Is your Procurement function ready to bring next wave of your Renewable Enterprise vision to life and drive Business Transformation?

If you don’t drive your business, you will be driven out of business – B.C. Forbes.

High-performing purchasing organizations have achieved key efficiency and effectiveness drivers by conducting spend analysis to identify and realize the cost saving, outsourcing tactical work to low cost countries, automatic processes, identifying strategic suppliers, reducing tail spend, leveraging e-sourcing, e-procurement and other business tools. All become table stakes. These are no longer considered innovating strategies and capabilities.

Next wave of value creation for leading purchase organizations will be by start using new strategies, tools and approaches to help stretch their reach, expand their influence and increase their impact and organizations, which will create advantage by building a sustainable transformation road map and harnessing technology to generate value and achieve its strategic goals.

Let me walk-through the changed role of “Procurement function” for high-performing organization to add strategic value proposition as Business partner and Trusted adviser in the organization and how CPO’s and their leadership teams can introduce new (or modify existing) strategies, solutions and capabilities to expand the impact.

Figure 1: High Performing Procurement Function: Strategic Value proposition

Let me reiterate some of the key strategic proposition for High-performing purchase organizations:

1. New operating model: Align on a central-led operating model to translate supply market value into product value for end customers, support in Organic growth and in Merger & Acquisition
2. Product design: Work with Product managers/engineers and provide early visibility into the components and cost impacts by driving material specifications and Bill of Materials to make decisions that support the business needs (demand control) for direct spend sourcing activities
3. Shared targets: Put in place shared and comprehensive targets for procurement that encourage cross-functional collaboration to drive value. Build a coherent approach between multiple internal business units and functions, and at developing metrics to track and report on the business benefits.
4. Hub for innovation: New approaches to the supply market, support to company’s sustainability agenda and radical process automation. Ensuring technological enablement in place so that users or stakeholders can self-serve as much as possible.
5. Data Hub: Work towards providing a single data hub for companies and their suppliers to work collaboratively by building in-house /external cloud-based analytics platform

Let me discuss how CPO’s and their leadership teams can address the new trends and introduce new approach, new or modify existing strategies, solutions and capabilities to expand their impact.

New Trends:

Data Ecosystem & Analytics approach by including Best of breed solution from 3rd parties:

The Gartner research note published in September 2018, “The Impact of AI on Procurement Software Applications” argues that while the benefits of such automation are significant, they are not able to deliver sustainable competitive advantage.

As the large procurement technology providers reach focusing on broadening the coverage of end-to-end Source to pay breadth functionality, the clients focus will be on the content and depth of key broad reach capabilities and knowledge provided via 3rd parties partners holistic solution.

Organizations will transform its ERP suite into an eco-system internal platform and AI data hub/Procurement data hub by integrating with existing ERP/Non-ERP/SAP SaaS systems together with best-of-breed SaaS solutions from 3rd parties, plug-ins into a single data hub location to become an analytical system for making it as decision tool that is best fit for organization.

In a world with new solutions coming into the market, organizations to pick up the right 3rd party solutions and with AI-driven insights to separate the wheat from the chaff. Clients can add the 3rd party solution to the data hub and continue to compete for years to come by comparing the bench marking data from ecosystem.

Leverage data for real-time decision making will accelerate for a growing number of business functions. Through intelligent platform and network ecosystems, companies will access more and more data sets for taking intelligent decision in business processes. Data moves from different source systems into an analytical system for making it as decision tool.

Another trend is to trigger back the decisions/recommendations/actions to applications for real time benefits to user.

There could be several recommendations and decision from the intelligent technologies, using M/L where end-user can take a decision either through user interface or in some cases, decision can be taken by the application, enabling continuous improvement. These can also be supported in combination with conversational platforms (e.g. chatbots, smart assistants) that improves user experience.

Please see below some of the example from decisions/recommendations/actions that can go back to applications. The future would be that the updates are triggered back to application using API’s without manual intervention.

1. Sourcing, RFI/RFQ: A decision will help in sourcing due to change in the status of a supplier, supplier’s updated performance score card and use it during creation or updating of an RFQ
2. Contracting: Potential supplier capability to fulfill the contract, reference contract terms at the points in which they need to be referenced based on supplier risk assessment and supplier performance score
3. Supply chain risk: Determine potential suppliers’ s policies adhere to international laws and social ethics, suppliers concentrated in a region vulnerable to weather or man-made disasters.

