How to succeed with digital transformation of procurement and the supply chain?

Toward a digital transformation of procurement and the supply chain: Why now?

From cloud computing and robotics to drones and self-driving cars, it seems as though the entire business world has embraced digital technologies.

But in reality, only a modest portion of businesses have seized digital’s full potential. The rest are falling behind, watching their competitive advantage slip away.

The good news is that for most businesses, it’s not too late to catch up!

As they integrate disruptive technologies like artificial intelligence and machine learning into their core systems, many businesses are drawing valuable insights from immense repositories of previously unexamined data. Few areas of business operations hold as much promise to unlock value from these cognitive advances as procurement, and the possibilities are already taking shape on the digital networks that link together buyers and suppliers.

Digital Supply Chain

Intelligent, cloud-based applications are taking on a growing share of the day-to-day tactical activities traditionally associated with procurement. As a result, the function’s professionals are seeing a transformation of their roles, newly freed up to focus on strategic priorities such as shoring up their supply chain’s resilience, safeguarding their brand from third-party risk, and cultivating new sources of innovation. Thanks to digital transformation, procurement is broadening its role from generating cost savings to fostering collaboration across the value chain and, in the process, fueling growth. This shift points to the emergence of a new engagement model, where businesses not only view networks as fertile ground for innovation, but expect their trading partners to see them similarly — each demanding that the others plan, design, and build right alongside them, virtually, to achieve mutual objectives.

By facilitating collaboration and reinforcing transparency, networks reduce the friction in business, transforming a smaller number of transactions into a larger opportunity to capture value. The supply chain forms a natural bridge connecting lower transaction costs with higher customer satisfaction. Meanwhile, digital technologies spur constructive disruption in many of the industries, particularly in manufacturing, whose success relies on a nimble supply chain. Consider, for example, the closely knit operations of smartphone makers or electric vehicle manufacturers and the many suppliers they depend on. To achieve mutual success, all parties to these complex value chains require not only the resiliency but also the immediacy that only a cloud-based network can lend to their interdependent operations.

Of course, the risk associated with digital transformation cannot accrue entirely to the upside. What are some potential pitfalls? Besides the natural disasters, fraud and cyberattacks to which even the most securely built networks can fall prey, cloud-based applications face a pair of risks, both human in nature rather than technological. The first is regulatory, where protectionist regimes may impose limitations on the unfettered cross-border commerce and collaboration that lie at the heart of a business network’s effectiveness. The other risk involves the rapidly changing skill set that procurement professionals must maintain in order to optimize the intelligent technologies that undergird their companies’ procurement systems. Digital literacy is becoming indispensable to the future of training, hiring, and retention for forward-thinking businesses in nearly every industry.

Fortunately for innovation and its immeasurable benefits to the consumer, businesses are collaborating much faster over networks than any government thus far has attempted to thwart it — and they’re also devoting prodigious resources toward the training and, as needed, retraining of their people on how to maximize value from the digitalizing of their procurement operations. While machine learning and artificial intelligence may be new to many, the collaboration they facilitate — and that business depends on to prosper — is as old as commerce itself. Even the smartest people and the best companies need to partner with others to be successful. An ecosystem powered by the cloud can take that time-tested maxim and turbocharge it to limitless heights.

The author is chief digital officer of SAP Ariba, the world’s largest business network, linking together buyers and suppliers from more than 3 million companies in 190 countries.