All posts by Bertrand Maltaverne

What Can Yoda Teach Us About The Kraljic Matrix?

The Kraljic Matrix revolutionised Procurement in 1983. Now the world looks very different. Is it time for an upgrade?

By Yuri Turkov/ Shutterstock

The year was 1983. This was the year that the Internet was created. Bill Gates unleashed Microsoft World on the market. Star Wars Return of the Jedi was playing in the cinema. I was nine. And a director at McKinsey in Dusseldorf wrote an article that would change Procurement forever. The author was Dr. Peter Kraljic. The article, published in the Harvard Business Review, stated: “Purchasing Must Become Supply Management“.

A Procurement Transformation

Kraljic recognized that the world was changing fast. He saw that if Procurement continued business as usual, it would expose itself to competitive pressure. If it was to survive, it would have to move into strategic supply management. This was the dawn of the Kraljic matrix. It would have a transformative effect on Procurement. The philosophy (that remains valid today) is that not all spend, all suppliers, all customers & are the same. So, Procurement needs to build tailored and differentiated strategies, notably taking into account profit impact and supply risk.

Fast forward to 2019. A lot has changed. The Cold War is history, and the Internet dominates the globe. The iPhone in my pocket has way more computing power than my first computer, a Commodore 64, also from 1983. Since Kraljic published his famous article, world trade has quadrupled and globalization has exploded. Procurement is operating in a much faster, bolder world than it was in 1983. It faces new challenges like Corporate Social Responsibility and ethical supply chains. In short, our current environment today is more “VUCA” (Volatile, Uncertain, Complex, and Ambiguous) than it ever was.

The Next Evolution Of The Kraljic Matrix

“Since the early 1980s, pioneering individuals and companies such as Peter Kraljic, Michael Porter, and A.T. Kearney have pushed procurement professionals to think more strategically about the art and science of strategic sourcing. […] But times have changed. Today’s environment is more dynamic and is filled with greater uncertainty. The tried and true tools and tactics adopted over the last 30 years as the “gold standard” are not as effective as they once were.” Strategic Sourcing in the New Economy: Harnessing the Potential of Sourcing Business Models for Modern Procurement by Bonnie Keith, Kate Vitasek, Karl Manrodt, and Jeanne Kling

In some ways, the Kraljic matrix still works well. The segmentation at the heart of it remains valid. But the world is so complicated now, the matrix becomes more like a Kraljic Rubik’s cube. There are many more dimensions and parameters to take into account than there were back then.

Procurement now needs to win the Holy Grail of strategic supply management: value. Take Total Value of Ownership (TVO), for instance. Before, sustainability and risk were considered as nice-to-have, but not necessary. The TVO model places non-price information firmly within calculation of cost. This is a concept of sourcing in which the buyer has all the cards in their hand. But more than that, TVO enables the buyer to create bonus-penalty systems. In effect, it is a calculation of value that enables Procurement to identify how they can increase value after the award has been made.

Evolve Or Stay In The 80s

“My colleagues developed [the matrix] further and experimented with a nine-box version that allowed more flexibility. But always it must be adapted to the characteristics of the company where it is being used.” Dr. Peter Kraljic

The evolution of strategic supply management is challenging. Seeing the Kraljic Matrix as a Rubik’s cube is one thing. Solving the cube is something else entirely. Collecting the enormous amount of information and data that you need for this is almost impossible on your own. However, the change that makes the world so complicated also gives us the tools we need to keep pace: technology. Procurement must have a digital transformation strategy.

Also, and beyond tools like Purchasing Portfolio Analysis matrixes (that needs to evolve to be subtler), it is critical for Procurement organizations to look beyond the technical aspects of the profession. Procurement activities encompass more “soft” activities that require interpersonal skills. It is all about relationships and, even if tools help in defining the right type of relationship to build in a specific context, they fall short in delivering the “human” dimension. Also, that same dimension should be integrated in the tools and models we use.

The “experience” of working with procurement (for suppliers and for stakeholders) is as essential. Procurement delivers a service in a human-to-human context and becoming the supplier/customer of choice requires more than just tools. Digital transformation is not just about tools!

Therefore, just like Yoda “burns” the Jedi Books in “The Last Jedi” to teach Luke a last lesson by symbolizing the need to be able to move forward while being mindful and even respectful of the past, it may be the time for Procurement professional to “burn” the matrix.


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Lessons In Risk Management: Unity Is Strength

In a digital future, relationships will continue to matter when it comes to risk management…

By View Apart/ Shutterstock

I recently attended a procurement event, and, over lunch, I had an interesting discussion with other procurement practitioners about supply chain risk management (SCRM). One of the people at the table stated that his organisation was not looking into increasing its SCRM capabilities because technology cannot help in preventing issues to happen. To reinforce his theory, he told us what had recently happened to his company. The factory of one of his key suppliers was reduced to ashes by a fire. That incident led to disruptions that, according to him, technology could not have helped preventing or mitigating the impact.

Even if it is true that SCRM technology cannot have a direct impact on the cause of incidents, it is not a reason to ignore potential threats and behave like an ostrich, sticking its head in the sand. The story above is one of the many examples demonstrating that organisations don’t learn and reproduce the same mistakes, again and again.

“Insanity Is Doing the Same Thing Over and Over Again and Expecting Different Results.”

Albert Einstein

SCRM technology together with SRM and Category Management can have an impact on reducing exposure by, for example, highlighting sensitive areas (single sourcing of critical components, suppliers in dangerous zones…). They also can help in reacting faster than the competition when problems occur. And there are many examples of that. However, there is more to it…

Being the customer of choice helps

During that same conversation, I mentioned another story I had read about as it was to some extent similar but with a very different outcome.

A buying organisation using a SCRM solution had received a notification that an incident had happened at one of their supplier’s factory. Therefore, the buyer in charge was able to

  • immediately contact the supplier to discuss with him
  • build a business continuity plan.

The immediate action was to have the supplier produce the component in one of his other factory that had some free capacity.

In addition to the speed advantage that technology provided, the buying organisation benefited from the good relationship he had built with the supplier. Because they were considered as a customer of choice, the supplier gave them access to possibilities that less preferential customers probably would never have had.

Get help from bigger than you

The story above reminded me of another one, with a different twist. I heard it a few months ago at a procurement conference in Czech Republic. A buyer (I will call him John) had in his portfolio a certain raw material. He was buying modest quantities of it but the material was nevertheless critical. Also, only a handful of suppliers were selling it. John knew that, in case of peak in demand, he would never be the one served first. In order to prevent shortages, he developed a clever alliance strategy.

John attended a fair where he knew that the major sellers and buyers of that raw material would be. Using the research he had done before the event and his observation skills, he connected with the big players on the buy-side of the market because he knew they would have better contracts and conditions that his. Conditions that would most probably integrate capacity agreements.

Months later, when demand peaked John did not contact his supplier to try to convince him to deliver to him; he knew it would be a vain effort. Instead, John reached out to a buyer (Bill) who he had met at the fair and with whom he had built a good relationship. He explained his situation to Bill. After listening, Bill explained that he could help because he had a contract that stipulates that the supplier must cover his needs as long as they vary within a certain range. As John’s needs were small in comparison to his, adding them to his would remain in the contract’s terms. After agreeing on the condition of this deal, Bill called his supplier to inform him that he would need larger deliveries. The supplier agreed and delivered the requested quantities to Bill who then forwarded what John needed.

