Category Archives: Generation Procurement

The Key Procurement And Technology Trends for 2019

The times, they are a-changing, and so are the markets and environments that procurement operates in. What then are the key trends in procurement and technology you need to watch for in 2019?

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As I am reliably informed by my Christmas-mad colleague, there are only 125 sleeps (as I write) left until Christmas. That means there’s a little over 18 weeks until the year ends, so it’s time to start looking forward to what’s coming in the next 12 months.

2019 is set to be a seismic year around the world. Major changes, such as further geo-political upheaval, the looming spectre of global trade wars and tariffs aplenty, have the potential to disrupt supply chains and set metaphorical trip wires for procurement professionals everywhere. And, as we’ve already heard, it’s rarely been more important to get a solid grips on the key factors in the market and external environment.

So gather round as we gaze into the opaque mists of the future and make some educated insights into the key procurement and technology trends waiting around the corner.

  1. Supplier Management

Let’s start with an oldie, but a goodie. Wait, I hear you cry, supplier management isn’t a new trend! We’ve been talking about this for years. Well, if we’ve talking about it for years, why aren’t we any better at it? And why is it that it’s one of the key areas a large number of procurement teams fall down on?

Like it or not, your suppliers hold the key to all your wildest procurement dreams. Innovation, top and bottom line cost reduction, avoidance and savings, stress-free supply of services and goods and free cake for all! (Ok, maybe not that last one!)

In their Vision 2020 publications, pwc state that the top 25 per cent of procurement functions will have gone beyond incremental improvements and be implementing fundamental change to process and policy alike. This includes how they interact with suppliers and shifting focus from cost and value to Return on Investment (ROI).

These outcomes all hang on better supplier relationship management in order to tease out further innovation from suppliers (who are seen as partners, rather than sponges to wring cash out of) and closer collaboration to source solutions to problems we don’t even know we have yet.

At the heart of this is great communication. Select the right suppliers and talk to them more. You never know, you might just learn something!

  1. Blockchain and Digital Adoption

Unless you’ve been living in a cave on a remote hillside (or perhaps a Faraday cage in your basement), you should have heard by now about blockchain.

From blog articles to webinars, it’s one of the hottest topics in procurement right now, and is likely to still be throughout 2019. Blockchain is and will continue to be a key tool in shaping the transparency of a supply chain. Information is shared and transmitted easily and safely, while the technology allows an “immutable signed and time stamped record of identity, ownership of assets, transactions or contractual commitments”.

This transparency will have the added benefits, and some drawbacks, of making procurement and CPOs more visible in the public environment, say EY. Procurement will wield greater power and have greater opportunity to interact with external stakeholders. But, at the same time, organisational processes and procurement will play out in a public setting like never before.

In line with blockchain’s increasing influence, there is a predicted rise in digital adoption and use of the Cloud. An estimated $1 trillion of IT spend will be moved to the Cloud by 2020, according to Gartner, as organisations look to make their IT services more agile.

  1. Social Value

There is a prevailing opinion amongst the procurement professionals I speak to that 2019 will be the year for social value and sustainability to really take hold. Organisations have begun to realise that cost and quality are only a part of the overall package and not only do they need to be seen to be doing more in the community, but they need to follow through on it.

That goes for the wider supply chain too. Using work practices and value-adding benefits for communities into tenders will become the norm and procurement will no longer be able to award contracts on cost without taking the wider impact into consideration.

  1. Next-Gen Workforce and Automation

Disregard what you’ve heard very recently regarding automation, machine learning and AI as scaremongering. Yes AI will take on tasks and people may have to move to new roles, but it’s not a future that we should be burying our head in the sand about. It’s a natural human reaction to fear change, but procurement needs to muscle up and be brave in order to evolve and survive.

Infosys estimates that AI and procurement automation will eliminate human intervention in 15 per cent of digital spending by 2019. If that’s the case, then procurement needs to embrace the change and develop, train and retain its Next-Generation workforce to meet the demands of new roles where human interaction and input is still key.

  1. Risk

From Brexit to trade wars, risk is going to be possibly the biggest trends for businesses as a whole in 2019. The organisations who will thrive in this unstable environment will be the ones who are best prepared to deal with the unexpected.