Please see below the pictorial representative architecture diagram to support the connected innovations.

Figure 2: Connected Innovations through next generation Data Ecosystem and analytical platform

The solution uses a range of services from SAP Cloud Platform (SCP) as well as external data obtained via 3rd Party SaaS. Fiori-based UI’s can be used for business users with NLP-based chat bot interaction. The user gets a unified Fiori-based user experience, regardless of where the underlying data comes from (ERP, SaaS, cloud persistence). 

Let me discuss few examples to explain the connected innovations through data ecosystem hub and analytical platform.

Example 1 - Supply chain Risk Management dashboard:

With many organizations are still using excel spreadsheets to manage suppliers’ risk, large part of supply chain risk management require data from multiple internal and external sources. It will ensure business continuity by monitoring external events, which may impact supply to their customer and keep them ahead of competitive advantage from peers.

There is a need to must have single data hub within organization, integrated with third-party data sources to capture and evaluate risk data and decide mitigation actions to manage risk. There is a possibility that Suppliers may potentially cause reputational and business risk. Additionally, customers can also ask for visibility into how sustainable and ethical organizations’ processes are followed in the organizations, by providing them timely information from the risk events.

Let me illustrate this with an example where we can see the potential risk events and how companies can reach to 360-degree view of supply chain risk dashboard with score card from real-time internal and external data analysis.

Weight-age for risk indicators on evaluation criteria’s can be decided by each organization as per their own supply chain risk assessment with their supply partners.

Figure 3: Supply chain risk Categories, Indicators and Potential Risk events

360 view of Supplier chain risk dashboard can be created using analytics. Companies should also decide the cost associated with each mitigation activities including time needed to mitigate the risk and to see impact of risk at regional and global level for business units to take actions from risk.

Figure 4: 360 View of Supply chain risk dashboard with real time internal and external data

Organizations can start it at selected production sites as part of proofs of concept. The data sources typically include client approved supplier network, third party cloud platform through API’s and private company information supplier networks. Organization can decide the category (High, Critical, Stable, Low) for suppliers to mitigate risk events based on impact.

Typically, there might be several recommendations and the end-user take a decision based on which of these makes most sense. These decisions drive machine learning in an artificial intelligence application, which returns information on these decisions to the application set, enabling continuous improvement.

As per SAP Ariba, Ariba Supply Risk module has now integrated (included in license) with 3rd parties example D&B for “Enriched Corporate information”, World Economic Forum for “Country Risk Rating”, Semantic Visions for government databases, “Monitoring Real-time alerts on positive or negative events”, GDACS for Natural disaster notifications on earthquake, flood, Tropical Cyclones. Also, additional 3rd party content provider subscriptions (not part of license) can be made availability as per SAP Road-maps for additional monitoring in areas such as regulatory and compliance violations (Exiger – ScreenIQ), Forced labor risk Determination and Mitigation (FRDM- cloud based SaaS platform) and Financial risk (RapidRatings, Bureau van Dijk) with add-ons via API.

FRDM (Made In a Free World Platform MIAFW) helps to provide detailed heat map of risks per sub-product components down to raw material per category purchased - Multiple tier level forced labor prevalence analysis through drill down to raw material levels to have visibility to determine root cause tier level.

Example 2 - Supplier Information Hub:

There is a need for centralized consolidation of data by collating all supplier related data and KPI’s into one supplier information platform hub. There is existing challenge for the organizations as their Supplier performance data could be into multiple system and it is not possible to get the global view of supplier performance, similarly quality data may be just at site level with no view at regional and Global level. Also, Supplier evaluation reporting templates may not be harmonized across all Global and regional Business Units.

All supplier information can be integrated into one data hub for analytic and taking correcting actions/decision would help the organizations. AI will be integrated fully into the supplier management process, which will help to identify high-risk suppliers before creating a long-term contract and call-off purchase order to supplier and to ensure that suppliers are financially, environmentally and ethically sustainable.