In a digital future, relationships will continue to matter

John’s story has a particular resonance for me as I had lived a relatively similar situation when I was a buyer. But, I hadn’t done my homework like John, so I could not seek the help of a larger customer to help me. It took months and lots of efforts to recover.

These stories illustrate that Procurement professionals have to prepare for the worst and hope for the best. The fact that black swans exist is no excuse for not being ready! It also means that having the people, process, technology, and data to:

–                 identify weaknesses and risks

–                 build contingency and mitigation plans

–                 constantly monitor risk sources

These are the conditions for being proactive and not passive with regards to risks. Also, they should not forget the importance of nurturing relationships as business is human-to-human, H2H, (and no more B2B or B2C). At the end of the day, organisations having a competitive advantage are the ones that get the best out of their relationships with technology AND people; augmenting/enhancing each other.

After Saving Costs, Now Is The Time To Save The World!

We, as procurement professionals and as citizens, have a responsibility to take action to tackle the challenge of working sustainably.

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August 1, 2019: this could be when we reach the “Earth Overshoot Day” this year. For the rest of the year, we will be living on credit. When it comes to natural resources, that is.

“Earth Overshoot Day marks the date when humanity’s demand for ecological resources and services in a given year exceeds what Earth can regenerate in that year.” Source: OverShootDay.org

At the time of writing of this article, the actual date for Earth Overshoot Day is still unknown, but for several years in a row, we have reached the limit in early August. Based on this precedent, we can safely assume that it will be very similar this year. We may even reach it in July—a first! The situation also varies greatly by country. Some countries already reached it in February/March!

In short, this means that we would need 1.7 Earths to sustain our current level of consumption of natural resources.  Considering that we only have one Earth to go around, this is a very preoccupying statistic, and even more worrying is the trend and speed at which the day is arriving earlier and earlier each year:

This situation is clearly not sustainable and we, as procurement professionals and as citizens, have a responsibility to take action to tackle this challenge.

The end of the tragedy of the commons?

 “The tragedy of the commons is an economic theory of a situation within a shared-resource system where individual users acting independently according to their own self-interest behave contrary to the common good of all users by depleting that resource through their collective action.” Source: Wikipedia

To exit the tragedy of the commons, there is an urgent need for us to mobilise and act on a global scale. All economic actors have a role to play.

Governmental institutions can foster sustainability in two major ways. Firstly, by investing in businesses, research, and infrastructure and secondly, by creating regulations and policies to develop and promote socially- and environmentally-friendly practices. By adopting the right mix of carrot and stick, governments can steer behaviors and economic growth towards more favorable and sustainable outcomes.

Investors/shareholders also have an essential role to play, because by exercising their influence, they can push organizations to make sustainability a top priority. In fact, many green companies go beyond legal/governmental requirements and make sustainability the heart of their business model.

“[T]he next phase of business sustainability, what we call “market transformation,” is founded on a model of business transforming the market. Instead of waiting for a market shift to create incentives for sustainable practices, companies are creating those shifts to enable new forms of business sustainability.” The Next Phase of Business Sustainability in The Stanford Social Innovation Review (SSIR)

These companies and investors understand their obligations and interests, because the long-term survival of an organization depends on the health of its surrounding ecosystem. The concept of “Creating Shared Value” explains why a new type of investors is becoming more visible and active:

“Impact investing has become a broad umbrella that includes all investing with a focus on both financial return and social impact, but in its best form, impact investing prioritizes impact over returns and achieves outcomes that traditional investing cannot.”Jacqueline Novogratz, founder, and CEO of Acumen, a non-profit global venture capital fund whose goal is to use entrepreneurial approaches to address global poverty

Consumers represent another powerful force. Not only do they drive demand, their buying decisions also have the power to influence what products companies produce and, to some extent, how they produce them. The growth of the “business of sustainability” and of the “circular economy” are indicators of this shift.

So, when we ask ourselves who has the power to create a more sustainable future, the answer is really:  all of us. We can all exercise our influence as voters, investors, collaborators, and consumers to drive sustainable policies and practices forward.

And, when it comes to sustainability, procurement professionals have even more power than most!

Sustainable Procurement

Procurement plays a central role in transferring value from the upstream supply chain to the downstream of the chain. This means that, Procurement is the key player that enables a business to also “walk the walk” when it comes to sustainability by looking beyond prices and costs. Concepts like total cost/value of ownership (TC/VO) are not new, but they are still not commonly used, especially when integrating the impact on the ecosystem into TVO models.

For any sustainability efforts to be effective, businesses need to take a holistic approach. This is why truly “sustainable procurement” encompasses aspects related to the environment, labor & human rights, business ethics and, community development.

Many mature procurement organizations have already started to incorporate some of these aspects into their procurement approach, but the goal of these sustainability measures is often limited to “risk prevention.” Brand/reputation protection has long been a key motivating factor for organizations that have considered integrating sustainability into their approach.

And, as mentioned earlier, there is more to it than that. Sustainability can also be an engine for growth. So, to harness the full potential of sustainable procurement, procurement organizations must first understand and be aware of their role/duty, and then act accordingly to embed sustainability in all their activities. For example:

  • Sourcing decisions: Include sustainability in TVO models (e.g. CO2 footprint, use of best available techniques, supplier diversity, etc.)
  • Contract Management.: Incorporate sustainability clauses (e.g. reduction of waste/energy consumption, recycling, supporting disadvantaged or marginalized groups in the community, reporting on sustainability aspects, etc.)
  • Supplier evaluations: Integrate quantitative and qualitative criteria into scoring models and develop real-time scorecards that also leverage 3rd party data and public sources of information

“The obligation, and the self‑interest of every company is to build a robust society.” Tim O’Reilly

Sustainability is a challenge that requires the urgent attention of all of us. As Procurement professionals, our responsibility is even greater. Therefore, we should embed sustainability in everything we do and, as much as we are able, we should become the consciences of our organizations by ensuring that sustainability is not just an empty vision, but a practice. To do this successfully, we must ensure that suppliers

  • behave correctly in terms of Corporate Social Responsibility (CSR)
  • use performance indicators related to Environmental, Social and Governance criteria (ESG)

Only then can we play a role similar to an investor by following SRI (Sustainable, Responsible and Impact Investing) principles when making decisions and assessing options. This represents a much better purpose and meaning than just cost savings!

Transparency In Supply Chains And Blockchain: What Is The Most Common Trap?

Becoming aware of blockchain’s weak spots is an important first step towards taking full advantage of what the technology really has to offer.


By Billion Photos / Shutterstock

Is Blockchain coming of age in 2019?

Judging by the first half of 2019, it seems that the blockchain hype is finally deflating and there is an overall consensus that it will not save the world (at least not this year…). The growing trend towards pragmatism, which is now beginning to temper people’s expectations, is the best thing that could happen to blockchain. . .  A more down-to-earth approach is welcome because, like any technology, blockchain is not perfect, nor the solution to all problems. It is important to be realistic about its potential and limitations.