Deloitte believe that procurement will become the forecasters of risk in an organisation, raising the profile of the function as it factors total cost of risk and risk mitigation in supply chains into contracts and tenders.

Risk runs throughout the other trends that have been suggested above. Brexit, protectionism and trade wars make supplier and supply chain management all the more important. The increasing need for cyber security as technology advances is something that cannot be ignored.

Procurement is ideally placed to deal with all of these risks, but it needs to put its hand up and be at the front of the queue, or face being left behind and marginalised at a time when the function has a crucial role to play.

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.

3 Ways We WISH We Could Deal With Serial Mavericks

(Satire alert!) Does out-of-control maverick spend in your organisation give you high blood-pressure and/or violent thoughts? Check out these suggestions for cruel and unusual ways to deal with your mavericks!

They really knew how to send a message in medieval England.

After being found guilty of treason in the summer of 1305, William Wallace was dragged through London at the heels of a horse, hung, drawn (eviscerated) and quartered, with each of his four limbs sent to trouble-spots throughout the kingdom as a warning to others.

One hundred and twenty years later, Pope Martin V was so infuriated by the teachings of John Wycliffe (who translated the New Testament into English) that he declared him a heretic. Wycliffe had died of natural causes 44 years earlier, but the message still had to be sent – so Wycliffe’s bones were exhumed, crushed, burned and scattered into the River Swift.

Highly effective PR, right? The extreme brutality of these acts was motivated not so much by a desire to punish the offenders as horribly as possible, but as a way to discourage others from going down the same path.

For the 21st-century procurement professional, maverick spend is one of those issues that can lead to us having (secret) violent thoughts in the office. How many times have you confronted a serial maverick and been offered these weak excuses:

  • “Oh, sorry – I didn’t know!”
  • “But I have a really good relationship with this other supplier…?”
  • “I found a better deal.”
  • “I always use this website to book my travel!”

Infuriating. Maverick purchasing cuts profits, impacts contract fulfillment, damages supplier relationships and can mean no legal protection outside of contracts.

So, it being a Monday, let’s indulge in a bit of fantasy about some effective ways that procurement could deal with mavericks in their organisations.

To begin our list of cruel and unusual punishments…

1. The Maverick Leader Board

Name and shame! What if every procurement function had a Top Gear-style leader board on prominent display, listing your organisations’ worst mavericks? You could make a real spectacle out of it whenever it’s time to add a new maverick to the board (lights, music…), and even call them over to receive a prize!

  • Pros: People will work hard to ensure they get their name off your leader board asap.
  • Cons: With maverick spend as high as 80% in some categories, you’re gonna need a BIG board.

 2. The Scarlet Letter

American author Nathaniel Hawthorne’s masterpiece The Scarlet Letter tells the story of Hester Prynne, a woman accused of adultery in 17th-century Massachusetts. Hester is forced to wear a scarlet “A” (for adulteress) and has to stand on the scaffold for three hours while the Puritan townsfolk hurl insults at her.

Wouldn’t it be satisfying to see your most notorious maverick skulking around the office with a giant “M” for Maverick sewn onto their lapel?

  • Pros: Very visible, and a great way of spreading the message as your mavericks move around the office.
  • Cons: Making people sew symbols onto their clothing is a more than a little suggestive of the Third Reich, so maybe we should give this one a miss.

3. Make them pay

A “cost-conscious culture” is a workplace where employees treat every dollar of company money as if it were their own.

Sounds good in theory, but even the most tight-fisted person can suddenly become extremely lavish when it comes to spending someone else’s money.

The solution? What if it actually is their own money on the line? We need a piece of software that draws unauthorised purchases straight out of the offender’s personal bank accounts – and watch your maverick spend problem vanish overnight.

  • Pros: You could spin this as procurement’s contribution to top-line growth.
  • Cons: Probably illegal.

Seriously, though:

There’s plenty of great advice to be found online about tackling maverick spend, including these articles and videos here on Procurious:

3 Mega-trends In Procurement You Need To Understand Before 2019

What are the key mega-trends procurement pros need to get their heads around before 2019?

