All posts by Bertrand Maltaverne

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.

“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…”

The Accidental Procurement Engineer

What makes the exciting world of procurement the perfect place for a curious engineer?

Procurement engineer

Some people begin their procurement careers with a big bang. Others start theirs with lots of sweat and toil. I started mine with a freak event. I was an Accidental Procurement Engineer.

Since this freak event, I have never looked back. I went on to have a fifteen-year career that would take me across North America, the Middle East, Europe and Asia. Now I work on improving the Procurement experience with the software solution, POOL4TOOL.

Procurement is an ideal career for an engineer at the beginning or in the middle of their career, especially if you’re looking for a little more from life.

Procurement by Accident

Let’s start with the freak event. I was working for a large multinational company headquartered in France. My job was based in Turkey and was technical. It also happened to be the first job I had after the completion of my engineering degree in France.

Following Turkey’s 2001 economic crisis, the stock market crashed and the interest rate shot up to 3000 per cent. There was an immediate slowdown in our business activities and an immediate impact on my income.

The Turkish Lira lost approximately 50 per cent of its value against foreign currencies which meant that, in one day, I had lost 50 per cent of my salary against the French Franc.

These circumstances, of course, made me consider leaving Turkey. I got help from the local management who took my CV and forwarded it to their network in the company.

Among the proposals was the offer of a position in Procurement for manufacturing plants in France. I knew nothing about Procurement so I rushed to the office of the Purchasing Manager in the Turkish plant and within two hours had made my decision.

I was going to become a Procurement professional! It was a perfect career move: an ideal profession for the Curious Engineer.

The Curious Engineer

In recent years it has become evident that Procurement is an ideal professional path for engineers. Many people choose to embark on this path at the start by studying Supply Chain Management.

More and more mechanical engineers are coming into the profession and the Head of Material Flow & Logistics at the famous Fraunhofer Institute has even campaigned for there to be educational opportunities for Procurement Engineers.

What makes Procurement a great career path for engineers? The field of engineering attracts curious people and, whilst many engineers are curious about how things work, some have an even broader scope of curiosity.

They are interested in a wide range of fields and want to pick up skills outside of what is normally associated with engineering.

Procurement and Supply Chain gives these people the opportunity to exercise their technical knowledge but also allows them to follow market and business developments and develop networking and people skills. It’s a place to use both your right and left brain.

The Pros of Procurement

1. Procurement is a Great Place to Use Technical Knowledge

A technical background is a clear advantage in direct procurement, in fields such as discrete manufacturing. It’s important to understand how your company’s product is made and what material properties and specifications are needed and why.

Moreover, a technical background gives you insight into quality management and standards. Be it consumer goods or automotive industries, understanding quality standards is useful when it comes to sourcing parts and selecting the right suppliers.

2. Procurement Satisfies Your Analytical Side

Engineers are trained to be analytical and data-driven. We design and then we implement – with analysis being a key preparation process of the design. Procurement and supply chain produces a vast amount of data to analyse.

In this profession, you collect and analyse data to then be able to make optimum sourcing decisions, be it operational or strategic. You also need to calculate hidden costs and incorporate business priorities and market behaviour into your decisions.

3. Procurement Takes the Curious Engineer Into an Exciting World

Procurement gives you the chance to add to your knowledge and skills well beyond traditional engineering. It requires you to hone your people and networking skills.

This means managing not only suppliers, but also relationships with other departments. It requires sales skills: selling change and ideas to your colleagues across the organisation. And, of course, a whole new set of skills comes in with Change Management.

I’m a huge advocate for engineers considering procurement careers as a serious option. It will be interesting to see if more educational and training opportunities come up for this kind of talent in the future and how that changes peoples interest in the function.

Bertrand Maltaverne is Senior Business Consultant and Product Marketing and Content Manager (Int’l) at POOL4TOOL. POOL4TOOL is the market leader for electronic process optimisation in direct procurement. 

Indirect & Direct Procurement: Right Tool for the Right Job!

Too often organisations use the same tools for direct procurement as they do for indirect. It’s time to start using the right tool for the right job.

Direct Procurement

This post was first published on POOL4TOOL.

Let me start by saying what this post is not about.

It is not about Direct vs. Indirect. It is also not about what is more critical and strategic between Direct and Indirect.

Things are more complex than a Manichean division of Procurement into two categories. If category management was just about that split, we would know it. Wouldn’t we?

This post is simply about common sense!

Serving Different Markets

All the above does not conflict with saying that there are specificities to both components of the Purchase spend. Especially when looking at industrial companies.

One area of differentiation between Direct and Indirect Procurement is related to the market they serve.

  • Indirect serves mostly internal needs, a.k.a. the employee
  • Direct serves external needs, a.k.a. the customer or the consumer. Though, of course, the difference between B2B and B2C is becoming increasingly blurred.

Both markets have their own challenges.

In indirect, the diversity of internal customers is quite important (travel is an example) and that makes stakeholder management quite difficult.

In Direct, stakeholders are more easily identifiable as they revolve around the product (this would typically be R&D and manufacturing). But consumers are more diverse and volatile, which requires special attention as, in the words of Peter Drucker, “the purpose of business is to create and keep a customer”.

Product Lifecycle

Another difference is the  relationship to the product lifecycle.

R&D and New Product Development (NPD) are intrinsic to Direct Procurement. This is a bit less of a reality in Indirect, even if some indirect parts of the spend are related to complex projects very similar to NPD, for example, real estate and facility management.