In particular, blockchain has limitations that threaten to jeopardise many recent high-profile initiatives to increase traceability and visibility in the supply chain. Despite seeming like the ideal technology to address growing concerns about these aspects, most (if not all) blockchain implementations have an Achilles’ heel: the initial digitisation of data to bridge between the physical and the digital world.

Becoming aware of these weak spots is an important first step towards taking full advantage of what blockchain really has to offer. Blockchain’s real value proposition

There are many potential and valuable use cases for blockchain, especially in Procurement and Supply Chain Mgmt.  

“If you talk to supply chain experts, their three primary areas of pain are visibility, process optimisation, and demand management. Blockchain provides a system of trusted records that addresses all three.” Brigid McDermott, vice president, Blockchain Business Development & Ecosystem, at IBM (source Blockchain and Supply Chain Finance: the missing link!, Finextra)

The most valuable characteristic of blockchain is that it serves as a backbone for “convergence”:

  • For better insights and actionable intelligence: Blockchain is the missing link in Big Data initiatives and the convergence of the Internet of Things (IoT), Artificial Intelligence (AI), and blockchain represents a breakthrough.
  • From an integration perspective: Blockchain-based supply chains allow three different supply chains (physical/informational/financial) to converge into a single digital one.

Blockchain has the potential to converge the two main ecosystems involved in trade finance — the financial ecosystem, which includes banks and suppliers, and the supply chain ecosystem. At the same time, the technology can provide a unified platform for multiple stakeholders, potentially avoiding difficulties that slow down operations” Béatrice Collot, Head of Global Trade and Receivable Finance at HSBC quoted in Blockchain’s Main Strengths Are Transparency and Instantaneity on Cointelegraph

While these features will certainly contribute to improved supply chain transparency, there is still a critical challenge that needs to be addressed: the digitisation of data at the beginning of the process. This crucial step constitutes a fundamental weakness of many current digital supply chains.

Blockchain’s Achilles’ Heel: Mind the Gap!

Traceability and transparency along the supply chain, from raw materials to final products, is a growing concern for organisations. New regulations from governments & institutions, customer expectations, and company’s self-interest in issues like sustainability, incident management, and efficiency, have created the need for an infrastructure to track, trace, and store data in the supply chain.

At first glance, blockchain may seems like the ideal solution. It creates a permanent record of all transactions at all levels of the supply chain, guaranteeing full traceability and establishing trust. So, many companies started to provide blockchain-based means of collecting information in their supply chain with the goal of making it accessible to customers as irrefutable proof about the origin of products and components.

A typical story goes like this: “Thanks to our application, you can take a picture of the QR-code on your product and view the entire supply chain of all components/elements that contributed to the final product you have in your hands.”  

This sounds great in theory, but there is an important caveat:

 “At the interface between the offline world and its digital representation, the usefulness of the technology still critically depends on trusted intermediaries to effectively bridge the “last mile” between a digital record and a physical individual, business, device, or event. […] And if humans […] manipulate the data when it is entered, in a system where records are believed ex-post as having integrity, this can have serious negative consequences.” What Blockchain Can’t Do, Harvard Business Review

The use of blockchain technology gives people a false sense of security because it relies on cryptography and various mechanisms to ensure that information stored on it can be trusted (identity, immutable record, etc.). But, as illustrated above, the digitization step when the information is recorded (a block added) is not protected by this same “guarantee.”. So, it is not because blockchain technology supports and enables a better transparency that it should be blindly trusted by customers or by procurement or supply chain pros.

The solution?

It is undeniable that blockchain is a form of digital trust. Much of the hype surrounding it has been driven by a broader trend in society: the erosion of trust in people and institutions. Blockchain is playing a major role in shifting that trust to technology and software. This explains, in part, why compliance and transparency are the use cases that are priorities for procurement and supply chain pros.

However, it is important to remember that blockchain’s reputation as “trustworthy” can be misleading, especially in the case of supply chain transparency. Manual operations are still part of the initial process of digitizing the data. Therefore, trusting data stored in the blockchain also means trusting that initial step that relies on human activities.

For this reason, building trust in business partners will continue to be a vital part of the procurement function’s role in the future. Introducing digital initiatives will not entirely remove the human element of the job, and Procurement practitioners will need to continue working on establishing trust and nurturing it with suppliers and stakeholders.

Also, from a technology perspective, there are already initiatives to close the gap between physical and digital as much as possible. Interestingly, they focus on physical objects (crypto-hardware) and not just on software. These objects are the child of RFID, connected devices, and blockchain, with the intent to create a convergence between the Internet of Things and the Internet of Value (blockchain) to create the Value Internet of Things (VIoT).

In addition to the human and technological answers that will both contribute to creating a truly integrated supply chain (physical + informational + financial), a third component will remain essential: critical thinking.

Trust and verify!

AI and Procurement: Boldly Going Where No Team Has Gone Before?

The battle of “human vs. machine” is raging in Hollywood and, increasingly, in the workplace. What does the future hold for AI?

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2001: a space odyssey… Terminator… The Matrix…

If you were to believe some of the sci-fi blockbusters, you’d think our future as humans is pretty bleak. They all offer a dystopian view of the future where, if the machines don’t kill us, they enslave us.

The battle of “human vs. machine” also seems to be raging outside of Hollywood, and we humans seems to be losing more and more ground to machines each year. Some of this ground has been lost in the world of gaming. Over the past decade, machines have been beating us at increasingly complex games more and more often. Looking back at these “wins” for the machines, we can see some key stages in the evolution of Artificial Intelligence (AI):

•    Deep Blue won against Kasparov at chess in 1997. It was rather dumb but powerful. With brute-force & human-created logic, Deep Blue was able to test and evaluate every possible sequence of moves at every turn and choose the best one.

•    Watson defeated Jeopardy champion, Ken Jennings, in 2011 and was smarter than Deep Blue. It had to understand natural language and find the relevant knowledge from various sources like encyclopedias, dictionaries, thesauri, newswire articles and literary works.

•    Google’s Alpha Go won against Go’s world champion Less Sedol in 2016. To achieve this result, it had to learn from humans from thousands of past games. This is because, unlike chess, which has a limited number of moves, Go is one of the most complex board games in the world, with more possible moves than the number of atoms in the universe. The second generation of Alpha Go learned by itself by playing against itself millions of times to discover what works and what does not.

•    Libratus beat four expert players of Texas Hold ‘Em poker. It also learned by itself and was able to understand behavior because poker is a game of luck, deception, and bluffing!

While very impressive, these victories also show that machines are still dumb when compared to everything that people can do. Machines excel at one thing and have the intelligence of a two-year-old or less for everything else.

What we can learn from sci-fi movies and the battles being waged on the gaming front, is that AI has many faces:

Today, despite all the hype and buzz, computers are still only at the narrow intelligence level. But even at this level, the potential applications of AI are endless.

As far as Procurement is concerned, the same applies: machines are far from being able to replace Procurement teams. Instead, new technologies have another purpose: augment people to achieve better outcomes.  This is a definite shift from the last waves of technologies, which were mostly focused on automation and staff reduction.

Machines in procurement get a promotion: from admins to colleagues and consultants

AI, in short, is all about learning from data to develop new insights and using this new knowledge to make better decisions. It is also about continuous learning and improvement. AI is a master of the “Kaizen” philosophy! This makes it a precious ally for Procurement and AI should therefore be considered as a team member within the broader Procurement ecosystem. Experience shows that “people + machines” get better results than people alone or machines alone.