CatwalkPhotos/ Shutterstock

1. Co-Creation –  Using collective efforts to bring the best value

Since the very beginning of my career in Procurement competition was a key.  Competition helps procurement drive down prices using quotations, tenders, e-auctions or other tools.

And, of course,  it is much easier to negotiate contract terms and conditions with  if you have alternative sources.

Striving to establish, at least,  dual sourcing for every product helps you to decrease supply related risks.

But with greater experience I started to see that competition has its limits,  that RFQ’s and tenders were not bringing the desired effect.  This was particularly apparent for certain groups of products with limited supply possibilities and higher complexity.

I learned that for such segments a more efficient strategy is to cooperate with your key suppliers.

Cooperation is about alignment and harmonising performance, goals and strategies.  The very first step should be about aligning performance and KPI’s. Then you align the goals, including price reduction. At this point, the strategies of both companies should be aligned.

So cooperation is the alignment and harmonisation between two parties: the procurement organisation and the vendors.

But is cooperation and competition with suppliers enough in the modern world?   My simple answer is no. Procurement of tomorrow is about more than delivering goods, reducing prices and mitigating risks. The future of procurement is creating value for the final customer. And so the new buzz-word coming in 2019 is Co-Creation.

Co-creation is about developing and delivering products, services or systems using the common efforts of all interested parties.

2. Digitalisation

In my consultancy work I meet ten to twenty Procurement and supply chain organisations every year. It’s a big privilege to meet so many great people, and work in a variety of industries and businesses.

But one thing that surprises me is the fact that the majority of organisations are not making procurement decisions based on  complex benchmarking or performance indicators.

In fact, the majority of organisations in Europe and North America are making Procurement decisions based entirely on  cost reduction. Whatever has been discussed before quotation is ignored and whatever might happen after is neglected.

“Give me the best price: here and now! And you get the business…” – is still the driving force for many procurement organisations.

Of course, this approach is beneficial in the short term. But on a strategic level it will not work.  In the era of big data this approach is a crime. I know that digitisation and fact-based Procurement decisions may not sound like a mega trend for many readers. But before you skip this point – answer one simple question. Do you really include performance evaluation and risk analysis in all your Procurement decisions?

3. Sustainability: Part of our new reality

Sustainable procurement is not a new term.

The United Nations definition says that sustainable procurement practices are the ones that integrate requirements, specifications and criteria that are compatible and in favor of the protection of the environment, of social progress and in support of economic development, namely by seeking resource efficiency, improving the quality of products and services and ultimately optimising costs.

It might look a little complicated at first glance, but it is quite a straight forward definition.

More and more countries are shifting towards sustainable procurement; improving national procurement policies and procedures. But the true leaders in this shift to sustainable procurement are the international corporations. Using their massive purchasing power, they are able to make real impact to ecological, technological or social standards across entire industries.

Some companies use the sustainability messages for marketing of their products or services, creating positive buzz and media attention to their brand. Many more develop their sustainability agenda for mitigating or preventing risks within supply chain.

One thing that I can say for sure; sustainability is becoming part of a new reality for procurement organisations. It is not a buzzword anymore, it is an expectation customers. People are beginning to understand that low prices should not be achieved by unethical or unsustainable means.

So what can you do to introduce sustainability to your Procurement agenda?

Start by investigating in more sustainable sources and raw materials. Look around your industry or category to identify the best practices and get some inspiration.  I guarantee that you will find great cases of good environmental, social and sustainability impact for any area and any category.

Of course you should also include sustainability parameters to your RFI/RFQ evaluation criteria.

Another great idea would be to involve some measurable indicators for your sustainability progress. For example, carbon emissions, water footprint, share of renewable energy used for manufacturing or recycled materials used for products.

And remember: responsible sourcing is more profitable in a long term!

Back To Blockchain Basics

Do I need to understand how Blockchain works? Where does bitcoin fit in? And how long until this tech hits the mainstream? Your questions: answered!

Kumpol Chuansakul/ Shutterstock

When it comes to Blockchain procurement pros don’t know what or who to believe, when to expect its takeover or how to prepare.

