Digital Procurement in 2023
Like almost every segment of industry, digital technology is playing an increasingly influential role in how organizations perform their core and periphery functions. Procurement is no exception to this trend and the buyer/supplier relationship is also being successfully augmented by digital technology.
However, where organizations in other sectors might use digital technology for direct customer experience purposes like with AI powered chatbots such as ChatGPT or flashy augmented reality games and services, its deployment in the procurement function is usually an altogether subtler affair.
Let’s take a look therefore at the role digital technology is playing in procurement at the top of 2023 and make some predictions regarding the direction of travel.
Spend Analytics
Way back in the COVID-rich days of 2020, McKinsey said, "The role of spend analytics and the procurement function is changing. Against a backdrop of a shifting global economic context, including the Fourth Industrial Revolution, the localization of value chains, and increasing consumer demands for mass customization and personalization, there is a need for organizations to obtain actionable insights that help capture more impact in procurement.”
Never one to speak without thinking first, you will likely not be the least bit surprised to discover that the prediction has indeed been writ large in the procurement environment of 2023.
The digitally enabled procurement function has now penetrated almost every aspect of the larger organizational machine and has moved from a simple transactional operation to one which plays a role in holistic business strategy considerations including development, distribution, playing a role in managing budgets and costs, anticipating and mitigating supply risk, and driving compliance.
"By infusing best-in-class technology and AI-based analytics with deep supply-market and category-sourcing expertise, and by innovating with service-delivery models including outsourcing, the new offering helps clients unlock the value hidden in their purchasing data: actionable insights that help capture more impact in procurement, sustainably,” continues McKinsey.
Supply Chain Resilience
It’s no secret that the last few years have put incredible strain on our global supply chains and that shows no signs of changing any time soon. COVID restrictions continue to hamper the flow of goods out of major manufacturing nations such as China, and the Russian invasion of Ukraine is making it increasingly difficult to transport good across that part of the world as well.
All the while, the UK’s exit from the European Union (i.e., Brexit) continues to make moving products in and out of that country incredibly complicated and expensive.
This is leading many procurement organizations to rethink their supplier network and reconfigure relationships so as to give the products and materials they need to perform their function the greatest chance of getting through. In a global marketplace, this means processing massive amounts of data and creating algorithms which can rank countries and suppliers within those countries in terms of supplier competitiveness.
"To reinvent or reimagine your network footprint, you’ll need an objective measurement and a common framework to compare the competitiveness of different countries,” reports McKinsey. "This will include major factors affecting supply chain costs and stability, such as labor costs, duty and tax rates, geopolitical and regulatory concerns, sustainability, infrastructure quality, suppliers’ availability and capacity, and supply chain maturity.”
Then there are the considerations which exist separate from global issues and are specific to your industry – or even your business alone. These metrics need to be fed into the algorithm alongside the considerations laid out above to ensure any results generated are relevant to achieving your business goals specifically.
Digital technology can also then be deployed to assist in the further vetting of suppliers and ensuring their offering is appropriate to your needs and the likelihood of reputational risk management considerations coming into play.
"Before reaching out to each supplier for engagement, initial due diligence can be conducted via digital solutions that improve risk transparency for suppliers at tier 2 and beyond,” adds McKinsey. "Assessing a company’s financial and structural stability, its data security, its regulatory, operational, and reputational risk, and its organizational maturity can reveal critical weaknesses, further narrowing the list of viable suppliers.”
Final Thoughts
As you can see, digital technology is providing elegant solutions to the needs of the contemporary procurement function. From spend management and category sourcing, to navigating the rapidly evolving and challenging global marketplace and vetting suppliers, data, AI, and more are making sure procurement is able to maneuver and strategize to the best of its ability and avoid risks to brand safety.