Of course, in Procurement and in general, it is undeniable and unavoidable that AI will impact the future of work and the future of jobs. Work will continue to exist, despite potentially significant job displacements. While some jobs may disappear, new ones will come to take their place, and most will be transformed by the imperative of cooperation with smarter machines. Procurement jobs will also be impacted and future procurement professionals will require a new set of skills. For example, data analysis and modeling will become a core competency next to more traditional business and relationship management skills. This is because the “data analyst” component in activities will grow due to the collaboration with AI in order to:

•    Train AI and ensure that data is relevant, complete, and unbiased

•    Monitor outputs (recommendations, actions, insights, etc.) of the AI system to ensure relevance, quality, take more contextual / soft aspects into account, and safeguard against AI shortcomings.

Space: the final frontier. These are the voyages of the starship Enterprise. Its five-year mission: to explore strange new worlds, to seek out new life and new civilizations, to boldly go where no man has gone before.

To conclude on a more positive and optimistic note than where this article started, I have taken inspiration from another sci-fi classic.  I believe that the future lies in a new type of cooperation between humans and machine.

The duo Dr. Spock and Captain Kirk illustrates, to some extent, how such cooperation is possible and can offer the best of both worlds. By combining Captain Kirk’s instinct and emotional intelligence with Spock’s logic and reasoning skills, they were able to successfully tackle any challenge they encountered.

New developments like explainable AI (XAI) and “caring AI” will make machines of the future even more human and will allow them to take an even more active role in our personal and professional lives. AI will continue to augment us, not replace (or kill or enslave) us.

So, Procurement people, live long and prosper!

Could RPA Make Procurement Jobs More Human?

The new “hot” technology generating hype in 2019 is Robotic Process Automation (RPA). Here’s how it can help procurement…

By Viktor Gladkov / Shutterstock

Procurement is, by nature, in the business of relationships. Whether it’s managing suppliers or stakeholders, the success of any procurement organisation relies heavily on building relationships between people.

Despite this, many procurement professionals do not have the time to focus on the human side of their job. Data collection, reporting, transactional activities, urgencies, etc. are all tasks that eat up their precious time and prevent them from focusing on relationships that could generate more value and better outcomes.  This problem isn’t new and is the main driver behind the constant, growing interest in procurement technologies that automate processes and increase efficiencies.

What is new, though, is the pace of innovation and the hype around some of the latest technologies.

Emerging technologies have begun to dominate discussions in the procurement space, and it has become impossible to avoid debates, articles, publications, etc. on artificial intelligence (AI) or blockchain. The new “hot” technology that has been generating a lot of hype in 2019 is Robotic Process Automation (RPA).

Before jumping on the RPA bandwagon, it is critical to look beyond the features to understand the bigger picture. In the case of the latest RPA technology that has integrated AI, it is about making procurement jobs more human by offloading even more mundane, robotic tasks to… robots!

The goal is to augment, not replace, people by combining the best qualities and capabilities of both human and machine to achieve better outcomes.

RPA: Copy/paste on steroïds…

“[RPA is] a preconfigured software instance that uses business rules and predefined activity choreography to complete the autonomous execution of a combination of processes, activities, transactions, and tasks in one or more unrelated software systems to deliver a result or service with human exception management.”

Source: IEEE Guide for Terms and Concepts in Intelligent Process Automation (whose purpose is to provide standard definitions of concepts, capabilities, terms, technology, types, etc. for emerging process technologies)

This technical definition of what RPA is and how it works can be summed up with a simple analogy. Imagine that you have to repeatedly copy data from one Excel file to another to produce a monthly report. One way to eliminate these mundane, low-value, tedious tasks would be to create a macro that would do all the copy/paste for you. In addition to saving hours of your precious time over the course of the year, it would also reduce the risk of errors. This is, essentially, a simplified definition of what RPA is about. It’s a way to automate repetitive and scripted actions that are usually performed manually by users (not just copy/paste!). It is a form of business process automation.

The typical benefits of RPA are:

  • efficiencies to free-up resources usually spent on manual tasks and re-focus them on core business (efficiency fuels effectiveness)
  • better consistency and compliance in data entries by reducing errors
  • from a system/IT perspective, RPA is a valuable workaround to break data silos. It avoids the costs (investment, change mgmt.) and risks associated with replacing an existing system or creating interfaces. RPA solutions sit on top of the existing infrastructure and simply simulate user actions to take data from system ‘A’ and put it in system ‘B’.

RPA has limitations and it is important to be aware of them and consider if the trade-offs are worth it. Some of them are:

  • RPA can do one thing and only one thing. If there are changes in the source or in the destination systems, then it will stop to work correctly
  • It requires extensive programming to ensure that the RPA solution takes all cases into account. If not, it will not work or, even worse, it will create even more issues as it is very consistent in executing rules. If something is off, the same error(s) will be consistently repeated
  • For the same reason, it is vital to ensure that processes are running well before implementing RPA

If RPA only Had a Brain…

There’s no getting around it: RPA is a very dumb technology.  It does exactly what it’s told, blindly executing whatever set of rules it’s given. Such technology has been in use for years but on a limited scale. However, with the advancement of other, smarter technologies opening up new opportunities to make RPA more useful and less “dumb,” it is experiencing a revival. AI is one of the emerging technologies revitalising RPA, and stirring up hype. These days, it’s rare to see RPA without an AI component, which has also lead to a lot of confusion between RPA and AI.

“[AI is] the combination of cognitive automation, machine learning (ML), reasoning, hypothesis generation and analysis, natural language processing and intentional algorithm mutation producing insights and analytics at or above human capability.”

Source: IEEE

By nature, RPA and AI are very different technologies:

Because most business processes require a combination of “DO” and “THINK,” newer generations of RPA solutions integrate AI components to:

  • Understand input via natural language processing, data extracting and mining, etc.
  • Learn from mistakes and exceptions
  • Develop/enrich rules based on experience

It is this new, smarter generation of “RPA+AI” solutions that has broader applications as a valuable tool for Procurement.

RPA Applications for Procurement

“It is not the type of business process that makes for a good candidate for RPA, but rather the characteristics of the process, such as the need for data extraction, enrichment and validation.”

The Hackett Group on Procurious

RPA is particularly well-suited for operational and transactional Procurement because these areas are characteriSed by countless manual activities. Here are some examples:

  • Automation & elimination of mundane tasks
    • Invoice processing: It is possible to drastically reduce efforts and cycle times to extract essential information from an invoice and perform an m-way match by using a combination of RPA and AI (Optical Character Recognition + Natural Language Processing)
    • RFx preparation: Tasks related to data collection (quantities from ERPs, specifications from PLMs or other file sharing systems, etc.) and even the drafting of RFXs can be streamlined by using RPA.
  • Data compliance and quality
    • Supplier onboarding: RPA can automatically get more supplier data or data needed to verify registrations or certifications by crawling the web or other data sources.
    • Data mappings and deduplication: RPA can be a great support in Master data Management (MDM) by normalizing data (typos, formatting, etc.) and by ensuring that naming/typing conventions are respected.
  • Support to gain better insights
    • Supplier scorecarding: This is an activity that requires thorough data collection. RPA can be leveraged to collect data from various sources and integrate the information into one system either for internal purposes and/or for the preparation of a negotiation or business review
    • Contract analysis: RPA can crawl file sharing systems, network disks, and even emails to collect and gather contracts in one central location. Then, it can extract key terms and store them as metadata in a contract management solution.