What’s the difference between bitcoin and blockchain, are they one and the same?

Do you need to understand the ins and outs of how the technology works?

Ahead of today’s Procurious webinar on Blockchain , Jack Shaw, Co-Founder and Executive Director of the American Blockchain Council, clears up some of the Blockchain basics!

Blockchain and bitcoin

“There is a widely held misunderstanding that blockchain and bitcoin are one and the same or inextricably connected with one another.

“In fact blockchain is an underlying enabling technology. Bitcoin and other digital crypto currencies are one of the first effective applications of that technology.”

“Think of it as being similar to the situation in 1990s with the emergence of the internet as an underlying enabling technology platform of which email was one of the first successful applications of internet technology and one of very many ways the internet is being used.”

Why you don’t need to understand Blockchain

“Blockchain is so highly technical that only people with advanced degrees in cyber science could possibly understand it.

“Often we get down into the weaves of the technical details of how blockchain works. I’ve found it helpful for procurement pros to understand what it is that blockchain does.

“You don’t need to be able to build an engine to know how to drive a car similarly you don’t need to understand every technical detail of how blockchain works in order to understand what it can do for you…”

What can Blockchain do for you?

“Blockchains do four things that we haven’t been able to do previously…

  1. Blockchains can create immutable signed and time stamped record of identity, ownership of assets, transactions or contractual commitments
  2. They allow that information to be shared among multiple entities; either people or businesses or other organisations, governmental agencies, across the internet without any of those entities having to depend on any one of the others to be the so called master record keeper. And without having to pay a third party intermediary for that service, which can take tremendous costs and delays out of inter-enterprise business processes
  3. They allow that information to be shared with complete transparency among all those authorised to see that information and the subset of those that are authorised to update it by adding new information
  4. [Blockchains are] virtually unhackable in terms of preventing those not authorised to update that information from doing so or even being able to see it”

The combination of those four capabilities means Blockchain provides a tool for the use and sharing of information across business and social ecosystems that goes far beyond the ability to exchange value via currencies. It, in fact, gives it the potential to impact every aspect of our personal and organisational lives.

When will blockchain hit the mainstream?

“I’ve been around emerging technologies for so long that I’ve finally come to recognise these things do not simply suddenly switch on full-blown and ready for everyone in the world to use at once. [adoption] increases over time.

“Blockchain is coming along much more quickly than the internet. Widespread adoption of Blockchain technology will be in place within the next two or three years. Most of the major IT solution providers are already actively in the process of delivering blockchain enabled capabilities.”

The purpose of the American Blockchain Council is to help senior level executives understand the strategic business implications of blockchain.   

Jack Shaw will be speaking on our latest webinar Blockchain: The Technology, the Myth, the… Legend? which goes live today at 11am EDT/ 4pm BST. Sign up here.   

The Private Company Paradox

Procurement is going to have to do some extra work when it comes to evaluating private companies.  Kelly Barner outlines the common pitfalls to be ready for…

Benoit Daoust / Shutterstock

Many procurement teams have been tasked with diversifying the supply base. This often means partnering with small, diverse, or locally-sourced suppliers.

One challenge that arises is that many of the companies that qualify for such programs are privately owned. The lack of information that usually accompanies private ownership is at odds with procurement’s transparent supplier evaluation frameworks. Add to this the fact that participating in an RFP process just to be ‘diversity fodder’ is onerous and potentially even harmful to small businesses, and we’re left with a paradox:

How can procurement stay true to our mandate while also finding mutually beneficial opportunities for small and diverse businesses?

Procurement will have to do some extra work when evaluating private companies. Here are some common pitfalls to be ready for:

1. Limited or no access to current financials

This begins in the opening section of an RFx: ‘Please attach your company’s most recent corporate financials here.’ To which the supplier responds, ‘N/A: we are a privately held company and as such do not publish our financial statements’. That may be true, but it does not eliminate the need for the supplier to demonstrate that they are financially sound enough to justify an award.

