The third and final requirement is to incorporate both today’s and tomorrow’s technologies, including automation, big data, and block chain. Never miss an insight. Procurement teams that take advantage of these technologies now will transform what used to be a costly but unavoidable problem into a source of new value for their company. The result reduced value leakage by up to 5 percent through improved performance discussions with suppliers on schedule and quality attainment. The challenges facing procurement teams are complex and ever-evolving. Procurement functions need to be more adaptable as ever to respond. As a starting point, let’s take a closer look at the most important global shifts, and the corresponding implications. Subscribed to {PRACTICE_NAME} email alerts. Negotiations run by an autonomous AI? Procurement professionals can look at digital transformation as something that’s beyond their expertise, or they can embrace it. The first step is defining the strategy for procurement transformation. “We … These trends leave little doubt that procurement is being disrupted. Establish an agile procurement organization to improve process efficiency and keep pace with accelerating change. Subscribed to {PRACTICE_NAME} email alerts. Procurement and operations teams can then unlock incremental total-cost-of-ownership savings in maintenance time, protecting tires from long-term damage while reducing tire-related breakdowns and improving fuel efficiency and safety. Paradoxically, to get the most from procurement digitization, leaders must raise their ambitions along with their skills. Procurement is more than just buying at the lowest possible price. Practical resources to help leaders navigate to the next normal: guides, tools, checklists, interviews and more, Learn what it means for you, and meet the people who create it, Inspire, empower, and sustain action that leads to the economic development of Black communities across the globe, Brings extensive experience in the energy sector, including operations-performance transformations, accelerated cost-repositioning programs, procurement and supply-management excellence, and digital and agile procurement enablement, Serves global companies across a wide range of industries—such as advanced electronics, high tech, medical devices, automotive, and machinery—with a strong focus on hardware and software product development excellence, operations, and digitization. A recent study estimates that close to half of all procurement activities can be automated using technologies that are already available today (Exhibit 2). World-class supply chain organizations can save up to 75 % through digital transformation. Most transformations fail. Evolve from an enabler of cost reduction to a creator of sustainable competitive advantage, by collaborating with strategy, operations and other functions to jointly uncover new sources of competitive advantage. Beyond automation, our recent experience indicates that innovative digital solutions in procurement can unlock as much as an incremental 3 to 10 percent in annual cost savings. of a new age. Procurement’s unique window into how suppliers are transforming their offerings means it can play a central role in collaborating with suppliers, such through innovative business models, forging partnerships to pilot or co-invest in new technologies, or even establishing start-ups. A truly digital procurement organization does many things that benefit the business. Introduce digital solutions to help with the efficiency of the procurement process, such as cloud-based project managers for tracking actions across the team, or rich messaging platforms for cross-team communications. The Hackett Group found that digital transformation helps procurement organizations to optimize their processes, integrate with other systems and minimize error rates. Digital Transformation: McKinsey’s Take. A major reason is that companies focus too much on finding the right off-the-shelf solutions for single pain points. Reinvent your business. Consumers are the big winners, leaving firms—and their workers—to navigate uneven returns, greater risk, and faster displacement. Or bots employing advanced-analytics capabilities to select and govern suppliers? Driving superior value through digital procurement. Combined with smart automation and other technologies, these businesses can streamline their operations and achieve savings of up to three quarters. New and revolutionary concepts are spinning from the frenzied technological leaps of our time; especially in digital … While ethical sourcing isn’t a new trend, the extent to which consumers are now making purchasing decisions based on this is. Identify where value can be unlocked by technology in your organization—value-back rather than technology-forward—and determine how digitization, automation or analytics could create value against each of the key procurement levers. Artificial-intelligence capabilities and advances in automation are changing not only how the Procurement department works, but also the value it generates for the larger organization. Procurement, unmistakably, plays a vital role in the growth and digital transformation of organizations, providing substantial benefits that shouldn’t be overlooked. “ Digitization, digitalization, and digital procurement transformation are … Rethink the procurement career path— traditional procurement skills will continue to be critical, but adding new capabilities in digital and analytics may require more new talent, retraining, and functional rotations with other parts of the organization. The first step is a diagnostic that helps assess an organization’s current state, identifying gaps to best-in-class and developing a prioritized roadmap for bridging them. A company’s digital transformation strategy will make or break their success in the rapidly evolving global market. Please email us at: McKinsey Insights - Get our latest thinking on your iPhone, iPad, or Android device. But with so many options, which of the new digital … Our flagship business publication has been defining and informing the senior-management agenda since 1964. The old paradigm of cost reduction and cost efficiency is drawing to a close. The digital transformation is rapidly changing how every procurement process, from contract management to procure-to-pay (p2P) to risk management, is handled. Most transformations fail. We hope you find these articles insightful and thought-provoking, and we look forward to your comments and questions. Across industries, companies should act now to protect their employees and customers—and prepare … In total, McKinsey believes that the typical procurement transformation journey takes around 18-24 months, however, organisations may begin to see results much sooner than that. However, with rapid growth across emerging markets, ever-increasing talks of trade wars, and intensifying concerns about sustainability, global supply chains are becoming more complex, more volatile, and more risky. Highly digitized sectors tend towards winner-take-all dynamics—yet most incumbent firms offer only ad-hoc responses, and half of those that make investments don’t see returns. Automating your purchasing … McKinsey is a thought leader when it comes to digital transformation. It leads to the creation of entirely new markets and businesses. As businesses race to adopt a new way of doing things in the face of disruptive technology, procurement leaders are using digital tools to build a more efficient bottom line and greater top-line growth. Bulls-eye: McKinsey hits another $1m consulting target. New operating models, … Unleash their potential. Learn more about cookies, Opens in new cookies, McKinsey_Website_Accessibility@mckinsey.com, Visit our Manufacturing & Supply Chain page. Redefining a business’s value proposition for the digital … Today’s integration of procure-to-pay (P2P) processes with decision-making workflows and end-to-end automation positions Procurement at the crossroads of increasingly massive data flows. “ Digitization, digitalization, and digital procurement transformation are … Invest in setting up the right data infrastructure to enable more insights, such as using spend intelligence to automate data cleansing and analysis, along with predictive models to better forecast commodity prices and inform procurement decisions. Digital transformation will help procurement departments improve how they operate and collaborate with internal and external stakeholders, allowing them to scale up or down quickly to … McKinsey’s research believes that innovative digital solutions in procurement can harness as much as an incremental 3-10% rise in annual cost savings. Advanced analytics-enabled spend-intelligence solutions can offer deeper category insights to uncover opportunities in strategic sourcing of commodities—particularly for those with volatile pricing caused by the fluctuating cost of raw-material inputs. Unleash their potential. Digital is more than just using a software! People create and sustain change. Use automation and digitization to streamline procurement processes and improve internal customer experience. Negotiation tactics, vendor management, procurement strategy—all can be transformed when procurement organizations abandon heuristic approximations and instead commit to in-depth analytics of actual purchase histories. Procure-to-pay solutions were among the initial digital tools available to support operational and tactical procurement activities. Procurement professionals around the world stand on the threshold . How do I know there will be a return on the investment? A company’s digital transformation strategy will make or break their success in the rapidly evolving global market. The Digital … We strive to provide individuals with disabilities equal access to our website. Procurement is more than just buying at the lowest possible price. I believe that companies should view their procurement spend as a kind of asset. Minimal deference is currently given to a function that, in light of the unprecedented rate of change in the world today, could in fact unlock distinctive competitive advantages for their organization. 1). Since 1980, global inter-regional trade has increased eightfold, making supply chains more global and interconnected. Procurement can play a leading role in both identifying these types of start-ups, and in creating the right contractual agreement to allow for flexibility in collaboration and co-development. Digital transformation is one of the greatest opportunities for Procurement today, comprising three main requirements that together lead to a successful digital-based organization. As with other functions, digital disruption in procurement is already happening. Join the largest conference of digital procurement leaders to discuss the latest in digital procurement transformation and technology this September. Leverage IoT technologies and advanced-analytics techniques to create new sources of insights that can be applied to unlock new sources of value, such as predictive maintenance to improve equipment uptime. It may not show up on the balance sheet, but it has the … Based on conversations with CEOs, CFOs, and CPOs over the past 24 months, we’ve identified a set of actions that all CPOs and procurement leaders should focus on to proactively respond to the trends above—sooner rather than later. Among this group, a large majority indicate that their strategy is aligned with the enterprise digital … For many agencies, three to five years’ worth of digital transformation had to happen in the span of just a few short months. Driving superior value through digital procurement, McKinsey. Digital transformation … Learn about Long tail, big savings: Digital unlocks hidden value in procurement. If you would like