Conclusion

RPA, in combination with other technologies, is an efficient way to connect silos (from a data perspective) to win back valuable time and remove the “robot” work from the desk of procurement teams so they can focus on the human side of their job.

On top of that, procurement organisations can gain tremendous insights from implementing RPA because it can make new data digitally accessible and more visible.

However, it is important to keep in mind that RPA is only a workaround; it does not break silos like an end-to-end procurement platform would do.

Best Of The Procurious Blog – “Hey, Procurement…” The Rise of Chatbots in Supply Management

Procurement tech guru Bertrand Maltaverne explores the benefits, limitations and pitfalls of chatbots in procurement – with some animated examples!

“Hey, Siri,…”

“Alexa,…”

“OK Google,..”

Digital assistants are ubiquitous. We talk to them (Siri, Alexa, Cortana, etc.). We chat with them (Twitter, Facebook Messenger, Skype, WeChat, etc.). They are in our phones, in our computers, and even in our homes. Now they are also making their way into our offices!

Procurement professionals need to start taking notice, because chatbots present a valuable and unique opportunity to provide better services and experiences for internal customers and suppliers. They can also support and assist procurement professionals with their daily activities, becoming virtual colleagues or consultants.

Of course, as with any new piece of technology, it is important not to succumb to the hype and to be aware of the technology’s limitations and constraints before deploying bots everywhere.

Value = Outcomes AND Experiences

The term “Conversational Commerce” was coined by Chris Messina in 2015. In his article, he focused on how messaging apps bring the point of sale to you. He first introduced the idea of assistants that people could interact with to buy things from a company. This is precisely what Amazon did and has popularized with Echo (the hardware) and Alexa (the AI-based assistant that “lives” inside Echo).

The idea of voice or text-based interactions with a bot can be extended to much more than B2C and to “buying things”. The value proposition of such technology is to digitise interactions and conversations while also making technology more accessible.

Here are some of the benefits:

  • Gains in efficiency and effectiveness because of tailored and context-aware interactions. Chatbots remember everything, they know where you are, and can tap into data from all your other applications.
  • Less time and effort needed to learn how to use Procurement technology: conversations replace graphical user interfaces (everybody knows how to type or speak; no need to use explicit and codified instructions).
  • Interoperability and accessibility: users chat in the application or channel they prefer (SMS, Instant Messaging, Skype, Facebook Messenger, Alexa, Twitter, etc.). All bots leverage one common robust back-end system that processes and interprets natural language.

All in all, chatbots contribute to the creation of omni-channel and replicable but unique user experiences for stakeholders, suppliers, and for the Procurement teams themselves. Improving experiences is one of the pillars of the digital transformation of Procurement. In addition to delivering business benefits (savings, risk reduction, innovation, growth, etc.), it contributes to making procurement a supplier/customer/function of choice.

“Every time [customers] interact with a product, a service, a person, or an automated system, they judge how well the interaction helped them achieve their goals, how much effort they had to invest in the interaction, and how much they enjoyed the interaction.” Outside In: The Power of Putting Customers at the Center of Your Business by Harley Manning, Josh Bernoff, and Kerry Bodine

Use Case 1: Guided Buying (Chatbot as an Admin.)

This is a use case that is very close to B2C: a Procurement assistant is deployed to handle demands from the rest of the organisation in order to replace or “augment” traditional eProcurement solutions. Requesters interact with a bot that proposes solutions based on:

  • the needs identified during the conversation,
  • the Procurement strategy (preferred suppliers, preferred items, contracts in place),
  • other factors (purchasing history, real-time availability of products, context, etc.).

The approval process also happens via chat. If available, the chatbot adds the approver to the conversation, creating a group chat. Or, the Procurement Assistant opens a new one-to-one conversation with the relevant approver. Approvers can then ask the chatbot how much of the budget is left and then immediately approve/decline the request without leaving the chat. The same can happen for other process steps (order confirmations, goods receipts,etc.). The assistant initiates discussions to ensure the process is compliant and efficient.

Use Case 2: Operational Support (Chatbot As a Colleague/Consultant)

Chatbots can also be invaluable assistants in operational support. The most straightforward and immediate application: query management. A chatbot can become the single point of contact for internal and external queries about purchase orders, invoices, and much more. Several companies are already successfully using such capabilities in their Procurement portals to provide quick answers to a vast amount of queries, which leaves their teams with time to focus on  more complex requests and value-adding tasks.

It can even go further as the following scenario demonstrates:

Now, let’s compare what happened above with a scenario in the context of siloed organisations and where such technology wasn’t used. The purchaser would probably have learned about the earthquake on his way to work while checking the news on his smartphone. He would only have been able to assess the situation and prepare contingency plans once he arrived at work, losing valuable time. In may organisations this would take hours or even days because access to information is spread across multiple systems. This would result in a very different reaction time compared to the example above, where the cognitive agent reacted almost immediately after the event and prepared recommendations during the night.

Pitfalls and limitations

Relying on conversations instead of graphical  user interfaces has many benefits, especially for the mobile worker or casual user. However, there are limitations and challenges.

Voice-based conversations are the most natural ones and are also the most challenging from a technological perspective, especially in a B2B context. This is due, in part, to the international nature of business. For example, names of people or companies are not familiar words that a chatbot can quickly recognise, and to make things worse, they are often not in the same language as the one used to converse with the bot.

In addition to technical challenges like these that will likely be solved someday, there is a more human challenge: the conversational paradox. It explains why chatbots are still not widely used.  The paradox is that something very natural (a conversation) is done with another unusual counterpart (a machine), which turns the experience into a very unnatural one. So, when asking a chatbot something, the first questions people are confronted with are:

  • what instructions can “it” understand?
  • what words should I use to make sure I will be understood?

This represents  both a significant barrier to usage and a risk for adoption. It is therefore important to design and deploy chatbots with that in mind and:

  • not to use them as the only communication channel (it should be one among many others),
  • not to oversell the technology as being human-like (it inflates expectations and is a guarantee for failure),
  • to provide cues and guidance (like the menus/lists in the examples above)
  • to have a smooth and almost transparent hand-over to a real person if the machine fails to understand a user.

Conclusion

“By 2020, 30% of web browsing sessions will be done without a screen.” –Gartner

Conversational user interfaces are still a novelty, especially in B2B. However, they will become more widely used as technology makes further progress and people get more used to it. So, for Procurement, now is the time to investigate their potential as an additional way to provide a streamlined and personalized user experience both inside and outside of the function.

In addition to  delivering the right outcomes, experiences are also a crucial component of the value that the rest of the organisation gets from Procurement. Customer satisfaction is at stake.

The implementation of chatbots, like any other technology, has to be pragmatic, defined by clear use cases, and should not be viewed as a solution in itself. Chatbots will not solve all of an organisation’s problems, , but they can be used as a means to an end!

