There is an important issue within procurement that needs to be addressed. Too many CPOs and purchasing departments are looking at the future of procurement solely through a technological prism and consider technology as the end—when it is merely the means to an end. It is no surprise, then, that the questions at the top of their list are centered around what technology they should focus on and implement, as if that piece of technology will magically fix all of their problems.
Focusing on the what, and not on the why, is like putting the cart before the horse.
This is precisely what I see happening with some of the latest technologies, like artificial intelligence (AI) and blockchain. The thing is, they have considerable potential for procurement and supply chain management (see here for what blockchain truly means for procurement). However, the way procurement approaches these technologies is wrong, and jeopardizes the chances for organizations to use them as business enabler and receive full value.
When considering the Internet of Things (IoT), blockchain and AI, the bigger picture is about data, insights, and actionable intelligence: the core of business activities! These technologies present, when combined, an opportunity to address the “big data” challenge: the “6 Vs,” which are Value, Volume, Variety, Velocity, Veracity and Variability.
Putting Technology Back Where it Belongs...
“When we talk with leaders about what they mean by digital, some view it as the upgraded term for what their IT function does. Others focus on digital marketing or sales. But very few have a broad, holistic view of what digital really means.” Why digital strategies fail, McKinsey
A technology-centric approach to envisioning the future of procurement is wrong because:
- Technology certainly plays a central role in enabling organizations; however, it is a means to an end (a tool, not a solution).
- Looking at a piece of technology in isolation narrows down the vision and prevents people from seeing the bigger picture
Unfortunately, the current business environment does not provide CPOs and procurement teams with the right perspective and distance, which are necessary when embarking on a digital journey in the procurement space. For example:
- There is an ever-increasing pace of technological innovations that make keeping up quite a challenge.
- CPOs and procurement teams are constantly bombarded with marketing messages, articles and other content filled with buzzwords and calls to action to use this or that piece of emerging, life-changing technology.
- They also have growing pressures from stakeholders and boards to “digitally transform” their operations (without anyone fully understanding what the digital transformation of Procurement actually means).
Embarking on that digital journey is even more challenging to do when CPOs have to deliver on a daily basis with a shrinking budget and staff. It is comparable to trying to change the wheel of a car while driving.
All of this proves, in part, that the understanding of the potential implications of IoT, blockchain and AI is relatively low. However, there is a bigger story in the background. It revolves around data and business decisions. These three technologies fit perfectly together and, taken as a whole, represent a significant evolution in the capacity of organizations to become more efficient and effective.
A Global Approach to Data, Supported by Technology
“In God we trust, all others bring data.” William Edwards Deming
The case for data in business is not a new one, nor one that needs to be much discussed. The purpose is, and always was, to collect sufficient data (but not too much; “infobesity” and "analysis paralysis” are well-known data pitfalls) to make the right choices, while considering the maximum number of possibilities, and acknowledging that decisions are a sort of bet on the future and its uncertainties.
Therefore, the trade-off between data’s potential insights, which help professionals make informed decisions, and the risk incomplete data represents, is still a valid one. It is even more critical in a world that is becoming increasingly complex and characterized by VUCA (Volatility, Uncertainty, Complexity and Ambiguity).
At the same time, technological capabilities have evolved to enable organizations to manage the above-mentioned trade-off better.
“The emergence of intelligent data is reversing procurement’s reliance on looking backward at money spent or supplier past performance. The increased use of ‘big data,’ the cloud and analytics enables procurement to work with information, data and models that predict – providing knowledge at your fingertips!” The Procurement Value Proposition, Gerard Chick, Robert Handfield
The latest technologies represent critical components to building better insights and actionable intelligence:
- IoT provides the ability to collect more information (Volume) and in a real-time manner (Velocity and Variability). This is especially true when monitoring physical supply chains (e.g. sensors and geolocation for containers) and evolutions in demands (e.g. sensors in machines for predictive maintenance). It is the foundation for getting data and keeping the Big Data engine running and improving (e.g. Machine Learning).
- Big data presents the capability to consolidate, aggregate and slice more data coming from multiple sources (Variety), both internal (e.g. ERPs, or any other information systems) and external (e.g. IoT sensors and 3rd party data providers).
- Blockchain can increase trust (Veracity) in the data collected and stored. It also creates a “data backbone” that can be utilized to create interoperability (internally and externally), opening the door to further automation and interconnections between physical and financial supply chains.
- AI exhibits tremendous computational capacity to analyze massive sets of data to build new knowledge (Value) and continuously learn and improve from new data.
Seen as a whole, and not as standalone pieces of software, the technologies I mentioned can represent a new way to run processes and operations:
“Today, your data resides in a cloud. Tomorrow, it’s also your business logic and orchestration activities. There will be no need for expensive SAP, Oracle or Salesforce licenses and subscriptions. This is a powerful concept. Just as Google Docs has made collaborative word processing seamless across the globe, so will blockchain technologies do to entire business processes and workflows.” The Year for Data Driven Blockchains, Bruce Pon
To conclude, it is true that technologies like IoT, big data, blockchain and AI represent a considerable amount of opportunity for procurement, especially when it comes to data-related applications. Because they address the “6 Vs” challenge, these technologies are the key to better insights and better decisions.
However, before diving into what new technologies can do for them and which one to use, organizations need to start the process from a value and outcome perspective. What is the value that the rest of the company and customers expect? What actions would deliver this value? What information and data will drive decisions? It is a process that starts from the end (the “why”), then drills down to the “how” and, lastly, the “what.”
Outcomes (value to business) ➜ Actions ➜ Decisions ➜ Insights ➜ Inputs, factors and parameters
Only then, can the design of the relevant system (people, process and technology) start to take into account new possibilities of cooperation between humans and machines, and meet the strong need for robust data management processes and governance.
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