Insights

For Company Owners, Top Management – Digital Procurement and Supply Chain

May 15, 2019 | Supply Chain Management

Intro

I was calculating the ROI for one of potential projects. And shared with the Company CEO some insides from a university research, which was performed mid last year.

I’d like to share with you the important points.

Questions of owners and top management of the company:

Does that make sense to look for Digital Transformation for Procurement and Supply Chain? Until no full understanding the pro’s and con’s, costs, feedbacks from other Companies? After a Big Picture understanding, as an Owner, CEO, or a Director of business process direction/area – important is to understand which process, area is the best to apply, possible results, possible issues, and should I spend the time/money for this?

Below statistics is based on a global survey in mid of 2018, where 20 industries, 700 managers, from 55 countries took part.

Main Questions to answer Owners and Management:

  • Expectations from Digitalization of Procurement and Supply Chain?
  • Results outcomes of Digitalization and Digital Transformation for my company?
  • Pro’s and Con’s as feedbacks of other companies?
  • Is it important to perform during crisis?

Results and outcomes of Digitalization?

Let’s base on facts. Below is a list for some of the results (I would call them main results), which are confirmed by companies, implemented at least a portion.

  • Process costs
  • Production costs
  • Productivity
  • Efficiency

Main obstacles for implementation are: 

  • the technical setup costs 
  • and long development time

For Procurement and Supply Chain the digitalization results becomes operationally good. Obviously a better productivity, efficiency, faster reaction, shorter lead-time is a competitive advantage. Of cause we should not forget to calculate ROI. 

Big Picture Understanding by statistics:

  • Over 95% of the companies applied at least one of Industry 4.0 technologies. IoT and Big Data – most frequent. 
  • 90% of the companies after implementation decreased their operational costs and increased efficiency.
  • 60% feedback is, that after implementation, processes and results are more transparent.
  • 40% evaluating technical setup costs, long development time, lack of coordination, ongoing support costs as challenges. 

It does not give you the full picture for your situation yet. In the same time that give a hint.

Opportunities (major ones) for supply chains presented by industry 4.0 technology, including 

  • Increased information availability 
  • Optimized inter-company logistics 
  • Supply chain visibility
  • Transparency through end-to-end real-time information access and control 
  • Operations efficiency 
  • Maintenance, integration and collaboration, innovation and product design 
  • Efficient inventory management

Namely, which practices are used in Procurement (starting from most implemented)?

  • Cloud Computing
  • Internet Of Things
  • Big Data
  • Simulation Tools and Models
  • Augmented Reality
  • RFID
  • Sensor Technology
  • 3D Printing
  • Omni Channel
  • Artificial Intelligence
  • Others

Why Companies want to go for Digitalizations (out of statistics):

  • Partner relationship
  • Volume of outputs
  • Flexibility for organizational tasks
  • Competitive advantage 
  • End to End connectivity
  • Reduction in error and rework
  • Employee productivity
  • Operational costs and efficiency
  • Consumer image of the organization
  • Return On Invest
  • Performance of existing system

Result? What is the Digital Supply Chain result out of the feedback from the companies?

  • Effective decision making process 
  • End to End integration
  • Customer centric
  • Real time
  • Cost Effective
  • Agile
  • Transparent 

 

Challenges:

  • Lack of sense of urgency
  • Lack of strategic vision of technology
  • Insufficient support from leadership and management
  • Lack of coordination in organization
  • Inability to adequately measure performance
  • Long development times
  • Ongoing support costs
  • Training costs
  • Technical setup

 

Next time will prepare more fancy charts…..

 

Is it important to perform this during crisis?

It give you an additional push on processes, lead-times, reaction time, transparency. While you’re working hard in the periods of huge orders – there is no time and resources usually. Crisis give time to make the changes, and gives the resources (personnel is not overloaded, and can spend time on changes).

I would highly recommend to look at this deeply.

 

Short summary:

Digitalization is good to apply for Procurement and Supply Chain. It gave a lot of operational, tactical and strategical benefits, as we can see. However, the costs of the implementation and support are high. That’s why not for all companies will make an impact on costs, or too long ROI. This still should be evaluated before “GO”.

In the same time, competitiveness will add for sure. Customer satisfaction will add.

Transparency will add.

Not immediately after implementation. As then, the work on the topics will start (before we saw not everything, and now we will have more transparency and understanding, facts). You’ll see much more, and have much more statistics and analytics to work with. And of cause to make changes.

 

In case you’re interested to have more details – you can contact me directly.

 

Viktor Mikla
Founder/CEO, 
Expert in Business Development and Business Processes