Time to learn how to say: “Hey, Procurement…”

Blockchain Will Not Save The World (At Least Not This Year…)

Blockchain hype has spread like wildfire… But it’s time for a reality check…

Don’t—

Don’t—

Don’t—

Don’t—

Don’t believe the hype

Don’t Believe the Hype” is a song by Public Enemy that dates back to 1988 and (if loosely interpreted) carries an important message that can be applied to blockchain technology. Blockchain is almost everywhere, and—let’s face it—it’s getting a lot of hype.

It is very surprising that  such a new and relatively obscure technology like blockchain has received so much  exposure so fast, even in mainstream media. Blockchain hype has spread like wildfire, and this is largely because blockchain is the underlying technology behind Bitcoin, a digital currency (a.k.a. as cryptocurrency) that received a lot of coverage in the media.  In the wake of the cryptocurrency craze, blockchain has continued to attract more and more attention.

Time for a reality check

The response to blockchain exemplifies many of the issues that are commonly  associated with introducing new technologies. Firstly, the market’s inflated expectations do not match the reality of blockchain’s current applications and actual capabilities (see for example: “187 Things the Blockchain Is Supposed to Fix”). Secondly, many consider blockchain as an end in itself when it is actually just a tool that serves an objective or purpose. These are probably the two factors that are doing the most damage to the credibility and future of this technology, despite the very promising applications of blockchain.

At its core, blockchain is a form of digital trust, which has a number of potential uses and applications in business because trust is one key component in such a context. However, some of the characteristics of this technology that make it so valuable are also limiting the scope and possibilities of blockchain’s real-world applications beyond trials and prototypes. As with many other things, it is a matter of trade-offs. There is not a single, universal, and magical solution to every problem. So, before blindly jumping on the blockchain bandwagon, it is crucial for Procurement and Supply Chain professionals to know what blockchain is, understand its value proposition, and to be aware of what challenges and issues may be associated with using it.

Limitations and challenges of first-generation blockchains

You can trust data contained in a blockchain because of the way records (blocks) are added and managed. Unlike other methods of data management, blockchain is a decentralized (peer-to-peer) network composed of nodes. There isn’t a single “party” managing and owning the data, but rather a network of independent nodes that operate the network. This removes the risk and temptation of manipulating data. Even if someone was tempted to tamper with the data ,  they would need to find a way to  change it at all “n” nodes of the network simultaneously, which is more or less impossible, or, at the very least, extremely difficult.

A second aspect of blockchain that makes it such a secure data management option is its unique form of record keeping. “Miners” verify every new record and they must reach a consensus to allow a new record to be added to the chain. On top of this, each new record (“block”) contains a link to the previous block, meaning that it is impossible to change or remove a record without editing the entire chain. This is why data in the blockchain is immutable, which is one of the key value proposition of blockchain (although immutability and the new GDPR do not really work well together…).

Looking at the process above, it is easy to imagine that adding a new record in a system like blockchain takes more time than it would in centralized databases. This is because many actors (nodes) are involved and they have to perform tasks (mining) to verify the transactions (and that also serve as prevention against hacking and attacks). So, in its current form, blockchain is a somewhat slow technology when compared to what already exists. For example, Visa processes and verifies transactions more than 7,000 times faster than what happens on the bitcoin network.

Another issue is that, all the nodes of the network store all the data contained in the blockchain. This drastically increases the size of the blockchain, making it slower as it grows and more and more difficult to manage. In short, a blockchain network would explode and become  unmanageable very quickly in a number of real-life scenarios, such as, for example, if blockchain was used to track the origin of materials and parts across all tiers in a company’s supply chain.

There are also other potential threats related to security. Blockchain technology  relies heavily on cryptography and peer-to-peer networks that make it very robust and resilient. However, history has shown that almost nothing is unhackable. The blockchain may be incredibly difficult to hack but someone with the right motivation, tools, and probably a lot of time could, one day, hack it. And, as the blockchain’s popularity grows, so does the potential pay-off for successful hackers! Also, even if we were to assume that the blockchain is  totally unhackable, the systems around it are not. Systems and programs connected to the blockchain may be vulnerable to attacks and/or to bugs.

All in all, the blockchain technology is not a magic solution for every problem. Like any other technology, some trade-offs make it a more or less viable solution. For the blockchain, the trade-off is between three properties: scalability, decentralisation, and security. Today, you cannot get all three!

New and future  generations of blockchain could make it a viable option

A lack of scalability is probably the most serious limitation of blockchain, and it will probably determine the life or death of the technology. The first generations of the blockchain network, like Bitcoin, do not scale at all and are even incredibly dangerous if you look at sustainability issues and energy consumption. Newer generations are addressing this issue by introducing new designs and concepts.

For example, they are moving away from the consensus/mining mechanism that older generations use, which is based on the “Proof of work” concept (miners must perform more and more complex calculations and need more and more computing power and energy to complete them). “Proof of Stake” (PoS) is a newer and much more energy conscious algorithm that will address the “cost” of blockchain and make it a viable option.

Another example of how blockchain technology is being updated can be seen in the radical changes being made to the blockchain’s design. In new conceptualizations of blockchain, the design is moving away from linear models, where one block is only linked to the block before and after it (like links in a chain), and are instead moving towards networks of blocks, where one  block is connected to n other blocks. The benefit of this model is that operations on records can occur simultaneously on several branches of the network.

Too bad to be true?

It is true that there are essential trade-offs (scalability, decentralization, and security) to be aware of and to consider before adopting blockchain technology and moving towards a form of digital trust (which means trusting the software more than other parties). However, in many situations, the benefits offset the challenges and make blockchain the best alternative. A recent real-world example of this is the use of blockchain in a refugee camp as a means to address identity challenges and issues. As Houman Haddad, the UN executive behind the introduction of blockchain technology in a refugee camp in Jordan explains:

“Of course we could do all of what we’re doing today without using blockchain,” he says. But, he adds, “my personal view is that the eventual end goal is digital ID, and beneficiaries must own and control their data.” From “Inside the Jordan refugee camp that runs on blockchain” published in the MIT technology Review in April 2018

Another way to look at the trade-offs/dilemma is to consider what can be achieved with blockchain that was previously impossible. An interesting example in the Procurement / Supply Chain sphere is Productivist a service provider that wants to address the “manufacturing surplus” by connecting, , manufacturing companies and their customers via the blockchain.

Some say I’m negative,

but they’re not positive

But what I got to give,

(The media says this?)

So,  don’t believe the hype…

Instead, proceed cautiously and be aware of what blockchain can and can’t do. Blockchain is undoubtedly a powerful and exciting technology, but it is not yet fully mature and has several limitations, which explains why it still is far from being widely adopted, despite all the hype surrounding it. However, the newest (and future) generations of blockchain (that will probably part ways with “blocks” and “chains”) will make blockchain a more viable application than what is readily available now. These new generations, just like the older ones, will not save the world, but they represent a real and unique opportunity to create a platform/protocol which (new) businesses can build on, and which can help them grow.

4 Reasons for Procurement to Back Blockchain

What is blockchain? How can it impact your organisation and help establish trust? Why should procurement be embracing it?  We answer all of your burning blockchain questions… 

Blockchain belongs to the (long?) list of buzzwords that are part of the growing hype surrounding new technology. Many people equate blockchain with Bitcoin, the first relatively mainstream cryptocurrency. For some, this association makes blockchain seem like something for hackers and illegal commerce, and far removed from typical B2B or B2C applications.

