Ready for digitization? How to overcome the cost pressure of digital transformation
According to a recent “Trends and Strategies in Logistics and Supply Chain Management” study by the German Logistics Association (BVL), digital transformation has a positive impact on the bottom line. However, in reality, companies are grappling with the initial cost pressure of implementation.
Companies looking to introduce digital transformation measures are often put off by the perceived associated costs. After all, creating transparency across all processes and value flows in the supply chain, as a basis for digitization projects, is actually in itself very costly. Meanwhile, the latest study by the BVL revealed that digital transformation can reduce costs by anything from 8% to 34% while increasing revenue by 23% to 34%, depending on the sector. So the question is: how can companies unlock the financial resources to carry out their digital transformation, so they can develop effective cost reduction potential and remain competitive in the long term? Let us take you through the three steps to saving costs and making digitization both affordable and efficient.
Step 1: Exploit the potential in procurement
One of the most important aspects is to identify optimization potential in procurement and implement appropriate measures in order to gain financial freedom. With cost reduction projects, you can generate cash within just a short period of time, which you can then use to finance the initial measures, such as cross-department process analyses. Carry out a potential analysis and discover what savings could be achieved within procurement.
Step 2: Identify and leverage optimization potential in the supply chain
In addition to a focused review of procurement, efficiency improvements can be uncovered in your supply chain with the help of a value stream analysis. To make all supply chain processes transparent, conduct interviews with the departments and external partners involved, and carry out data collection and measurements. A subsequent analysis of the data provides transparency over processes and value flows in your supply chain, while identifying areas for improvement at the same time. Processes that add no value can then be eliminated and inventory levels optimized. This reduces process costs and releases tied-up capital. You can then invest those resources in targeted digitization measures.
Value stream mapping also forms an important basis for digital transformation. With an accurate analysis of all the existing processes and interfaces you can already identify small steps towards digitization that can have a big impact on your business.
Step 3: Efficient implementation of digitization measures
To get as much as possible out of the financial resources you have now unlocked, the procurement department should be involved in implementing digitization measures at an early stage. The value stream mapping helps to define the parameters required: What software, hardware, licences and service providers are needed to digitalize individual processes? What departments benefit from digitization and should therefore be involved in specifying the requirements? Which suppliers should be incorporated into the new system landscapes as part of the digitization process? All of this information is crucial for the procurement department to issue calls for tender, to negotiate efficiently and to get the most out of concluding contracts with suppliers. Invest your newly-acquired capital wisely and efficiently in order to equip yourself for future market requirements. And remember that procurement should play a pivotal role in the project.
Successful digital transformation requires good coordination skills
To ensure a successful digital transformation, companies must identify and bring together stakeholders from all relevant departments, including IT and external partners. The BVL study names the coordination between the different departments and IT as a key factor to digital transformation success. It is therefore important that the management supports this effort by effectively coordinating this ‘team’ so that it can implement the best possible solutions.
By exploiting existing optimization potential along the supply chain, as well as involving the procurement department in digital transformation early on, projects can be financed and implemented cost-effectively. As a consultancy for procurement & supply chain, we guide our customers from carrying out the potential analysis through to implementing the measures.
Want to unlock the financial resources to launch a digital transformation in your company? Or would you like to create transparency over your processes and find out which processes are worth digitalizing from a strategic point of view? Our experts are always on hand for any questions you may have!
Do you want to free up resources for a digital transformation in your company? Talk to our experts to find out more about procurement spend reduction and successful digital transformation.