Figure 5: Supplier Information Hub-Global Platform

Example 3 - Global Category strategy management dashboard:

There is a need for centralized consolidation of data by collating all category related data into one information platform hub due to many variable parameters for commodity sourcing strategy. Category Sourcing Managers have continuous challenges on commodity Strategy (Sourcing of commodity from suppliers due to different dynamic set of variables and parameters). Category Sourcing Manager as per organization requirements can decide large set of variables on different parameters and use back-end Machine Learning to help make better scenario planning to determine sourcing strategy in dynamic manner.

Figure 6: Global Category Management Tool - Global Platform

People, Process and real time data need:

Procurement function must combine the technology with process and people together to make a sustainable, scalable, and high impact solution approach.

I have discussed in previous section for the need of getting the internal and external data together to fed into a central data layer so that users can take a decision to enable continuous improvement.

Let me illustrate with an example of process data needs for one End-to-End E-sourcing process from Sourcing request till awarding to supplier for a manufacturing auto company.

e-Sourcing

In order to bring more intelligence in End to End Business Processes, there is a need to add real time Experience data (Think X – future of experience and gaps) based on the knowledge and experience of people from product engineering, product cost control, supplier (innovation) & all concerned cross functional team knowledge and experience together with Operation data (current on-going and past historical data from back-end ERP system) in the digital format into the system.

Managing spreadsheets could be a significant obstacle to digital transformation. People based processes as guardians of corporate knowledge will have to move to automated libraries to easily gather, store data and knowledge in experienced economy to determine what happened last time and what the best next action are. 

Procurement function is to identify need for run time data requirement to achieve the desired business outcome.  

Figure 7: Experience and Operation data example in End to End e-Sourcing Process

Data Management:

Let me also discuss the changing need of master data management. It is no longer just about managing data rather organizations need to be data enabled to gain insights and make data infused decisions. Organizations will bring insight across the enterprise and unleash the potential for employees by providing them with accurate and real time information.

Procurement will be the function that can step up and follow a systematic approach to work on data and to ensure

1. High quality of data coming out from reconciled process flows to provide real data to Business with the intention not only to drill down into current state of operations but make a proactive and informed plan including alert-up.
2. To address enterprise wide data visibility and bring enterprise data into a cohesive and centralized location (example Supplier Hub for all supplier information together for actionable insights, Supply Chain risk as single data hub and similar cases for other procurement data).
3. To identify data source outside the system for supporting the processes and ensure pre-migration of data (Excel/VB/ Lotus Notes / Share points / Access DB / COTS Apps / Self developed portal and platform / Manual/paper based offline processes data) to digital format
4. Bring experience and operation data into digital format from the expertise of people’s in the organization.
5. Manage issue in data information and cyber security from external regulatory, privacy regulation and security of a company information regulation dealing with best of breed solutions
6. Ensure that Supply chain service providers and vendors also protect company information. If there is a chink in the armor at any level, it causes a huge problem. Any breach can create huge economic consequences to organization.

Adoption of agility in Business processes:

The speed and complexity of business continues to accelerate, which will allow procurement departments to adapt to new market conditions and react to new opportunities while maintaining discipline and efficiency.

Some examples of dynamic changes in managing Supply chain risk, Supplier relation shipment management and Category management, have been previously covered in Trend section.

Please see below some more areas where we can see the dynamic changes to business processes, where Capgemini can support with Renewable Enterprise and Multi-Pillar S/4 HANA Architecture (MPSA) for the need to renew processes again and again. 

Figure 8: Dynamic and Uncertain changes in Source to Pay Process – Few examples

Technology adoption with Architecture to support Renewable Enterprise:

Our clients key Business innovations can be delivered in SAP SaaS solution/ 3rd Party SaaS solution and SAP Cloud platform and other PaaS platforms, supported by SaaS solutions.

Implementing an Intelligent Enterprise with an SAP S/4 HANA? system at its core enables organizations to tap into a range of previously unavailable business possibilities via new technologies, new sources of data, etc., for quicker ways of adapting to volatile, uncertain, ambiguous change.

Although S/4 HANA plays a pivotal role as solid transaction back end, SAP Cloud Platform and similar PaaS solutions are the real game changers. With our Renewable Enterprise offering and MPSA framework, we help build your logic on a cloud platform. 

Capgemini’s Renewable Enterprise and the Multi Pillar S/4HANA Architecture (MPSA) help look at the core ERP and realize the related future innovations.