However, what many may not realise is that blockchain can have a significant impact on business because it can be a powerful tool in establishing trust. Trust is at the heart of business and drives:

  1. How we cooperate with other people (blockchain makes it easier to build trust in new business partners),
  2. How we automate activities (blockchain can ensure that a “machine/process” performs as expected)
  3. How we make decisions (blockchain creates more confidence in data),

What Is Blockchain?

Blockchain can be intimidating. It is a complex technology and understanding and explaining it is far from easy (I still haven’t entirely figured it out). However, for procurement and supply chain professionals, understanding what blockchain enables and the associated implications is much more important than knowing how it works. What makes blockchain so valuable is linked to how records are added to the database:

  • A network of computers stores and verifies any new record, making the blockchain more robust than a single instance (like in most traditional databases),
  • Every transaction (“block”) is linked to the previous one (“chain”), creating complete traceability and preventing any data alteration,
  • It is decentralised (peer-to-peer), which means there is no authority deciding the rules or with a personal interest in manipulating data in one way or another.

Data in the blockchain is therefore immutable and impartial. It is shared among parties (publicly or privately) and cannot be changed by anyone.

“Protected from deletion, tampering, and revision. In this world every agreement, every process, every task, and every payment would have a digital record and signature that could be identified, validated, stored, and shared. Intermediaries like lawyers, brokers, and bankers might no longer be necessary. Individuals, organisations, machines, and algorithms would freely transact and interact with one another with little friction. This is the immense potential of blockchain.” The Truth About Blockchain, Harvard Business Review

Therefore, blockchain is a form of digital trust. More trust makes doing business easier, streamlines many processes, and creates transparency. Furthermore, and more importantly, it means that blockchain can serve as the backbone for new types of cooperation between machines (M2M) and between humans (H2H) that were, until now, limited by the cost of building trust or by a lack of trust altogether.

Businesses and business relationships stand to benefit significantly from what blockchain technology has to offer, and here are the main reasons for why procurement and supply chain professionals need to start taking notice:

1. Streamlining Operations

Beyond making transactions more secure and efficient by removing intermediaries, blockchain technology can also increase transparency in the supply chain. At each step of the value chain, from the extraction of raw materials to the customer, blockchain technology can store and record every transaction and exchange of ownership. This would provide companies with a complete, trustworthy and traceable record that would facilitate and simplify the process of due diligence, which companies need to complete in order to ensure compliance with rules and regulations restricting illegal or unethical corporate activities (child labor, modern slavery, conflict minerals, product traceability, fraud, counterfeit, etc.). Not only would this streamline internal processes (increasing efficiency and reducing costs), it would also establish more trust between companies, suppliers, regulatory bodies and the consumer. This is why many companies with a complex supply chain in industries with strict regulations and requirements related to product traceability (pharmaceutical, food & beverage, etc.) are already testing blockchain technology for that purpose.

2. Better Cooperation Between People

Blockchain can also enhance and improve Human-to-Human (H2H) cooperation because collaboration between people also relies on trust. This is particularly true when partners do not know each other, which is especially common in new business models (platform/ gig economy).

Identity and reputation are the two pillars of building trust. Because of its cryptographic nature, blockchain embeds mechanisms that ensure that users are who they say they are. That covers a user’s identity and extends to other credentials:

“Using the blockchain and strong cryptography, it is now possible to create a certification infrastructure that puts us in control of the full record of our achievements and accomplishments. It will allow us to share a digital degree with an employer while giving the employer complete trust that the degree was in fact issued to the person presenting it.” Certificates, Reputation, and the Blockchain, MIT Media Lab

Reputation is nothing more than the result of past transactions. As noted earlier, the blockchain logs all transactions securely and transparently. So, the blockchain makes it easy to measure and know someone’s reputation. Blockchain therefore makes it easier to do business with new partners by reducing the costs and risk which are often associated with new business relationships. Traditionally, a fear of risk and unexpected costs has been behind the rationale to aggregate spend towards a limited number of suppliers and/or to favor (consciously or unconsciously) incumbents. The use of blockchain can allow procurement organizations to revisit their category strategies!

3. Better Cooperation Between Machines

With blockchain organizations can

  • Trust the data stored in it,
  • Create new data collection points by digitalising more processes,
  • Execute automated programs (called smart contracts).

This creates a distributed system (data + process) that they can trust (completeness, accuracy, authenticity, resilience). So, it is possible to automate further without being exposed to typical risks due to lack of data, poor/corrupted data, unreliable execution, interferences by third parties/intermediaries,…

Blockchain is the ideal infrastructure for machine-based activities that the Internet of Things (IoT) has been lacking. It opens the door to new “apps” that will run precisely as programmed. An immediate area of application that is relevant for Procurement is Supply Chain Management.

For example, companies can track the movements of a container at all times. Whenever it reaches specific points, the blockchain will record the activity and smart contracts will execute automated actions (e.g. registration for customs, payments,…). The same concept also extends to upstream/downstream activities like inventory tracking/management or ordering/requisitioning/replenishing.

4. Better Insights with the Convergence of IoT, AI, and Blockchain

“Blockchain and AI are the two extreme sides of the technology spectrum: one fostering centralised intelligence on close data platforms, the other promoting decentralized applications in an open-data environment. However, if we find an intelligent way to make them working together, the total positive externalities could be amplified in a blink.” The convergence of AI and Blockchain: what’s the deal?, Francesco Corea

When considering the Internet of Things (IoT) + Blockchain and adding Artificial Intelligence (AI) to the landscape, a bigger picture emerges that covers data, insights, and actionable intelligence: the core of business activities! When combined, these technologies represent an opportunity to address the “big data” challenge summed up in the “6 Vs”: Value, Volume, Variety, Velocity, Veracity, and Variability.

Some of the latest technologies represent critical components for building better insights and actionable intelligence:

  • IoT = Provides the ability to collect more information (Volume) and in a real-time manner (Velocity & Variability). This is especially true when monitoring physical supply chains (e.g., sensors and geolocation for containers) and changing demand (e.g., sensors in machines for predictive maintenance). It is the foundation that makes gathering data possible and keeps the Big Data engine running and improving (e.g., machine learning).
  • Big Data = Makes it possible to consolidate, aggregate, and slice more data coming from multiple sources (Variety), both internal (e.g., ERPs, or other information systems) and external (e.g., IoT sensors, third party data providers…).
  • Blockchain = Increases trust and reliability (Veracity) in the data collected and stored which is a critical factor in trusting the insights and decisions derived from that data. It also creates a “data backbone” that can be utilized to create interoperability (internally and externally) opening the door to further automation and “interconnections” between physical and financial supply chains.
  • AI = Exhibits tremendous computational capacity to analyze massive sets of data to build new knowledge (Value) and continuously learn and improve from new data.

Too Good to Be True?

Blockchain represents an important for the business world. Procurement organisations cannot afford to ignore it because it has the potential to open doors to further improvements from streamlining paper-based processes to enhancing cooperation and developing new strategies and supporting new operating/business models.

