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Passenger or pilot: the new role of procurement

One way or another, digitalisation is coming. Procurement now has the opportunity to actively shape developments in Industry 4.0.

The fourth industrial revolution is one of the hottest topics facing management at German corporations today. Interconnected factories and suppliers can save resources in production and manufacture more customised batches – at least in theory. But in practice, there is still a large gap between vision and reality when it comes to comprehensive strategies and implementation measures, according to a study by INVERTO. In fact, different company divisions are finding themselves developing individual solutions. With all areas of Industry 4.0 affected, however, a holistic approach and a company-wide strategy are required.

Because the path to Industry 4.0 is about more than just system implementations. Interconnection, digitalisation and automation only work when there is already a holistic view of the value chain and all departments are involved.

SCM managers need to carry out a relevant analysis together with the Procurement department, because these are responsible for subsequently procuring suitable solutions. This offers the opportunity for Procurement to take the helm of digitalisation; after all, it has the most connections to internal and external stakeholders. It is then in a position to assess the entire supply chain and make information available to all departments.

Investment in infrastructure is vital

Comprehensive transparency and data availability is one of the pillars of success for an effective transformation to Industry 4.0. Many companies need to upgrade or retrofit their IT infrastructure. And choosing the right IT solutions is anything but trivial. To help Procurement build up expertise on specific hardware and software to ensure supply chain partners are interconnected, it needs to liaise and regularly exchange knowledge with the IT department.

New criteria need to be established when it comes to selecting and evaluating service providers. On top of pricing and performance, the ability to digitally interconnect supplier systems and processes should now be a decisive factor. To allow companies to collaborate with each other and unlock the many benefits of Industry 4.0, procurement and supply chain managers need to develop plans to incorporate suppliers and partners into the value chain as best as possible. The scope extends from creating shared platforms and standards, and pooling certain information – such as operational data from machines – to making targeted investments in joint innovation development.

Procurement becoming increasingly strategic

This also means supplier and partner management is becoming more complex. Third-party suppliers and their equipment, products or services must be interconnected with a company’s own supply chain through interfaces and clouds, and the required procedures need to be clearly set out. This has resulted in new risks that are, in part, strongly tied to technology and need to be managed. In addition to supply and failure risks,  there are risks concerning IT security, data protection and compliance.

But in return, operational planning processes are no longer needed, if machines calculate their material requirements and place orders autonomously, based on the current stock level and projected sales volume, for example. With manual operations now superfluous, potential sources of errors can be reduced. At the same time, new software-based applications will make data management and control easier. If a problem in a part of the supply chain arose, for instance, buyers and production staff receive a notification and a suggested replacement through an app.

Buyers are increasingly seen as strategists. Taking the corporate strategy as a basis, the staff responsible need to determine which tasks the Procurement department currently handles and which could be digitalised in the future. As part of this analysis, it is important not to lose sight of the information associated with the tasks, because the database is a vital factor for the success of the future cooperation with suppliers and partners.

Human input is still crucial. Even the most reliable and innovative of technologies cannot replace a person. Even more when events occur that prevent delivery from being made on time or even at all. Staff therefore need to make the right decisions quickly in order to reduce the risk of failure for the entire value chain to a minimum. In practice, this means setting course for a successful integration of suppliers at an early stage and deciding on active risk prevention measures together. The indicators required for early detection need to be defined by the Procurement department and regularly monitored using digital tools.

The focus should therefore be on employees having the relevant skills. This is where training on data analysis and data management comes in. In particular, employees’ skills in introducing appropriate measures based on digital real-time information need to be boosted. This especially applies to experienced professionals who have been working with traditional processes for years and whose knowledge can be even better harnessed using digital tools. Active change management is crucial for digital transformation to succeed. Employees’ profiles change and must therefore be aligned more closely with the new requirements. Human resources also need to be developed and digital natives recruited.

Conclusion

The fourth industrial revolution is increasing the complexity of supply chains, while shortening development and product life cycles at the same time. In order to keep up, businesses need to go digital with their workflows in procurement and supply chain management. Investing in IT systems to exchange data between departments and involve suppliers at an early stage is essential. But on top of all considerations on technology and processes, and amidst the hype around interconnectivity and digitalisation, let us not forget about the people. In the age of digitalisation, the skills and training of employees is crucial for success.

 

Requirements of Procurement 4.0:

  • Agile scouting on the procurement markets, and close collaboration and integration with strategic partners
  • Breaking away from internal processes and organisational structures to provide comprehensive interconnectivity between processes and systems
  • Ensuring data availability and data analysis for supplier management and procurement strategies
  • Adapting employee profiles and management approaches towards the requirements of digital transformation

 

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