The end of 2020 capped what was a truly remarkable year in recent human history. No doubt over the past 12 months you’ve seen countless headlines and articles refer to the present period as a “time of uncertainty”. Living in uncertain times seems almost fundamental to our existence. Sometimes frightening, sometimes wonderful – its a fact of life.
The ongoing quest to shrink the gap between what we know about the future and what we don’t is crucial for procurement organizations. While the scale of the pandemic and its effects on society and the economy is unique, for procurement planning, it represents only one of many external factors. Currency fluctuations, environmental and climate change, technology improvements, geopolitical change, and cultural changes also account for the practically limitless uncertainty with which we’re grappling.
Using a Digital Crystal Ball to Uncover Potential Risks
After years of focusing on cost optimization, many organizations are running extremely lean operations. Currently faced with a global financial downturn wrought by the pandemic, digital technology investment is still an important tool for finding new ways of cutting costs even further. Allowing organizations to do more with less, and to maintain resilient supply chain operations in preparation for unforeseen eventualities is a must have to survive.
Procurement organizations are sitting on veritable oceans of data covering spend, contracts, suppliers, operations, finance, and market intelligence. Thanks to digitalization, this data can be collected, analyzed and accessed to create predictive models helping to reduce uncertainty and assist organizations in both short-term and long-term planning.
Extracting value from this data is easier said than done. But when procurement analytics are integrated into an organization’s digital transformation, big data analysis can uncover exposures to risk across the supply chain, as well as present opportunities for further value creation in supplier management.
Should you, shouldn’t you? The Art of Negotiation
Consider, for example, the concept of should-cost modeling. This is a classic procurement concept helping to drive decision-making around supplier selection, inventory management and make-or-buy analysis. When your data is integrated with your technology stack, you can create more accurate should-cost models identifying statistically significant cost-drivers influenced by internal and external uncertainties. This kind of information opens new bargaining power when negotiating and selecting suppliers.
Another example of digitalization in procurement is the added value and peace of mind offered to consumers, especially for consumer-packaged goods. Food and beverage manufacturers are using digital technology to trace the journey of each individual ingredient and component of the final product to ensure quality, consistency and consumer confidence. Effective traceability requires tight coordination with distributors and other members of the supply chain but begins with a digital transformation of the plant floor.
Should-cost modeling and traceability are just a couple of examples of the value created by digitalization in procurement. Automation, artificial intelligence, autonomous robots, and other emerging technologies open new opportunities for the organizations who have successfully begun their digital transformation.
One of those organizations currently taking this journey is Olam International Limited. We recently had the opportunity to speak with Piotr Teodorczyk, Head of Global Procurement at Olam about how digitalization is enabling procurement organizations to create value for themselves, and their customers. Click here to view the full conversation.
Energy procurement can be a complex process, and a one-size-fits-all approach is expensive and ineffective. Explore the variables that contribute to the complexity in our white paper: Procurement Pro Tips: 5 Keys to Buying Energy Better
Learn more about managing your data in Resource Advisor