Like so many other areas of business, procurement has been evolving rapidly in recent times and has been propelled up the strategic agenda – not least because of the supply chain issues that have dramatically come to the fore in the wake of Brexit and Covid.
It was timely therefore that we discussed the role of digital procurement in our latest ‘Future of’ event for TMT, where I was delighted to be joined by Steve Day, Chief Procurement Officer (CPO) at Kantar, the data analytics and brand consulting business, and Matthew Rose, Managing Director of Procurement Transformation at KPMG.
Addressing strategic imperatives
What really crystallised in our conversation was that a number of topical priorities have combined to make effective and modernised procurement essential to businesses today. There is supply chain of course, as I have already indicated. Procurement has always had a key role in ensuring security of supply alongside price and value – and this is more the case than ever in today’s environment. Digital procurement solutions give visibility across the supply chain and can be instrumental in bolstering continuity of essential goods and services.
With ESG top of mind for everyone, it also enables organisations to ensure they are on top of ethical and governance issues. Businesses need to have a clear picture of who they are doing business with and assure themselves that suppliers are a good values fit including areas such as diversity and inclusion and that they stand up to ethical scrutiny – not merely providing the lowest price.
Then there is another huge area – sustainability. With decarbonisation and Net Zero a massive focus, procurement has a key role to play in enabling businesses to gather the data needed and measure their all-important Scope 3 emissions – and take action to shift their sourcing to a lower carbon footprint as appropriate.
Take these elements together, and it’s no surprise that procurement really does have a seat at the top table. As Steve Day put it, there has been a “generational change”. This has coincided with the emergence of increasing numbers of smart digital procurement solutions – from big source to pay systems like Coupa to a whole host of point solutions for specific functionalities.
Data and digital solutions
One feature modern procurement technologies share is that they have data at their heart. And it’s the ability to gather and analyse the data that puts the procurement function in a strong position within a business. As Steve Day commented: “Organisations need to hold more and more data about the people they do business with. Procurement can own and manage this data and become a key part of the value chain of the business. In fact, procurement holds data at a more granular level than Finance in many cases – not just at a line item level, but over the ingredients of that line as well. There’s a clear opportunity for procurement to add real value.”
Certainly, there is no shortage of procurement solutions and capabilities on offer. Matthew Rose explained that a KPMG scan of the procurement market had identified over 200 different vendors and growing. As well as core procurement systems, there are digital point solutions available for every conceivable purpose, from sustainability analysis and third party risk management to automated processes to control tail spend. So where should businesses start when confronted by such a huge array of options?
“What’s essential is to stand back and think about how you glue it all together,” Matthew said. “You need to take a holistic end-to-end view. What data do you really need to fulfil your procurement priorities? Start there, rather than just bolting on lots of pieces of functionality.”
Return on investment
There’s no doubt that many solutions available have attractive potential returns. Matthew estimated that many will typically yield a 2% - 5% benefit on spend addressed. So for a spend of £100m, you might see savings of £2m - £5m: not an insignificant number. Because they’re cloud-based, they are standardised solutions that are usually quick to deploy and quick to generate results. As Matthew said, “pay-back periods are often in months, not years.”
This might lead us to one of the perennial procurement debating points as to whether such savings are ‘real’ or only notional – would they be recognised by the CFO? One CFO apparently remarked to Matthew recently that there are “lies, damn lies, and procurement savings”! But however one views it, procurement technology makes spend more transparent right through the business and is making it increasingly traceable to the bottom line.
The keys to success
What are the keys to success therefore for any TMT businesses contemplating a digital procurement transformation? Steve Day, who has helped implement several including now at Kantar, had some very clear advice:
“Firstly, you need to build a coalition of support across the business – crucially including the users of the future system, not just Finance. Secondly, it goes without saying that it’s essential to decide very carefully what technology you are going to choose and how you’re going to deploy it. But a third element, that’s often overlooked, is the change management piece. Training for users, messaging, clear communication – these are all absolutely essential to get to value faster.”
It is clear that business expectations of the procurement function are changing rapidly, with new or increased demands around ESG, supply risk and service experience adding to the traditional cost control remit. These are all areas where digital procurement capabilities have a powerful role to play. Procurement has an opportunity to transform its role and add more business value by leveraging today’s data and digital solutions. The question is, will it rise to the challenge?