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Procurement 4.0: How does your organisation measure up?

Procurement 4.0: How does your organisation measure up?

The digital revolution has given rise to a new concept: Procurement 4.0. Over the next five to eight years, this disruptive trend will create substantial changes in the procurement world. To steer the change, procurement professionals need to capitalise on the four upshots of Industry 4.0.

The next level of procurement trends in the supply chain is going to focus on how technological improvements in speed, reliability and accessibility can be leveraged to benefit the supply chain.

The effects of Industry 4.0’s cutting-edge technologies and data management on strategic and operational procurement have given rise to a new concept: Procurement 4.0. But, if Google is anything to go by, it looks as if procurement’s role in Industry 4.0 is being overshadowed, and that the focus is on other business functions that will be affected by this new industrial revolution.

For years, chief procurement officers focused on reducing costs for purchased materials and services, and ensuring the timely delivery of goods and services. Today, with technology at the centre of modern supply chain management, what will Industry 4.0 mean for procurement teams throughout the world?

Firstly, procurement will not be devoured by these technologies. In fact, as the business function with the most internal and external interfaces within the value chain, those who work in procurement will constantly be confronted with new challenges and opportunities.

So what can procurement leaders do to steer the change?

To arrive at possible answers to this question, let’s take a look at the four major effects of Industry 4.0 as described by World Economic Forum founder and executive chairman, Klaus Schwab, in his 2016 book, The Fourth Industrial Revolution.

1. Shifting customer expectations

Digitalisation is enabling more and more transparency in the supply chain all the time. More data is being made available to the customer, shifting the power to this segment. This is already highly prevalent in the B2C world of online shopping.

For procurement in an industrial company you need to harvest the data available in the value chain and constantly look for opportunities to exploit it – all the while digitalising your strategic and transactional processes to maximise value and efficiency. In Industry 4.0, everything moves much faster with ever-increasing customer expectations, resulting in shorter product life cycles. For procurement, this means a need for not only closer collaboration with R&D, but also more agile supply chains.

2. Data-enhanced products

Home automation, smart metering, RFID and fleet tracking are just a few examples of data-enhanced products and services already available and becoming more and more prevalent.

Internet-enabled sensors embedded in common products will change the way you buy your company’s assets. For example, a recently launched smart sensor for low voltage motors and the analysis of the data it provides is poised to change how industrial companies buy electric motors. The sensor picks up data on vibration, temperature and other parameters and uses it to:

  • reduce motor downtime by up to 70%
  • extend lifetime by as much as 30%
  • lower energy use by up to 10%

No longer will companies buy motors based on the purchase price alone, but will assess the entire value proposition instead. So data about the asset becomes just as important as the asset itself.

3. New forms of collaboration

Collaborative innovation between suppliers and customers – and even between competitors – will become the norm in Industry 4.0. To establish a strong competitive position in this complex new ecosystem, procurement should take the lead in defining the commercial relationships, setting the rules of engagement, and bringing the right partners to the table.

4. Transforming operating models

An important trend in response to Industry 4.0 is the evolution of first-tier contract manufacturers. While many of these manufacturers were important enablers of the third industrial revolution (electronics and IT), new entrants are providing more than just manufacturing services. They also offer design, engineering, fulfilment and reverse logistics – the entire value chain with a global footprint.

So what does this mean for procurement leaders? Procurement should be leading the effort to understand the capabilities of the supply market, challenge the old thinking around existing value chains, and build new, flexible and innovative operating models to support the business. Most organisations have a process to facilitate the make-or-buy decision, where procurement plays a major role. So this could be the starting point for procurement to bring this new thinking to the table. (Download Value Chain Transformation through Integrative Improvement for some insight on how to challenge old thinking around value chains.)

Over the next decade, CPOs will need to take on more expansive roles within their organisation. They will need to become guardians of the corporate brand, advocates for sustainable business practices, and innovators who help develop new products and services.

Connecting the dots

Successfully managing the complexities of multi-tier supply chains requires creating an ecosystem in which buyers can seamlessly connect and collaborate with all of their suppliers anytime, anywhere from any device. And with the advent of digital technologies and business networks, the cloud and modern IT architecture, this can indeed be done.

Companies today can, for instance, connect systems and processes across the extended value chain — from product design, sourcing and planning to procurement and manufacturing execution. They can then integrate product lifecycle management (PLM), sourcing, contracting, ERP, materials management, and supplier collaboration activities to achieve a whole new level of supply chain visibility, efficiency and collaboration.

Forward-thinking, innovative procurement and supply chain organisations that think fast can not only drive bottom-line savings, but contribute to the top line of their organisations by fuelling innovation that leads to growth. Those who stall will find themselves being lapped by the competition.

Read the article The highway to a world class supply network to find out why integrative improvement is the key to creating a world class supply network.

 

About TRACC
The TRACC framework helps organisations build standardised and integrated good practice and performance capacity across their Plan, Source, Make and Deliver functions. Simultaneously it accelerates their collaboration and alignment capacity to build world class end-to-end value chains, enabling the organisation itself to become the ultimate source of sustainable competitive advantage.
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