Renewable Enterprise is an organization ability to constantly grow and adapt, ‘renew’ themselves with ever changing technology market place, lean and agile, unlock business value and outpace competition and that will evolve with your growing needs of the business, and its customers

Strategy:

Let me discuss on how procurement function can take different strategic steps for bring next wave of Renewable Enterprise vision to life and drive Business Transformation. These areas are “Bench marking and automation”, “Readiness the organization for transformation”, “Adopting right methodology and developing needed skill” and finally making a “Sustainable supply chain and CSR driven organization”.

Bench marking and automation:

The future of bench marking is to monitor both Efficiency and Effectiveness drivers of procurement functional KPI’s.

• Efficiency drivers: Cost per transaction of Purchase Order/Goods Receipt/Invoice, Transactions per FTE, Span of spend control, Order & Invoice processing cycle time (faster processing enables greater supply assurance and cash management), % of electronic transactions, Level of automation
• Effectiveness drivers: Purchase Order creation compliance rate, Invoice acceptance rate, first pass invoice match rate, On-time payment rate, Level of line item spend visibility, Level of centralization, Compliance to preferred suppliers, Guided buying effectiveness and Supply base consolidation

Each organization is evaluated on overall efficiency and effectiveness and compared against with peer benchmarks. Also, the different organizations are at different level of automation in Purchasing, supplier and Invoice automation.

Please see below some areas of automation where High-Performing purchasing organization are already in advanced stage of P2P automation

• Purchasing: Self-service utilities for buying goods and services - maintain catalog, creating requisitions, viewing catalog content with pre-negotiated prices, finding preferred suppliers, obtaining approval for purchases, Auto generate PO, managing spend against a budget and communicating PO’s to supplier.
• Supplier operation: Supplier scouting, pre-qualification, on-boarding, community building and engagement, Update receiving status
• Invoicing automation: Invoice elimination, Electronic invoice processing, invoice capture by scan

Readiness of organization for Business Transformation:

High-Performing procurement organization should be able to check health of procurement function, time to time evaluate satisfaction level in organization and enable readiness. It is recommended to do internal assessment of Digital procurement maturity and readiness of organization to commence/review the business transformation journey.

Please see below some of the areas for internal assessment and readiness of organization

1. Is your procurement strategy in place and aligned with stakeholders and with the wider organization’s strategy?
2. Can you predict and react to supply chain disruption through cross-functional, self-directed team?
3. How is the usages of external digital information sources and analytics for optimization and data driven decision making in your organization?
4. How effective is your Self-service buying by guiding users to preferred buy/pay channels with the right supplier, price and buy method?
5. Savings: Is it through linking of forecasting, budgeting and procurement saving programs on total cost of ownership and measuring, tracking and reporting realized benefits?
6. Has speed-to-market on product innovation more prioritized over cost savings?
7. How much is the contribution in Growing revenue and Improving product margins by procurement function?

Adopting right methodology:

The future of ERP will be to Optimize (advance operational excellence), Extend (create scalable solutions) and Enhance (drive innovative growth).

Companies to find the way for business transformation by uncovering new opportunities in their business models. The major benefits would be modest investment over time and future-proof with accelerated delivery of benefits.

The productivity improvement would come from combined benefits from move to SAP S/4 HANA, Application/SaaS platform integration with 3rd party best of breed (Micro) services and improving bench marking and Intelligent Robotic process automation, all together during the shorted possible implementation period.

The one of the best transition scenarios to SAP S/4 HANA journey by replacement of old ERP ECC system with new SAP S/4 HANA system with simultaneous adoption of Best of Breed business innovations in SAP SaaS solutions.

To avoid lengthy project implementation, clients can select best performing Business units with maximum numbers of competitive processes and supported with agile enhancement on SaaS through integrating and connecting to SAP Cloud platform or Hyper-scale PaaS solutions using combined services from Capgemini Invent, Packages based solution, Insight & Data and Business Services. 

Capgemini Digital Global Enterprise Model (D-GEM) is founded on the principle that everything is connected. D-GEM can transform your existing business and deliver new operating model with bench marked best in class operational performance. D-GEM powered by SAP S/4 HANA – our offering sits at the intersection of business and technology to improve the business case and accelerates ROI.

