Over the course of the last few weeks, we have discussed a number of trends that are taking us into a brave new world of Business and Industry. We have explored topics such as big data, increased automation and discussed other subjects that fall under the broad umbrella term of Industry 4.0.
There has been a number of successive industrial revolutions over the past few centuries which has seen exponential changes to the commercial markets both domestically and globally. Briefly, the first industrial revolution (or Industry 1.0) resulted in the development of mechanisation and the rise of water and steam power. Industry 2.0 (or the second industrial revolution) led to mass production, assembly lines and the widespread use of electricity.
Given the current state of Industry, it is evident that we are in the midst of transitioning from Industry 3.0 – the industrial revolution powered by computer and automation – and Industry 4.0. While the expected developments to be observed in Industry 4.0 hasn’t been determined or discussed, for the moment, it is a useful short-hand term to refer to the Industry that will exist in 2025. Furthermore, as a response the concept of Industry 4.0, we have also witnessed the emergence of Procurement 4.0.
- New procurement value proposition
- Digital category and service procurement
- Digital supply chain and supplier management
- Innovative procurement data utilization
- Digital processes and tools, and finally
- Organization and capabilities.
Illustration 1: Procurement 4.0 Framework
New procurement value proposition.
Though every organisation possesses formal (or informal) procurement frameworks that serves to support their goals and objectives, the Procurement 4.0 Framework seeks to position procurement professionals in a manner that best allows them to look forward. In turn, this enables consideration and thought to be applied in regards to how to most effectively adjust existing Frameworks so that they are more suited to these changing times.
The first topic addressed by Procurement 4.0 is Thinking. Chief Procurement Officers must reconsider the value added by procurement as procurement can no longer be focused sorely upon cost reduction and management as, resulting from the present realities facing our world, the demands to be expected in Industry 4.0 will be very different. That said, the value that may be garnered from procurement must evolve in line with this shift, transitioning from cost-focus activities to value-focus undertakings such as supply management, risk assessment and brand management.
Digital category and service procurement.
The application of Procurement 4.0 within Industry 4.0 gives rise for the development of new skill-sets. Chief among these skills will be those related to the collection, analysis and repurposing of data. The vision of Industry 4.0 involves a world where everything possesses sensors which speak to each other resulting in the continuous exchanging of information. As such, the role of procurement will include the management of a “value network”, which is defined as sets of connection between organisation and individuals who act in a manner beneficial to the entire group. The concept of value networks will result in an increased push towards the purchases of services. Simply, the focus of the organisation is not to purchase tools but rather, to benefit from the functions of tools whilst endeavouring to incur the lowest costs possible.
Take the hammer for example. Most of us own a hammer; we may have purchased it because we either needed to hammer a nail or because we believed that we would need it in future. Though the hammer has function and purpose, most people’s hammers spend 99% of its life taking up space and collecting dust. As an item that is not commonly used, it is evident that owning a hammer is therefore extremely inefficient. However, due to the lack of effective services that eliminate the need to possess our own tools, we must still presently purchase a hammer – even if we only use it once in a blue moon.
As the economy tightens, especially in the developing world, Industry 4.0 will require procurement professionals to eliminate such wastefulness and move towards harnessing the power of cyber-physical systems to acquire the effects of the tools but not the tools themselves.
Digital supply chain and supply management.
Cyber-physical systems (CPS) is a mechanism that is controlled or monitored by software and one that is tightly integrated with internet and its users. CPS includes smart grid, autonomous automobile systems, medical monitoring and other robotic systems. It is an integral part of Industry 4.0 thus, any supply chain and supply management within Procurement 4.0 will involve the management of CPS.
Industry 4.0 seeks to fulfil the manufacturing dream of integrating data from customers, distributors, captive production and suppliers in real time to optimise supply chain performance. The presence of CPS will enable reduction in lead times, freight and inventory costs while improving customer experience by giving them what they want, when they want it. Evidently, though it may seem like a faraway dream at the moment, Procurement 4.0 will require procurement professionals to develop skill-sets that they may have never had to have before, especially in the realm of data. In turn, this will meet the demands of Industry 4.0.
Innovative procurement data utilization.
Central to the coming of Industry 4.0 is the explosion of data in our society. Unsurprisingly, data analytics forms a key part of Procurement 4.0. Thus far, Data analysis has been focused upon learning lessons from the past. That said, innovative procurement data utilisation will be the way forward as it perceives the future through predictive analytics. Industry 4.0 will not be about reacting or responding to events and change but, rather, about proactively capitalising on predicted occurrences and circumstances.
Given the aforementioned, organisations wanting to harness the full potential of Procurement 4.0 will need to invest in this key area as it will be a Procurement function to identify the needles of opportunity located within a haystack of data.
Digital processes and tools.
Procurement has already seen the arrival of tools that will be the mainstay in Procurement 4.0. A lot of these tools, such as the Robotic Process Automation (RPA), are designed to assume the drudgery of clerical processes to free up the time available to procurement professionals so that they may engage in more value-added activities. However, as the technology matures, they will also fundamentally change the job description of what it means to be a procurement professional.
Investment in these new digital tools is a means to an end (i.e. a more efficient and effective procurement department) but is not the end itself – it is an investment by organisations to ensure that they are not running Procurement 3.0 in Industry 4.0.
Organisation and capabilities.
If you wish to progress from Procurement 3.0 to Procurement 4.0, the implementing the first five elements of the framework (as required by your organisation) is contingent on your ability and capacity to build upon your exisiting capabilities.
The first step in this process is to identify the gap in skills that exists between what you are doing now and what you need to do in 2025. As shown in Illustration 1, organisations and capabilities serves as the foundation upon which the other six areas are built. If you intend on bringing about the digital procurement revolution in your organisation, the starting point is building upon your organisational capabilities.
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