Procurement 4.0

Digitization emerges rapidly across all industries and entities of a company. As a result, world leading enterprises struggle to stay ahead of the competition they used to dominate. This includes Procurement departments.

Global competition in volatile markets, decreasing in-house value-add and increasing demand for access to external product innovation drivers are only some of the challenges Procurement is facing.

‘Classical’ Procurement targets like cost efficiency or streamlined, competitive and demand-driven product portfolios remain key factors for a company’s performance.

Therefore, it is necessary to enable the Procurement team to have full transparency on total spend, evaluate all relevant Procurement data with state-of-the-art data analytics tools and manage suppliers with complete visibility of existing contracts or agreements, potentially closed by another department of the company. However, to focus only on these levers is too narrowly considered.

External drivers increase pressure on Procurement departments. To persist digitization, interdependency of siloed business units, global competition, market volatility and increasing complexity, internal needs and external capabilities need to be linked.

Hence a shift from the traditional Procurement model into a future-ready Procurement ecosystem 4.0 unleashes competitive advantages – including cost reduction by implementing agile Supply Chain solutions and enabling transparency of processes along the Supply Chain for all stakeholders to boost cross-functional synergies.

An efficient lever to enrich cross-functional synergies is an advanced Category Management. It structures and drives collaboration in an end-to-end process – both internally across all relevant functions as well as with the supply base. Considering product categories as strategic units in the Procurement department will enable our clients to reduce the cost of their total spend, better manage Supply Chain risks and capture supplier innovation. Done properly, it is the ideal way of creating value both bottom and top line.

With shift comes change: We have identified four key levers that will help organizations advance their Procurement 4.0-readiness:

  • An ‘ecosystem’ linking internal Procurement teams with external experts (e.g. from supplier side) fuels (product) innovation processes and ensures leadership in technology and market expertise
  • Cross-functional instead of siloed expertise required: Procurement 4.0 is linked to IT-based and digitized processes, product development and marketing
  • Disruption of traditional Procurement models implies new ways of thinking and working – within the unit and on executive level

Implementing a Procurement ecosystem does not only mean to present a fancy 4.0 strategy. Moreover, a new perception of the Procurement department needs to be established within the organization.

Procurement being one of the major interfaces to the outside world needs to be the major driver of value creation – both internally and beyond the own organization.

That cross-functional nature calls for senior management attention with all functional and business leaders to make sure that strategies are aligned and necessary resources (within and outside of Procurement) are mobilized.

Build a cross-functional system that makes a company’s Procurement department and business stakeholders like major suppliers, logistics or Indirects providers strategic ‘business partners’, equally involved and equally accountable is one key target to advance Procurement to 4.0-readiness.

Becoming your suppliers’ customer of choice – especially in innovation-heavy markets has become an indispensable quality.

In addition, this allows you to identify and exclude suppliers with potentially poor performance at an early stage.

However, internal exchange between departments need to be considered likewise. ‘Break open siloed ways of working’ sounds quite easy. The reality is another one: Historically grown structures and hierarchies in a company too often prevent innovation-driven employees on their way to implement cross-department cooperation, align strategic decisions or manage suppliers with a joint approach.

We help our clients to loosen these manifested company structures, overcome hierarchical barriers and deliver hands-on, pragmatic operational solutions to speed up the implementation of cross-functional ways of working – enabling our clients to brace for Procurement 4.0.

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