Needed Skill:

The future need for Procurement organization leadership team will be to have below important skill set

• Data Analysis and Data Modeling: Processing of data and extract relevant information, Translate analyses into actionable plans
• Strategic and improvement mindset: Anticipate market changes to address challenges and set future direction
• Innovation: Recognize new patterns, Prioritize alternatives from problems
• Business Acumen: Knowledge of priorities and business demand, Able to deal with ambiguity

Make Sustainability supply chain and CSR (Corporate social responsibility) driven organization:

In their 2018 Purpose Study, Cone and Porter Novelli reported that 78% of consumers say organizations must positively affect society, not just make money—and nearly the same amount (77%) say they feel more emotionally connected to organizations driven by a purpose and values.

Risk, Sustainability and CSR will lead to pressure for global compliance monitoring (Regulatory Requirements, Consumer awareness and customer requirements and investor focus). Procurement function will focus on sustainable sourcing, Supply chain risk management, making environmental supply chains through Sustainable and value driven approach to procurement for environmental and social impact.

With the spotlight on the global climate change, companies to reduce their impact on the environment. Organizations must ensure they are seen to be acting, building more sustainable supply chains and ensuring high standards are being applied by their suppliers. Procurement can play vital role and can help businesses turn being green into a competitive advantage.

Enterprises are seeking to align their brand values with those of like minded trading partners and reviewing Supply chain transportation visibility for impact on environment example reducing carbon foot print, reducing number of deliveries.

Through CSR & Purchasing power of Procurement function, there is a huge opportunity for procurement teams to advance their company corporate commitment through their purchasing power and enable enterprises to procurement with purpose. By focusing on sustainability, social responsibility and innovation, procurement teams can generate unprecedented value for themselves, their company and their communities more broadly.

Through social impact sourcing – in which the buyer and supplier agree to direct a percentage of the total transaction to a non-profit social enterprise to achieve their company’s purpose driven aspirations. The inclusion of sustainable supply base management could be one of the most significant step changes, procurement can make.

SAP Ariba integrates with 3rd party “Givewith Platform” to enable Buyers and Suppliers to drive social impact through B2B Transactions. Companies on the Ariba Network can now embed social impact into their RFP process to fund nonprofit programs aligned with corporate sustainability goals.

Summary and Conclusion:

The next wave of value creation will be by start using new strategies, tools and approaches to help stretch their reach, expand their influence and increase their impact and organizations to achieve its strategic goals. Due to rapid technology advancement, companies must transform the business by revisiting business models, focusing on customer experiences, rethinking the brand and uncovering new opportunities through rapid innovation.

The new trends are Ecosystem & Analytics approach by including Best of breed solution from 3rd parties where SAP S/4 HANA plays a pivotal role as solid transaction back end. Procurement function must combine the technology with process and people together to make a sustainable, scalable, and high impact solution approach. Bring knowledge and experience of people to address dynamic complexities in business processes with real time data need both from inside and outside the source systems.

Organizations will have to take necessary actions due to increasing complexity and uncertainty such as Trade war and Tariff changes to affect the cost structure of products, visibility into the impact of tariff scenarios on their overall supply chain and viable alternatives, Supply chain risk events, wider geopolitical factors such as Brexit, legislation impacts, Taxation impact etc. but have little time to assess and differentiate between threats and opportunities. 

Embrace the new technologies at the outset and work to adopt currently available individual solutions for quick wins, updating them as they evolve. This path is as least risky run and High-Performing procurement organization will be rewarded with experimentation in the long run. Successful companies do more than simply automate existing processes. They reshape their operations around the new technology, tapping new sources of data value to broader strategic goals.

Capgemini can support your organization to improve productivity for procurement functions and balance with getting the basics right with needed innovation as per organization’s requirement without too heavily on complex process re-designs keeping in mind to reduce the technical set-up time and long development time as the main concern from the organizations.

We understand that a one-size-fits-all approach is not what our customers expect, as both solutions and businesses evolve rapidly. We will work together to decide opportunity to embrace, a threat to fight, or something to entirely ignore, and prepare accordingly as equipped with insights and methodologies to craft effective business models, processes, and the right levels of automation and digitization to implement procurement strategy.

Look for me on LinkedIn today and let’s start a detailed discussion to on a specific transformation challenge in procurement Line of Business or learn more about our Renewable enterprise and MPSA to enable your organization to move to business transformation.