2. Inability to determine risk levels

Procurement has to determine if there are concerns about the supplier’s ability to stay in business. What does their revenue pipeline look like? What are their customer retention rates? Keep in mind that this is a challenge with all companies, not just privately held ones. Procurement has to ensure that private companies are not hiding behind their ‘privateness’.

3. Few customers able to serve as relevant references

While private companies are not always new or small, it is a common combination of characteristics. The customers of small, privately held companies may be as tight lipped as the company they buy from. In fact, some may view their relationship with the private supplier as a competitive advantage or not want to accept the risk associated with speaking for or against such a company in the customer reference checking process.

4. Missing rigor from the expectations of shareholders

Being privately held means drawing capital from angel investors, venture capitalists, and sometimes employees or ‘friends and family’ investors. Who can procurement look to when trying to ensure that the leadership team faces appropriate challenges to their decisions?

Part of this dynamic needs to come from the relationships between leadership team members. Hopefully they (if not their private investors) are willing to fight to ensure the company stays on track.

5. Looming prospect of acquisition

Most private companies are on a journey towards either IPO or acquisition. While both can be disruptive for customers, having a privately held supplier acquired by a larger company is perhaps the greater concern. What changes will be made to contracts or terms of service?

Will the relationship be valued in the same way? Not having the answers to these questions (in large part because the private company’s leadership team doesn’t have them either) can make it hard to commit to a long enough term contract that both parties realise the desired level of value from the arrangement.

Being a private company shouldn’t be the only reason not to consider an otherwise qualified supplier for a contract. The problem is a circular one: if procurement doesn’t have access to the same level of information we do with publicly traded suppliers, how can we determine if they are qualified or not? The answer is likely to be a combination of pushing for additional information and accepting that some of what we are looking for isn’t available. As with all strategic decisions, we can never be 100 per cent certain that our choice is the right one. All procurement can do is maximise the availability of facts to ensure that the decision to contract a private supplier – like all other procurement informed decisions – is based on analysis, not assumptions.

The 4 Most Common Blockchain Criticisms – Busted

Blockchain technology is often criticised for its perceived limitations. But how much truth is there behind the accusations? 

We’re told that Blockchain is overhyped, it’s no big deal, it has some serious limitations and, whilst it might be a pretty cool piece of technology, it’s certainly not the procurement disruptor that it’s hailed to be…

But Jack Shaw, Co-Founder and Executive Director of the American Blockchain Council disagrees…

“Blockchain technology is currently criticised for several different limitations:

1. Security 

One of the questions I most commonly get is ‘If blockchain is un-hackable, how is it that there are all these stories of people having their bitcoin stolen?’

The reason for this is that bitcoin and many other digital currencies are typically still stored online and not on blockchain itself. In nine years  there has never been a successful hack of the oldest blockchain implementation, which is the bitcoin blockchain.

But people have lost money because they have stored there currencies on a more traditional centralised database.

2. Sustainability

A lot of criticism is aimed at the bitcoin blockchain and it’s important that people understand there are many different blockchains out there and there are many different ways of implementing these blockchains technically.

The Bitcoin blockchain is not only the oldest; it is the largest but also the slowest and the most unsustainable of the blockchains from an energy perspective. Figures indicate that supporting bitcoin blockchain requires approximately as much energy as the country of Peru. That is not something that is going to be scalable to many thousands of use cases across millions of organisations around the world.

It is becoming increasingly difficult for the bitcoin blockchain to keep up with the processing of transactions. Currently it processes 7 per second. by comparison visa processes something in excess of 50,000 per second. Clearly new approaches will be needed.

3. Transparency 

The same transparency that makes it easy to share information among authorised participants in the blockchain could, if not properly implemented, make it easy for those who are not authorised to view transactions to do so.

For example, if you’re participating in a supply chain ecosystem , the suppliers are not going to want their competitors to see the prices that they have quoted to you if they are offering you a significant discount.

How do you prevent that? By leveraging encryption technology and using blockchain to manage exchange of private keys to access that data.

4. Interoperability

How do we have multiple, different blockchains and how can those blockchains talk with each other? IBM have taken a strong leadership role in this area through their support of the open source hyper ledger platform for implementing blockchain. This is commonly used for permission blockchains, where only a limited and defined set of people and organisations can participate in the blockchain.