information about this content we will be happy to work with you. of a new age. That goal translates into a single focus for procurement digitization: the user experience. Organization and capabilities. By Lauren O'Neil, US Head of Marketing, Proactis. hereLearn more about cookies, Opens in new Typical procurement organizations can reduce procurement process … It is clear that the first five elements of the framework — even if not all … Rebalance roles towards more strategic capabilities requiring new skillsets (in analytics, digital, lean, partner selection and development, sustainability auditing) and increasing automation of transactional activities. Practical resources to help leaders navigate to the next normal: guides, tools, checklists, interviews and more. Sectors representing about 80% of the economy have yet to benefit from digital technology. hereLearn more about cookies, Opens in new Play the role of Chief Ecosystem Officer by broadening your perspective beyond the traditional value chain and becoming a source of innovation for your organization. How and Why Digital Transformation Will Vastly Reshape Procurement & Finance Roles. By some projections, for example, Brexit could cost automakers in the UK billions of dollars in additional tariffs, and potentially force some to shift production elsewhere. Now Deloitte rival McKinsey has landed a contract to develop a business case for GovDXP. Practical resources to help leaders navigate to the next normal: guides, tools, checklists, interviews and more. These advances promise to free up resources traditionally dedicated to transactional activities for reinvestment in strategic procurement, and in seeking out innovative sources of value. Please click "Accept" to help us improve its usefulness with additional cookies. McKinsey: driving value in digital procurement With the emergence of digital offering a plethora of new opportunities in procurement, it’s vital that CPOs choose the right transformation for their organisation. Several practical steps can help your procurement organization make the most of what digital has to offer. Flip the odds. Unlock previously untapped value via data- and advanced analytics-driven insights. Aircraft-engine manufacturers, for example, are increasingly moving to power-by-the-hour service models that use IoT-linked sensors to collect real-time data on component conditions. Today’s most advanced Procurement organizations are already using advanced-analytics techniques to extract new value from historical purchase data. The global Covid-19 pandemic is exacting a terrible human toll and menacing the world economy. So, exactly where should procurement leaders start to transform their functions? Senior management of any company now demands from procurement. Digital upends old models. Gear up with the right technology and discover the next competitive advantage in the data you already have. We'll email you when new articles are published on this topic. The combination enables the companies to sell engine uptime rather than just the engines themselves—and extends engine life with better predictive maintenance at reduced cost. Many other industries are also experiencing significant upheavals due to the changing nature of trade relationships between the United States and other countries. Digital is more than just using a software! Our mission is to help leaders in multiple sectors develop a deeper understanding of the global economy. That’s particularly the case in sectors that are more mature, where firms are smaller, or where competition is less intense. Digital is the next natural evolution for Procurement, building on the eProcurement era that started in the early 2000s with the introduction of tools such as e-catalogues, the spend cube, and electronic RFX and reverse-auction platforms. The potential cost take-out opportunity through digital transformation of the procurement function is dramatic, the research found. Identify which M&A opportunities should be explored to take advantage of emerging technologies or innovative business models. Are you ready for fully automated purchase-order management? In total, McKinsey believes that the typical procurement transformation journey takes around 18-24 months, however, organisations may begin to see results much sooner than that. For example, a mining company recently held regular open days for start-ups to pitch their products—and engaged a start-up producing an IoT- and AI-powered sensor that reduces condition-monitoring costs, improves equipment reliability, and reduces unplanned downtime. “The DTA is continuing work to improve digital experiences for Australians, in accordance with government requirements and relevant procurement … Press enter to select and open the results on a new page. Artificial intelligence and machine learning are even solving the perennial issue of data quality. According to a McKinsey survey, chief procurement officers (CPOs) expect their digital procurement … Invest in new talent and capabilities for your procurement function, and rethink the procurement career path to succeed in a digital world. However, as with any major change, it can be difficult to know how leaders should begin the capitalizing on this disruption. Creating a high-quality user experience additional value through performance-based payments or net-present-value-linked arrangements are … organization and capabilities will! Agenda since 1964 a successful digital-based organization and analyze spend data repeatedly to generate insights with minimal effort another. States and other technologies, companies must ensure adoption by creating a high-quality experience. Ethical sourcing spend category the lowest possible price in multiple sectors develop a business s! Unethical behavior in even a tier-2 or -3 supplier has reputational impacts on the threshold closer at. 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