The Journey to Digital Procurement Transformation
By Hossam Eldalil
Technology’s impact on a business more often than not depends on the business owner’s willingness to adapt. The same can be said for procurement. To successfully lead and capitalize on digital transformations, procurement directors must take into account several key strategic considerations.
The first step in preparing for digital transformation of procurement is to evaluate and potentially redesign the procurement process, as digitizing a bad process leads directly to errors. The next phase is automation, during which the new, digitally enhanced process is established. Then, organizations must communicate objectives and plans to employees, customers and stakeholders. New leadership also may need to be put in place; skills must be assessed and adjusted to meet the new framework. Finally, the company’s digital maturity must be evaluated.
To begin your digital procurement journey, start with lean thinking — one of the most effective ways to improve business processes. Lean’s goal is to meet customer requirements with regards to service and quality while simplifying operations and reducing waste and lead time. When lean is augmented with six sigma, organizations are well-positioned to achieve data-driven process improvement. The result is a meaningful overall performance improvement.
Next, map your organization’s manual and automated activities. Identify and remove those without value. The main tasks include prioritizing which process to choose for the initiative and selecting the project team. Team members will define the context, vision and strategy. Successful digitization requires envisioning new ways of performing tasks that can benefit from the use of technology, not just finding a way to use these technologies. In other words, it’s crucial to have a vision that embraces different ways of operating — even without a focus on technology.
Procurement directors must build a clear business case justifying the reasons to embrace the digitization. When making the business case for digital initiatives, emphasize how they will add value; for instance, by improving speed-to-market and reducing costs. Keep in mind that the ultimate measurement of procurement’s performance is its ability to support the firm’s overall business strategy. It is critical for procurement managers to improve agility, responsiveness and customer-centricity, all of which are highly enabled through digitization.
Once procurement managers establish a clear digital strategy and the business case is accepted, the initiative must be clearly communicated to employees so they become ambassadors who will lead the change. Toward the end of the preparation stage, a lean procurement committee may be established to receive and approve the proposal of the process.
DEFINE AND MEASURE
Next, the project team listens to the voice of the customer to determine their needs and select the metrics to be measured, monitored and improved. Team members then map the current process state. This exercise consists of mapping the manual operations and understanding how the physical flow is managed. It also incorporates the automated flow ― including applications, systems and automated sequences — already in place.
Processes are most effectively measured when data is extracted from the data warehouse, if available. The involvement of information and communication technology in lean procurement initiatives also enhances the measurement phase. The first part of this stage is to
- define the process and issues that the procurement leaders want to improve
- choose the project’s main objectives
- establish the project team that will implement the initiative
- examine the current environment, including organization, vendors, processes and logistics
- determine the current and expected product and service requirements
- identify opportunities and measure potential benefits
- set up the implementation plans.
The outputs of this stage should be incorporated in a master document, such as a project charter, for the stakeholders involved. The charter outlines clear, long-term objectives and targets digital initiatives as well as their impacts on the organization. It includes elements such as process efficiency and savings goals, system capabilities, integration requirements, visibility and reporting capabilities, user engagement, adoption, and supplier enablement strategy.
The second part of this stage is measuring, during which the team
- defines and selects the critical quality metrics and key-performance indicators
- collects sufficient information to validate the need and quantify the conceivable benefits
- determines specific goals to be achieved by the rest of the project
- decides on the go/no-go with regards to the rest of the project.
Many initiatives fail during this stage because the team becomes exhausted by data collection activities: Either the data available is very limited or team members are inundated. At this point, it is acceptable to recognize that the project lacks clear benefits and is unlikely to be successful. If that is the case, cancel it.
ANALYZE AND COMMUNICATE
Before beginning this stage, the project team should have clearly proven significant potential benefits from digitization. Team members might also consider a multigenerational project plan because many solutions will require implementation in phases. The project should be simulated on a small scale first, using a pilot to demonstrate the effectiveness of the solution. This could be a single business unit or an element of the plan. Then, prepare for a successful, full-scale implementation.
The process of redesigning might include eliminating non-value-added and unnecessary activities; restructuring operations that create wait times, queues and loss of productivity; outsourcing or centralizing low-value but necessary activities; simplifying and standardizing; and optimizing and automating manual activities. It is important to avoid the pressure to deliver: Rushing jeopardizes success. Progress should be continuous and allow frequent and regular wins.
Finally, keep stakeholders ― especially supply chain partners ― updated, and present a clear and detailed communication plan. Sharing successful milestones makes it easier to manage the project and ensures a lower risk of failure. Obtaining the greenlight from stakeholders helps ensure buy-in, creating a wider set of interests, priorities and requirements. It is likewise important to engage customers in the early stages of the design and selection processes, as their adoption rates will have a high impact on overall project success.
In the architecture design phase, the to-be process is created. This phase outlines the sequence of activities constituting the prospect delivery process. The team must thoroughly plan the technical and functional characteristics of the various activities, components and services that are part of manual and automated flows. They design any interface among activities and synchronize the process flow so it is consistent and connected to the end user.
Integration inside and outside the organization is vital. Identify activities that can be eliminated, improve visibility, and heighten supplier relationship management by integrating e-procurement systems. Then, measure and enhance performance using the metrics outlined in the measure phase and continue expanding automation. Whenever possible, remove administrative bottlenecks, such as those created by approvals.
DEVELOP, TEST AND DEPLOY
There are several objectives to achieve during this stage. The first includes the development of the new physical structure, software and interfaces. Vendors involved in the pilot are prepared for upcoming changes; they may be offered incentives if needed to help ensure their compliance.
The project team again must pay special attention to the communication plan. Regular updates should be scheduled throughout the end of this stage. Clearly outline and communicate the new process to internal teams, then install and configure technology that will support the new processes.
Finally, launch the pilot and start using the new process. Remember that vendors are not machines; it is important to listen to them and be attentive to any concerns they raise. The operational team should also be empowered to voice concerns. The biggest challenge in any major digitization initiative is not technological complexity, but people — more specifically, their resistance to change. Forgo the one-way, broadcasting communication model and instead engage people in enterprise-wide, large-scale communication. Webcasts, internal social networks, discussion forums and blogs are effective tools.
As with any change initiative, it’s essential to constantly monitor the process. Unlike in previous stages, this stage has no discrete end. Of course, procurement leaders should have deadlines and targets based on savings and efficiency, but they should also commit to continuous improvement. Once the simulation is verified, it can be launched on a larger scale.
As a final piece of advice, always remember the importance of having skilled, engaged employees. One common challenge that companies face when implementing procurement digitization is a lack of talent. Procurement directors have numerous different options for filling the skills gap. External resources, such as hiring consultants with experience implementing digital procurement initiatives, is an obvious solution. Another possibility is to hire new leaders, either from inside or outside, who bring the necessary skills and can offer a vision that supports the changing culture. Of course, offering learning and development opportunities for current employees is a wonderful way to enhance the digital skills of your workforce, increase engagement and earn people’s loyalty.
Throughout the process, procurement directors also must be open to new ideas that can be built upon the already strong foundation. Supporting and encouraging those people who have the skills to lead new initiatives as they arise is tremendously valuable.
Hossam Eldalil is a global procurement manager at Schlumberger Technology Corporation. He has 15 years of experience in supply chain and business management of the upstream oil and gas industry. Eldalil currently leads 600 team members in five hubs and manages the procurement activities of $10 billion in annual spend. He may be contacted at email@example.com.