One of things that hyper ledger and a number of other blockchain inititiatves are actively working on is the issue of interoperability.

Procurement and Blockchain

This all seems very scary.  And there is a tendency for procurement pros to think ‘Oh my gosh. We still have to work out all kinds of technical problems surrounding blockchain, maybe we should put this on the back burner for a while’

But that would be a serious mistake.

I had a fellow come up me after a presentation I did about 20 years ago on the World Wide Web and e-commerce. He explained to me  ‘we don’t have the processing power, we don’t have the bandwidth and we certainly won’t ever have the security. This crazy notion you’re having of people being able to do electronic banking –  it will never happen it just can’t be done.’

At that particular point in time, he was right –  it couldn’t be done. But within 18 -24 months every major bank was rolling out online banking because the technical problems had been solved.

None of these problems are going to require us to violate the fundamental laws of physics in order to solve them.

They can all be solved as long as there is an economic incentive to do so.

A major IT services company identified that the three most common hurdles to blockchain adoption are

  • Understanding blockhain in use cases
  • Communicating blockchain to key decision makers
  • Evaluating cost benefits of use cases

None of these have to do with technical constraints. they are to do building awareness and understanding.

The purpose of the American Blockchain Council is to help senior level executives understand the strategic business implications of blockchain.   

Jack Shaw will be speaking on our latest webinar Blockchain: The Technology, the Myth, the… Legend? which goes live on 7th August at 11am EDT/ 4pm BST. Sign up here.   

Digital Transformation: The Bigger Picture

The Hackett Group’s research shows that addressing the impact of digital transformation on business has become the most critical imperative for enterprises in every industry.

Montenegro / Shutterstock

What exactly is digital transformation?

 The Hackett Group defines enterprise digital transformation as: “the creation of business value by improving customer experiences, operational efficiency and agility by fundamentally changing the way organisations innovate, operate, deliver products and services, engage with stakeholders and execute work, using digital technologies as the enabler of holistic transformation.”

While implementing technology has always been a part of business strategy, adoption of emerging technologies in procurement is critical in a rapidly changing business environment marked by intensifying competition and disruptive innovation.

As the world of big data, robots, automation, and artificial intelligence takes shape, procurement is expected to provide more profound insights into supply relationships, including conventional cost structures, supply availability, lead times, and quality. Moreover, in this new digital landscape, business technology users are demanding consumer-like e-commerce interfaces from e-procurement systems to find the products or services they need quickly. Procurement in the digital age requires operational agility to prioritise customer service delivery while anticipating or even predicting new supply opportunities despite volatile market conditions.

How can we use digital transformation to drive new value in procurement?

Historically, The Hackett Group viewed valued creation in terms of the two “E”s: Efficiency and Effectiveness. However, with the changing technology landscape and increased importance of stakeholder satisfaction, it is time to expand how we define value. And that means the addition of a third “E”: Experience. This broader view of procurement-enabled value allows procurement organisations to capture their minimization of cost (Efficiency), maximisation of business value (Effectiveness), and now, optimisation of relationship and engagement value (Experience)

Procurement-enabled value

Measuring value in procurement is not just changing the way we define value, but also how we measure it. Metrics should be reinvented to focus on predictive qualities and customer-centricity. For example, instead of successful risk mitigation, true value comes from risk prevention. Or in terms of efficiency, procurement should be measuring time to serve customers, instead of total cycle time (Fig. 3). Successful value measurement in procurement is no longer solely focused on cost savings. Now, the key is in understanding the mindset of stakeholders and using complex data to measure value created for businesses and customers.

Defining and measuring procurement value in the digital age

In this complex landscape, where should I start in thinking about digital value?

While we consider procurement’s digital evolution, and which steps to take next, it is important to understand more broadly which standards procurement will be measured by. Here, we evaluate how the most common strategic value drivers for digital transformation currently align with the digital technologies that can address them.