Despite the potential benefits, however, organisations should still make an informed decision about testing blockchain bfore rushing in. Blockchain is still a relatively new technology, and in addition to understanding the potential it holds, procurement organizations also need to understand the limitations and risks, which we will cover in our next article. Stay tuned!

The Two Obvious Challenges Of Digital Transformation That Everyone Ignores

A digital transformation is set to take place in the coming years, and the Procurement world can expect substantial changes as a result. 

As Heraclitus once said, “the only thing that is constant is change.” Another thing that is equally true today is that digital is playing a central role in pushing organisations and individuals towards change.

Digital transforms everything, from B2B to B2C and beyond: what we consume and buy, how we consume and buy, and how we work. We are just starting to see some of these changes but what we are witnessing today is just the tip of the iceberg.  There is much more to come. Within the next few years, a digital revolution is set to take place, and the Procurement world can expect substantial changes as a result.

This is why Procurement needs to embrace “digital” and succeed in that transformation more than any other function. the function has been lagging behind and the current situation is far from ideal.

The adoption of any change is not something that should be taken for granted. John Kotter, in his international bestseller, Leading Change published in 1996, reports that 70 per cent of change initiatives in organizations and businesses fail. More recent sources reveal a similar situation. Despite years of experience in the project management field, projects continue to face the same issues and obstacles year after year:

Source: Project Management Institute: Pulse of the Profession 2018

History shows that Procurement is also not immune to recurring challenges,  especially when it comes to the Procurement technology that has been around for years. However, adoption (by teams, by stakeholders, by suppliers) is not a reality for most organizations. Analysts and research firms have all reached the same conclusion. For example, many reports show that the adoption of eSourcing by “best-in-class” companies has stagnated at 60 – 70 per cent since 2007.

So, considering its past record of poorly managing digital initiatives and the growing need to respond to ever more frequent and profound changes (both representing threats and opportunities), Procurement must urgently learn from the past and find new ways to transform and move forward. Although one article cannot cover every aspect of such a vast issue even taking the time to consider the few simple and pragmatic points presented here can already difference between success and failure.

Challenge #1: Understanding the many facets of “digital”

“Executives increasingly use the term “transformation” as shorthand for “digital transformation.” But the ongoing digital revolution does not itself constitute a transformation—it is a means to an end, and you must define what that end should be.” What Everyone Gets Wrong About Change Management, Harvard Business Review

The most common mistake that organisations make is to look at technology as the solution to all their problems and to think of it it as an end in itself (when it is just a means to an end). A second pitfall is that, many organisations tend to use new technology “to mechanize old ways of doing business. They leave the existing processes intact and use computers simply to speed them up.” By doing this they are actually missing out on the real value and transformative impact of some of the latest technologies. When implemented strategically and intelligently, new technology which can enable organisations to do things that were previously impossible.

“Ideally, [the] investment will lead to digitally automated processes, even beyond the transactional purchase-to-pay, with only limited manual support required. Such digital tools and processes will additionally support business process outsourcing and shared-services centers, further boosting efficiency. Ultimately, however, the benefits will arise not simply from reducing costs, but also from freeing up highly qualified procurement resources from mundane, repetitive tasks so they can focus on delivering value to the business.” Procurement 4.0: Are you ready for the digital revolution?, PwC

This poor understanding of what technology can do and what organisations can do with technology  is painfully evident in the misuse of words like digitisation, digitalisation, and digital transformation. These terms are often used interchangeably when they actually mean very different things:

  • Digitisation is the conversion from analog to digital. Atoms become bits (e.g. digitisation of data). You cannot digitise people.
  • Digitalisation is the process of using digital technology and the impact it has (e.g. digitalisation of a process). It is what most digital projects in Procurement are actually about.
  • Digital transformation is a digital-first approach that encompasses all aspects of business, not just Procurement (which is why ”the digital transformation of Procurement” is an abuse of language; a good one to make though). It leads to the creation of entirely new markets, customers, and businesses (people, capabilities, processes, operating models,…).

So, before defining what technological approach to take, the first step is to determine and identify the business value that needs to be captured or improved as a result of a digital project.

Challenge #2: Transformation and people

Many organisations make another serious mistake when looking at digital initiatives. They approach them in the same way they would approach simple IT/technical projects, when these projects really need to be about transforming business. n. This tendency also explains another set of common mistakes that result from forgetting the human aspects of these projects.

“In the most basic sense, people have been the missing variable in the digital transformation equation. Instead of the prior decade’s obsession with business-IT alignment, enterprises must now pursue a more balanced approach to digital transformation that’s equal parts business, experience, and technology.” 2017 Global Digital IQ Survey, PwC

Absence of (or weak) meaning

”If you don’t know where you are going, any road will get you there.” —Lewis Carroll

A surprising but persistent issue in digital projects is the lack of real business/use cases that detail “why”  the change is a necessary one (goal, purpose, vision). This lack of purpose makes it almost impossible to create the proper conditions for a successful change, to motivate people, and to drive adoption.

An organisation that does not know where it is going will have difficulties defining some of the critical aspects of digital projects. For example:

  • deliverables that include, among other things, the requirements for the solution to be implemented (poor requirement management is one of the most common issues),
  • scope (which categories, which suppliers, which geographical locations, which processes…),
  • roll-out and deployment plans (what, where, when, how).

Rushing in without planning

Being too quick to take action and not allocating enough time to planning is another frequent mistake. Most people have a natural tendency to “do” and many prefer to skip the important planning steps and tend to dive right into new projects without taking time to think. Organizations are also under pressure to get results fast, and can be over eager to “make things happen” putting even more pressure on project teams to deliver. What is interesting is that preparation and patience are important and valued in many other areas of procurement. For example, Procurement practitioners know that 90 per cent of the success in negotiations comes from good preparation, but for some reason many forget to apply that same approach when it comes to the implementation of a digital Procurement solution.

Focus on deployment while adoption is left for later

”We’ve spent an awful lot of money on technology, but I still see people working in the old way,” complained the CFO of a large hospitality company.  The result is often widely deployed internal applications that no one actually uses effectively.” Convincing Employees to Use New Technology, Harvard Business Review

When an organisation launches a project to deploy a new solution, there is an implicit understanding that the system will also be used. But, this is yet another typical mistake. Assuming that, because a system is in place, people will use it is ignoring the fact that most people are creatures of habit. To draw a parallel to savings, the difference between a deployed solution and an adopted solution is like the difference between negotiated and realised savings. Adoption will not happen automatically. To achieve true adoption, specific action needs to be taken to get people onboard and these steps need to be defined and accounted for from the start (resources, budget, time).

Another way is possible and needed!

“Insanity: doing the same thing over and over again and expecting different results.” –Albert Einstein

The use of digital technology in Procurement is not a new topic. However, the way Procurement organisations approach such projects has to change. Experience shows that results are not at their best; Procurement technology is still far from being widely adopted and there are still many areas that will need to improve before teams can actually benefit from past initiatives.

More importantly, “digital” means much more than using a piece of software. It is a critical capability and characteristic in a world that is becoming more and more complex and is characterized by VUCA (Volatility, Uncertainty, Complexity, and Ambiguity). Only digitally-enabled Procurement organisations will thrive in our modern world because they will be able to transform apparent threats into opportunities and deliver more and better business value to the rest of the organisation.