Some companies like Apple have very complex projects to manage in that area, for example their new headquarters or their retail spaces. As retail spaces contribute to the overall customer experience, is that Direct Procurement or Indirect Procurement?

Supply chain management and execution is also an area of differentiation, as direct supply chains tend to be more global and complex.

Right Tool for the Right Job

This post is about using the right tool for the right job!

Each area has specificities, so you have to use specific tools and processes for the job. In terms of Direct Materials Procurement, some of the specificities translate into specific capabilities that modern platforms should have, as Michael Lamoureux from Sourcing Innovation explained in a recent post.

The thing is that none of the Indirect tools have all these capabilities. And neither they should, as most of them are irrelevant for a great part of indirect spend. As Lamoureux puts it in the conclusion of his white paper available for download here.

“The fact of the matter is that you wouldn’t use a Chihuahua to herd sheep, so why are you trying to use a mouse to herd cats (which is mission improbable anyway)?”

Why Elon Musk Thinks Supply Chain is “Tricky”

If Elon Musk describes something as tricky, then you know that it’s something organisations should be paying close attention to.

Elon Musk

When someone who:

says something is “tricky”, it means something!

“Tricky” Supply Chain

Elon Musk, founder of a number of high profile companies, including Tesla motors, PayPal and SpaceX, was interviewed recently at Code Conference 2016.

In the interview, Musk tells a couple of stories and anecdotes about Tesla’s Supply-Chain that highlights how things can derail fast and put your production to a halt.

It helps to illustrate the role that procurement can, and must, have in anticipating and preventing such situations. Also, in minimising impacts, and if the worst happens, to react quickly, and get back to normal as fast as possible.

You can watch the whole interview below (I recommend you do). If you prefer to go directly to the part I am referring to (1 hour 10 min into the interview), it is here.

Has Procurement Got Its KPIs Right?

As the Procurement function evolves, its KPIs remain old-fashioned. Bertrand Maltaverne explores the surprising results of a Procurement KPI survey.

Procurement KPIs

In a rather interesting coincidence, just as ProcureCon Europe was releasing a benchmarking paper called Procurement Challenges, we released a white paper that also focuses on one of the most fascinating challenges in the industry: The Direct Material Procurement Challenge.

More than a coincidence, this is a sign of the times as the role of Procurement and its position in organisations rapidly becomes quite a recurring hot topic.

Before going into the specifics of ProcureCon’s report, the challenges that Procurement faces stem almost entirely from the transformation Procurement  is going through as a function.

Value vs. Cost reductions

“As businesses emerge from the recent recession into a fragmented supplier ecosystem, a normal approach to creating value through cost saving alone is no longer relevant.”

ProcureCon’s report is not the only one to highlight the current gap between a value-­based Procurement approach and the actual KPIs that most organisations track, specifically:

  • 91 per cent of surveyed organisations have cost savings as a KPI;
  • 76 per cent have cost avoidance as a KPI.

KPIs for value metrics like quality, risk, and cycle times languish respectively in 5th, 8th, and 12th place! Fewer than 50 per cent of companies track these measures.

More troubling: only 30 per cent track Procurement ROI as a KPI. ROI (Return On Investment) or VFM (Value For Money) is actually the main KPI that all organisations should aim for as it synthesises the ratio between value generated and energy or resources employed. Or, in other words, a measure of the effectiveness and efficiency of a Procurement organisation.

Supplier Management Core Procurement Activity

Among the many interesting insights in the report, there are two aspects related to supplier management and stakeholder management that are kind of interesting. They both relate to the qualification of suppliers and are quite revealing.

Procurement still operates too much in a silo

“Procurement typically take the lead when it comes to the qualification of contractors and suppliers during the bid process.”

Decisions regarding sourcing have to be cross-­functional. Not only to ensure that all aspects have been looked at but mostly to ensure adoption of the decisions. Involving other departments in the decision-­making process is critical.

Even better, involving them in the early stage of defining a category’s strategy is vital to define the value that they expect suppliers to deliver. This may not be low prices alone.

Procurement still sees suppliers as trading partners, not business partners

There are also a couple of surprises when it comes to the dimensions Procurement looks at when assessing new potential suppliers. We assume this also reflects the KPIs tracked afterward.

Not surprisingly, financial stability comes first. As a former purchaser, I can say this fits with the practices I have seen on the field. This is not without inherent risk: “conducting a single financial stability check (e.g. D&B check) before engaging a supplier could provide a false sense of assurance.”

More surprisingly, CSR-­related themes like sustainability and safety stand squarely in the middle of the list. Around 50-60 per cent of respondents say they include these factors in their assessments. A notable exception is diversity, which comes last on the list with only 20 per cent of respondents taking this into account.

Issue of Supplier Innovation

But, very surprisingly, competent advice is a criterion that is at the bottom of the list, covered by only 29 per cent of respondents. This is especially surprising considering the focus on the role of Procurement in organisations, and its impact on innovation. The lack of attention on this area is rather troubling.

As we understand it, if organisations do not measure if suppliers could be a source of new ideas and suggestions, it means that they do not expect suppliers to be able to participate in their innovation process. This quite a self­-centred view of innovation!

In conclusion, there seems to be a consensus within the Procurement community that Procurement is not in the place it deserves to be, and that, in the future, its importance will grow. For example, ProcureCon’s report says that 62 per cent of respondents to their survey estimate that Procurement will move towards making board-level decisions in the next 3 years.

But, as far as their report and many others show, there is still a gap in capabilities and delivery that needs to be bridged before we get there.

Now is the time for Procurement to evolve!