What a CIO Should Know About Procurement Transformation
Three years back, we chanced upon an opportunity to collaborate with a leading FMCG company in India to fulfill their procurement mandate. 1000+ buyers across the FMCG company were into purchasing direct materials. It was already using an ERP system and was ahead of its peers on the digital maturity curve, thanks to the CIO’s vision for digital transformation. However, there were a set of challenges, which could have given the next level of productivity to the business.
- It took 7 days for the procurement team to create the contract since buyers had to use a complex multi-screen application for doing the same
- When buyers logged onto the system, there were 100s of contracts waiting for their attention, with no intuitive way for them to prioritize
- Buyers were required to fill values for which they had to refer to other systems or offline documents, making it very time-consuming
- Buyers were required to make certain decisions while creating the contract e.g., “mode of shipment”, but they didn’t have sufficient data points around costs and lead time to make the right choices
- After submitting the contract, they had to wait for a validation report from another team. The team used to revert to them after 2-3 days with errors in their entries
While the above case is cited in a specific context, the same set of problems are hampering productivity across the procurement function. These problems can be addressed by using 3 simple concepts.
- Super-app Experience
- Procurement Control Tower
- Risk Watcher
Just like how the market transformed into super-market, our apps must transform into super-apps. When you go to a supermarket, you encounter a sequence of nicely organized and tagged aisles, making it extremely easy for you to find whatever you need. Similarly, our apps need to be designed such that whatever data is needed or whoever needs to be contacted for completing the transaction, could be done without leaving the super-app console. The backend wiring of this console should have carefully crafted integrations with other internal (ERPs) or external (GST Portals) systems or even offline documents.
The said FMCG company had in its previous attempts at procurement transformation used a “technology first approach”. Now here’s the catch. Procurement is a hands-on job and calls for multiple fragmented but related bits of communication and collaboration with stakeholder groups. If the procurement technology solution does not allow users to complete the entire contract creation journey at one go, there will be time and resource efficiency leakages. Just by providing a super-app console, we were able to bring down the contract creation time to a few minutes from several days.
Our apps should become super-apps now.
Procurement Control Tower
When we are driving a car, the dashboard is designed to tell us things that need our attention. Insights such as how long the car will run on current fuel, to someone not wearing a seat belt or door not closed properly, are presented to us the moment we switch on the car.
A procurement control tower is like the dashboard of a car, it takes data (otherwise sitting in silos) from all the procurement apps and makes sense for day-to-day actions and not just larger strategies. Imagine an intuitive decision about the incoterms “if you select mode A or transport, it will cost you $100 and take 4 days to deliver and if you select mode B, it will cost $120 and take 2 days to deliver”. Or top 10 invoices or contracts that need immediate attention get highlighted.
Data consolidation across multiple systems sets the stage for optimization of information flow, saves time spent on browsing through disconnected data islands and helps users get actionable insights that strengthen decision support systems. The favorable impact of such data consolidation is evident from the fact that the said FMCG company in our example has improved its operational efficiency by 30%. Further, the company was also able to move forward on its digital maturity journey towards the next step of spotting outliers and deviations from expected values of KPIs in procurement; a pre-cursor to developing protocol for rules-based decision making and artificial intelligence capabilities.
Systems should be designed to provide insights wherever a decision point is involved.
Procurement professionals deal with a lot of commercial and statutory risk related to day-to-day compliances, ESG, stockouts, and these are lurking behind a massive wall of data which is not easily caught through mere data aggregation or visual dashboards. However, beyond the daily happy path of procurement these exceptions can be easily caught by setting a layer of business rules on the data.
Significant value in our FMCG example was brought in by answering questions like: Has the payment term been breached? Is the tier 2 supplier non-compliant? Is contract running out of volume before the expiration date? Through setting a rule engine for highlighting exceptions.
In a recent survey done by ProcureCon Indirect East, 59% of the respondents acknowledged the lack of coordination between IT and procurement as a major challenge to technology adoption. While manufacturing enterprises have come a long way from their obsession with mainframes first and ERP systems next, there is still significant room for improvement. And the road to such improvement passes through the office of the CIO.
(The author Mr. Sandeep Goel, MD, Strategy and Operations, Moglix and the views expressed in this article are his own)