Why Digitizing Procurement is Key for Supply Chain Resilience

Digital transformation is more than a corporate buzzword. Going digital has financial, competitive and cultural implications for your business.

The concept of digitizing procurement has gained traction in recent years as automation, managing supplier risk, and ethical and strategic sourcing take the procurement industry by storm. Before the pandemic, procurement was already on the cusp of this transformation. However,  the virus acted as an accelerator of these trends rather than a catalyst for them. 

Global consulting firm Deloitte describes digital procurement as utilizing “disruptive technologies that enable strategic sourcing to become more predictive, transactional procurement to become more automated, supplier relationship and risk management to become more proactive, and procurement operations to become more intelligent.” 

At its core, digitizing procurement means transforming how the department delivers value. Whether that’s through more complex analysis and better supplier strategies or enabling more efficient operations by bringing order to massive data sets, digitization ultimately drives more efficient decision-making. 

But digitizing procurement isn’t all about operational efficiencies; there are financial, competitive and cultural benefits, too. 

According to a McKinsey Global Institute report, the most digitized companies see outsized growth in productivity and profit margins, while maintaining a considerable lead over the rest of the US economy. In addition, workers in the most digitized industries enjoy wage growth that is twice the national average.

Why is it time to digitize procurement? 

The pandemic exposed the many vulnerabilities of global supply chains, highlighting procurement organizations’ crisis management capabilities.

The C-suite turned to procurement for answers about the impact on consumers, how to create more flexible supply chains, and how to offset costs to mitigate the effects of supply and demand disruptions.

Kristyn Baker, a former vice president of procurement and sourcing strategy at C2FO, notes that, fortunately, technology has made the process of building resilience in the supply chain more efficient and cost-effective.

“Even with several stimulus packages pumped into the US economy, the supply chain is still in disarray with unprecedented demand fluctuations being a large contributor,” Baker said. “The pandemic accelerated the digitization of the entire sector. Going forward, Procurement will need to emphasize the importance of internal collaboration and associated swiftness of decision making along with stronger supplier relationships via a digital approach.“

This isn’t the first time a black swan event has impacted the global economy, and it certainly won’t be the last, according to Chief Procurement Officers surveyed by Deloitte in 2021.

1. Gaining a competitive advantage

There’s no denying that digital assets create competitive advantages. The gap between those on the frontier and the rest of the economy is about the sophistication of digital usage. To stay ahead of the competition, enterprises need to focus on agility, greater visibility into supply chains and automating manual sourcing processes to ensure they capture customers’ attention first. 

“Everything predicates on speed to market — who can get there first,” Baker said. “That starts with streamlining processes internally and externally with real-time insights and digital-first strategies.” 

A recent research report by The Hackett Group found that accelerating procurement’s digital transformation ranked No. 4 on the list of critical issues for CPOs.  Adopting new technologies that reduce friction and reevaluate disjointed, risk-prone processes will set digitalized companies apart from their competition thanks to real-time insights into sourcing projects and performance.

2. Keeping pace with an on-demand economy and consumers

In addition to COVID-19’s impact on the speed of digitalization, consumers’ evolving demographics and purchasing behavior require urgency and convenience to stay relevant. 

Millennials and their personal shopping habits are powering the digital transformation in e-commerce. Because this new generation of decision-makers expects the same flexibility, speed and customer service from the on-demand economy, businesses will need to leverage the technology of industries like grocery delivery and telehealth to meet new demands.

To create an effective digital strategy, Baker recommends adding an internal digital process that mimics the user-friendly, on-demand technology that your company provides consumers to help inform procurement not just “what” was purchased and at what price, but “why” it was purchased.

“Intelligent, data-driven insights should guide your company’s decision making, not just the transactions themselves,” Baker said. 

Additionally, environmental and social issues are more important to consumers and stakeholders more than ever. But incorporating diversity and inclusion in your supply chain requires transparency and accountability aided by digital processes. 

Consolidated supply chains that are limited and not diverse leave companies vulnerable to disruption. Leveraging software and other technology that streamlines the process of broadening your value chain and providing underrepresented groups with opportunities creates a more resilient ecosystem. 

3. Driving down costs and improving revenue 

Research from McKinsey & Co. suggests that, on average, companies that aggressively digitize their supply chains can expect to boost annual EBITDA by 3.2% — the most significant increase from digitizing any business area—and annual revenue growth by 2.3%.

Digital transformation can enable typical procurement organizations to reduce their process costs by 30%, according to The Hackett Group’s research. 

In a recent Harvard Business Review article, IKEA’s Chief Digital Officer Barbara Martin Coppola explains how the brand recently recognized its need to stay relevant, evolve with its customers’ ever-changing needs, and embed digital practices into every aspect of its business.

IKEA brought in Martin Coppola, a veteran of big tech companies like Google and Samsung, to revamp all interactions with customers on and offline with new and improved navigation and search functions. As a result, the company’s e-commerce rose from 7% of revenue to 31% in just three years. 

In the article, Martin Coppola detailed how she’s transforming a legacy retail brand by going digital.

Martin Coppola highlighted several key points to help ensure a successful digital evolution. 

• Use data to reengineer the full value chain to create flexibility  

• Modernize processes like Inventory management, logistics, fulfillment and supply chain with new technology to overhaul stale operating processes.

• Invest in embedding new skills and people who bring agility and innovation 

The bottom line

Digital transformation is more than a corporate buzzword. In its purest sense, digitizing any industry isn’t about one specific action but is more of a philosophy focused on utilizing advances in technology to improve efficiency. 

As the next step in your digitization journey, here are a few questions to ask your procurement team:

• How can digitization be a strategic lever for your organization?  

• What technology do you need to make quicker decisions? Would digitization drive more efficient and effective decision-making?

• How is your team contributing to this accelerated path of digitization? 

Additionally, C2FO can be a valuable tool in your procurement organization’s quest to improve efficiency and create a resilient supply chain. C2FO’s dynamic working capital solutions can provide cost-effective and convenient access to cash to businesses of all sizes in your supply chain. When suppliers have the cash they need to grow, your company secures a more robust supply chain and ensures you can continue to meet customer demand.