Strategic value driver #1: Improve procurement’s business value contribution

Increasing procurement’s value contribution is the top-ranked strategic value driver among procurement organisations. Although procurement organisations successfully increased the amount of spend under management through first-generation e-sourcing and e-procurement technology, reduced resources and exponential growth in data make it difficult to achieve (or even measure) savings and efficiency targets. While emerging technologies promise unprecedented levels of automation to help with this challenge, many organisations want to consolidate their procurement solutions in cloud-based suites as a first phase of digital transformation before diving into new technologies that are not yet widely deployed. Adoption and accelerated rollout of cloud-based solutions has become a critical part of the digital transformation agenda. In fact, 88 per cent of respondents to The Hackett Group’s 2018 Key Issues Study expect to adopt one or more cloud-based/SaaS applications within the next two to three years.

Strategic value driver #2: Improve policy compliance and alignment with sourcing strategy

Organisations are using digital transformation to improve compliance and alignment with sourcing strategies. For example, procurement might leverage machine learning to refine methods for contract and compliance management. Given the amount of data held in unstructured contract documents that are often stored in disparate locations, managing against contracts may hold high degrees of risk and exposure associated with non-compliance. Many organisations have already established a contract repository, but today cannot link policy and compliance with broader sourcing, spend and supplier risk management efforts.

Strategic value driver #3: Improving speed and quality of procurement business decisions

Making the best choices depends on having suitable data and information on supplier, item and product masters. However, data availability and quality remain significant challenges for many organisations that want to improve the speed and reliability of decisions. Therefore, it is necessary to develop fit-for-purpose information architectures that adhere to data standards and align with enterprise needs. Master data management (MDM) is emerging as the solution for improving governance of structured data, but as part of digital transformation efforts, MDM should also be applied to unstructured data. While 73 per cent of respondents in the Digital Transformation Performance Study already have an MDM initiative underway, advances in MDM are driving renewed interest in the technology.

With digital technologies comes endless opportunities to improve how procurement operates, but it also brings a new level of complexity. The most successful organisations will start by looking at the big picture, developing a strategy, and then using digital technologies to support those objectives.

For more information on digital transformation, check out our 
upcoming webinar about unlocking digital value in procurement.

Delivery Failure Notification: Your Spend Analysis Tools Could Not Deliver On Their Promise Of Good Data

When spend analysis solutions have failed to solve the problem they were designed to fix, they leave their users wanting more. But there are always ways to salvage your investment….

At a high level, companies utilising spend analysis solutions are leveraging spend data for the purpose of gaining visibility into cost reduction, performance improvement, supply risk, compliance, and other value generation opportunities. Simply put, spend analysis, and the resulting spend visibility, are considered “table stakes” for any procurement organisation. No procurement function can make a claim to world-class status or even average performance if it lacks this entry-level capability. It should be the first and last step of the strategic sourcing process that both identifies the opportunity and measures the organisation’s achievement thereof.

While these solutions have existed for decades, many companies that utilise them continue to suffer from poor procurement data, if not downright unusable data. They are undone by noncompliance, data entry errors, fragmentation of data across multiple systems and general poor data discipline.

Many of these solutions encompass complex organisational schemas such as UNSPSC, which was designed for other purposes and applies a categorisation structure that reflects the way supply markets are organised. Furthermore, general ledger (GL) codes are simply not a trustworthy substitute for a true procurement and sourcing taxonomy, and were designed for people who write the checks.

Certainly some companies must have great procurement data, because so much money has been spent on these systems specially intended to solve this challenge. But in cases where those technologies fail to deliver on the promise of good data, they are typically suffering from a host of data issues due to:

  1. Accounting-oriented data not aligned with procurement categorisation
  1. Maverick and unmanaged spend not captured in the solution
  1. Poor input discipline, or procurement-related data being entered by non-procurement resources

When these solutions have failed to solve the problem they were designed to fix, they leave their users wanting more. User adoption is low and many find that additional data manipulation is required, with many organisations dedicating internal resources to spend analytics, despite paying at third party to perform this for them. These tools are often clunky and difficult to use and fail to deliver the key insights procurement professionals need to drive value and impact the bottom line.

