational execution ruthlessly efficient and agile, while reducing the preoccupation with control and compliance, which is generally steered by finance. It is time for procurement to rethink the leverage technologies provide and reshape business demand by providing outcome analytics that are relevant to businesses in both ends of requisition-to-pay systems. Adopting artificial intelligence will increase automation and efficiency in sourcing and procurement. Importantly, its early involvement especially in routine tasks, such as purchase requisition, will reduce the amount of labour overhead. This will also ensure operational compliance through in-built planning strategies.

This is accomplished by providing requestors with evidence-based options, thus eliminating the rigid rigorous policing of the requestors buying decision during the requisition phase. Technology evolution and careful mastery of robotics process automation can reinvigorate procurement’s value proposition. This allows CPOs to rebalance their strategies upstream rather than focusing on the policing of downstream transactions and operations.

The key procurement topics

Procurement functions have evolved significantly over the past five years in Asia Pacific. Many procurement leaders play the role of an active business advisor both on the buying and selling ends. They are able to accomplish this because of the appreciation of the organisation’s business strategy and alignment of the supply ecosystem. This close collaboration with dialogue rich communication and connection increases revenue and achieve profitability metrics.

Even though seamless integration and interoperability of end-to-end supply chain processes have been discussed endlessly, there are shortfalls in technological understanding. With the exponential shifts that we are witnessing, a confluence of simple technologies and open minds would reasonably address some immediate concerns, such as demand-supply alignment. Broadly, aligning demand with supply eliminates waste, improves service, and leads to improved profitability. This is in contrast to only enhancing revenue which demand-side managers are largely concerned with.

Seamless integration and interoperability allows datasets to be analysed for strategic directions and with this, it enhances operational dashboards. Such dashboards allow for supply-side managers to ensure that sales and marketing plans align with potential available supply and with profitability goals during Sales and Operations Planning meetings. This alignment aids with competitive demand shaping, which in turn drives buyer-supplier relations. More importantly, it allows practitioners to exploit dimensions of demand flexibility in supply chains and characterise the best fit between demand properties, operations capabilities and constraints.

Codification and classification of products is critical in buying & selling profiling

Software enables organisations to forge deeper and more valuable relationships with buyers, internal stakeholders and suppliers. The codification of products and services to standard classification convention facilitates commerce between buyers and sellers and is already mandatory in many companies. There are two sets of coding – classification and identification code. An example of classification coding is the UNSPSC code. It is a hierarchical classification of consisting of five levels, i.e. segment, family, class, commodity and business function. These five levels allow users to search products. The fifth level is performed by the organisation in support of the commodity. More importantly, it allows for internal classification contributing to internal control rather than buyer profiling.

The future of procurement sits on a myriad of data connecting the organisation internally and externally. We architect and connect business functions with software-defined solutions. We have to become a professional business problem solver and lead profitability improvement as champions. Hence, it is imperative that all procurement leaders work together, share their experiences with the industry and agree on the new currency for procurement.

About the Authors

Michael Koh is the Head of Procurement, Asia Pacific, at Dimension Data, a Nippon Telegraph and Telephone Corporation Group Company. Prior to his role, Michael served as the Head of Procurement, Asia Pacific at T-Systems, ICT services and consultancy firm, a Deutsche Telekom Group Company and Schneider Electric ITB, global specialist in energy management, automation and critical power and cooling for data centers.

Dr Koh Niak Wu is the founder of Cosmiqo International Pte Ltd, a supply chain and operational analytics firm. He is also an Adjunct Faculty of operations management at the Singapore Management University and Singapore University of Social Sciences. Prior to this, he was responsible for the development and execution of data-driven strategic plans, and the transformation of logistics sourcing initiatives across Asia Pacific and Japan at Dell.

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