The Three Challenges to Take Private Procurement into a New Era

THE CONVERGENCE OF TECHNOLOGICAL INNOVATION AND DIGITAL TRANSFORMATION ENABLES THE PROCUREMENT FUNCTION TO REVOLUTIONIZE PROCUREMENT PROCESSES AND RELATIONS WITH SUPPLIERS

by Giuseppe Stabilini, SDA Bocconi School of Management
Translated by Alex Foti


Today, the procurement function is facing new challenges. Having affirmed its strategic role and having invested in resources and skills, the procurement department is preparing to go digital.

In fact, the new trend is called digital procurement and defines the whole spectrum of applications and technologies capable of making the relations with suppliers evolve towards a higher level of automation, proactivity, transparency, and decision-making. In its broadest sense, digital intends to build a virtual platform that embraces the entire supplying ecosystem, including not only suppliers, but all stakeholders that are involved in corporate purchases of inputs (financial institutions, support services, distributors, and even customers).

Unlike e-procurement (born in the early 2000s), the goal is not just to reproduce the same processes and activities in a digital format which is integrated with ERP, but to support decisions according to proactive and predictive logic. Digital thus supports buyers in taking decisions, offering a complete picture of both the current situation and the possible evolution of the business ecosystem. Furthermore, with digital procurement new digital technologies are introduced, which are currently preferred by management for their ability to transform, sometimes radically, existing business models, things like predictive analytics, blockchain technology, Internet of Things, machine learning and robotic process automation.

The combination of these digital purchasing and digital transformation offer enormous potential for innovation in the procurement division. Many companies, for example, have already digitalized the scouting for new suppliers, management of negotiations, management of contracts, liabilities cycle, and functional reporting. Also, new tools and a new logic can be introduced to fully support the buyer in his/her most critical decisions, without replacing them, but widening their vision and intelligence. For this reason, new technologies need to be evaluated and implemented in association with new operating models. It’s not only a change of medium, but also a change of context where decisions are made. The relationship with suppliers evolves, extending to aspects hitherto left untouched.

Faced with the above scenario, what is the challenge for procurement today? First of all, there needs to be careful and continuous observation of the state of evolution and attractiveness of digital technology. Such observation must be made according to a business logic rather than a functional one. We need to understand the defining characteristics, degree of maturity, support infrastructure (IT and legislation), and rapidity of diffusion of emerging technologies.

Secondly, and this is the most difficult challenge for procurement, it needs to grasp whether there is coherence between technology features and the needs of procurement and supply processes. It’s a difficult challenge, because technological and business skills need to be brought together.

The third and last challenge concerns implementation. The choice of the technological solution, and of the partners and actors that need to be involved in development and test phases, is critical, as is managing change, both in terms of culture and skills to be deployed at all levels of the organization. Obviously, there is also the critical point of investment evaluation.

Globally, many companies are experimenting with and implementing the evolution towards digital procurement. At the Italian level, there are companies that are more advanced on the front of digital transformation and purchasing, and have experimented with original solutions also from an organizational perspective. Will Italian companies make the most of this opportunity? They will, if they are capable of rethinking purchases by integrating procurement with emerging information technology.