The market is calling for an end to this systemic problem impacting most procurement functions. After all, having access to quality data will always ensure procurement a seat at the table. Organisations should be able to rely on solution providers to provide them at a minimum with:

  • Highly accurate categorisation
  • Actionable, data-driven, procurement-focused insights
  • Fingertip access to ‘good” or even “great” data through a simple, easy to use interface

If you find you are not experiencing this with your solution provider, there are still ways to salvage your investment. Identify the desired changes and develop strategies with your vendor to overcome the visibility challenges. They should be ready and willing to restructure the underlying data/taxonomy to ensure you reap the benefits of the solution you implemented. Today, procurement professionals should be focusing on the strategic aspect of their roles and elevate beyond the frustrating and tactical world of data manipulation.

Continue reading Delivery Failure Notification: Your Spend Analysis Tools Could Not Deliver On Their Promise Of Good Data

I Have Measured Out My Digital Transformation In Coffee Spoons…

Eager to lead your procurement team through a digital transformation?  We’ve got some advice from someone who knows the score… Grab a coffee and let illycaffè’s Procurement director talk you through the process… 

nazar_photo/ Shutterstock

Digital Transformation.

We assume that everyone is at it behind closed doors.

But how are they doing it? What’s the process? Are they doing a better job than us? Or is everyone simply floundering in the dark? Sometimes, you need the inside scoop from someone who knows the score!

Last month, at Jaggaer’s REVInternational 2018 event in Munich, Diego Pedroli, Procurement and Logistics Director – illycaffè gave us an overview of the organisation’s ongoing digital transformation and how he made it happen.

“What I’ve learnt over these two days” he began, “is that we are actually at the beginning of our [digital transformation] journey, and it’s one that will never end.  But at least we’ve started.”

illycaffè: A Brief History

illycaffè remains a family owned company with 1000+ employees,  100,000+ clients and B2B business in 140 countries.

Founded in Trieste, Italy, illycaffè prides itself on a century of innovation from launching the first high pressure espresso machine in 1935 to introducing the first single portion coffee pod in 1974.

Diego’s mission, as he sees it, is to uphold procurement excellence: continually advancing the procurement processes and supplier cycle management and managing the execution of the multi-year procurement programs.

The organisation’s digital transformation began back in December 2013 and has been evolving ever since.

Digital Transformation: The Beginning

Diego’s ultimate aim with leading illycaffè through this transformation was to streamline their processes organisation-wide, thus transitioning the procurement team from saving-hunters to value-hunters. “We wanted to try to digitalise the processes to add value and bring time for employees to actually look after the business.”

“At first it was all about developing and defining guidelines and procedures, changing the mindset of our people and the people working closely to us. We wanted to give procurement the responsibility to do procurement, not shopping!”

Between 2016 and 2017 Diego worked with illycaffè’s CEO and the board to approve the introduction of an SRM platform. After going through the bidding process and selecting Jaggaer they immediately kick-started the implementation.

Digital Transformation: The End Game

The hardest part of embarking on a digital transformation is often convincing key stakeholders, namely the CEO or CFO, of its necessity and potential value-add. Having a strong case to present and key objectives  is crucial. As Diego explained, “we were able to convince our CEO to implement the SRM system because of these factors:”

  1. Governance and Compliance
  • Allows for traceability of processes
  • Gives procurement professionals complete management of all suppliers, which greatly limits risk
  • Makes it easier to monitor suppliers and improve performance

2. Method

  • Implementation of a culture of shared method
  • Standardisation of procedures makes the business more streamlined
  • Increases the speed of response to internal and external stakeholders
  • Allows for continuous improvement, partly through sharing best practices

3. Transparency

  • Gives procurement greater accessibility and makes information easier to interpret
  • Having data in one place makes it simpler for everyone in the business to work and guarantees ethical practices and ethical processes

4. Economic Return

  • There are obvious economic benefits due to the workflow automation
  • Allows for a reduction of TCO in different purchasing categories

Diego’s parting words of advice? When it comes to digital transformation, “it is not enough to have the sponsorship of your CEO. And it is not enough to have a good tech partner. It’s important to have each and every person in your team on board.”

Learn more about Jaggaer and  REVInternational 2018