How to Build a Digital Procurement Ecosystem in 8 minutes.
I was in Paris last week, touring around as people do in Paris, and visited Fondation Louis Vuitton.
If you’ve never been before and are a fan of art, architecture, and culture, I can highly recommend adding it to any future itineraries.
The museum’s collections are magnificent, and the building itself is a true masterpiece. Beyond the artwork, Fondation Louis Vuitton offers an experience to tour the multiple levels of decks that interweave themselves between the inside and the outside of the building’s structure.
On one of the decks sits a piece of artwork named “Where the Slaves Live”. It is a living organism, composed of inorganic and organic materials, forming a ‘living sculpture’ that is a small scale ecosystem- an ever-changing work of art (See picture below).
The artist explains: “This work attempts to bring out certain forms and structures by combining organic materials (earth, plants, vegetables, fruit, fish) and manufactured products (a pair of shoes, pigments used to colour the layers). At this stage, man’s efforts encounter the capriciousness of nature, in that every ‘composite object’ or ‘compost’ inserted into the tank suggests a proposition, an expected result and a finished product resulting from its interaction with the environment — which always disrupts the initial undertaking.” (Rojas 2014).
Very much like the sculpture “Where the Slaves Live”, a business is an ecosystem of its own. Components of the business are reliant upon one another in order to survive and prosper. Technology is applied when needed as a ‘proposition’, typically implemented with an expected result in mind, but often creating an output of impact in an organization- that can too render as disruptive or innovative to the initial digital state of the organization.
To ensure that digitalization within an organization, is systematic and calculated, it’s important to have a digital strategy as a framework and understand what kind of ecosystem you’d like to/need to create.
In this post, I’d like to suggest a mapping of a digital procurement ecosystem, dive into the necessity for these functionalities, and draw some conclusions as to how these focus areas can drive performance in an overall procurement organization.
Digitization vs. Digitalization
When building a digital procurement and sourcing ecosystem, it’s important to dig into your existing procurement process. A procurement process will serve as a guideline to your digital procurement ecosystem, but don’t treat this evolution of your processes as digitization.
Digitalization and Digitization are often confused, and not knowing the difference could easily become a barrier to an adoption/implementation of a digital procurement ecosystem.
Digitization: According to Gartner’s IT Glossary, “Digitization is the process of changing from analog to digital form” (Gartner)
Digitalization: “Digitalization is the use of digital technologies to change a business model and provide new revenue and value-producing opportunities; it is the process of moving to a digital business.” (Gartner)
The important difference between the two is that digitalizing a procurement ecosystem means that one looks to implement digital technology as a means to change, evolve or revolutionize the procurement process, or function. This means that a true adoption of a digital procurement approach requires a willingness to change, and change management must be initiated in the organization; contra digitization, which is a copy of the analog to the digital.
According to Deloitte’s 2018 CPO Survey, “Seventeen percent of procurement leaders do not have a digital procurement strategy, and of those that do, less than one-third believe that their strategy will enable procurement to deliver significantly on its objectives and improve enterprise value” (Deloitte 2018).
This is likely because business cases are underdeveloped for implementing a digital procurement strategy, and that CPOs generally doubt their team’s ability to maximize the use of digital solutions. In fact, “only 3% of procurement leaders believe their staff possesses the skills required” (Deloitte 2018).
So, is the market devaluing the necessity of digital procurement solutions, or simply unsure of their colleagues’ competencies…?
One way or the other, there are too many solution providers on the market that are providing disruptive or innovative technology to simply settle for more of the same. If I’ve said it once, I’ve said it a million times; we can’t take a journey towards and innovative future in an outdated vehicle!
The Digital ProcurementEcosystem
Instigating the mapping/implementation of a digital procurement ecosystem requires a definition of the elements in the process you’d like to digitalize. Below is a mapping of a digital procurement process and overall ecosystem that should be digitalized.
Each element of the process could be supported by one solution or one solution may be able to fit multiple elements of the process. The is the beauty of creating an ecosystem focus — opposed to an all-in-one solution or an on-premise solution focus — is that you’re able to remain agile, flexible, customized, and work with best-of-breed solution providers.
Building your own Digital Procurement Ecosystem
Identify a process that works for you
Copy paste can work in some circumstances, but chances are, if you’re looking to build a digital procurement ecosystem that fits your business’ needs, you’ll need to identify a sourcing and procurement process that fits your company.
Some industries will need a higher focus on risk management, whilst others will need to put a higher focus on means of negotiation. Others will need to cut lead times, whilst others will need to deepen their ability to gauge post-production questions such as quality and environmental impact. Having a process to reference back to will be crucial in building an ecosystem of solutions. But remember, you shouldn’t look to digitize a process, but rather digitalize it; meaning you need to remain open to suggestions from solution providers to tweak your existing modes-of-operation. Above all, you need to remain agile in your adoption.
It might be worth it to do a SWOT or GAP analysis to understand where you currently are in your digital procurement landscape, where you want to go, and what it requires to get there.
Survey the market, and Request Demos
How can you improve your digital procurement ecosystem if you don’t know what’s on the market??
Once you have your sourcing and procurement processes well mapped out, and understand where there are existing gaps in existing business systems (ERP, PLM, QMS, etc.), you’ll be able to know what to search for as complementary or support solutions.
Survey the market, and request demos of solutions with multiple technology vendors in order to benchmark. Benchmarking with a few things in mind:
- User Friendliness; UX/UI
- Potential value-added of the solution
- Overlap/Potentiality to save on the replacement of existing systems
- TCO of implementation and continued use
- Onboarding requirements from your team — what will the solution require in FTE to implement?
- Security — Servers and Data
Having an idea of the market will allow you to further build the ecosystem specific to your industry and business specific needs.
Tender (if needed)
If needed, run an RFx with potential solution providers (obviously will be the case in public procurement or state-owned organizations).
The beauty of making an initial survey, benchmark, and pre-qualification, of the market before sending out a tender is that you’ll be able to make a strong list of needs and a more detailed list of requirements for a solution proposal, or multiple solution proposals.
If you do survey the market before a tender, try not to play favorites, and don’t push solution providers into a corner. Meaning: set requirements for a tender and your expectations, but allow tech providers to come forward with a solution that still has room for creativity or innovation.
Build Scalable, Build Agile, Build Data
You need to be able to deploy a digital procurement ecosystem with some kind of agility and flexibility which means you need to build scalable and collaborate with solution providers who aren’t afraid to integrate!
Platformification is the name of the game in the modern B2B tech space.
Look to collaborate with technology providers who have a comprehensive understanding of what it means to provide scalable tech. This means a high focus on a strong API-architecture, cloud-based, and the ability to adopt/onboard quickly. You’re building an ecosystem here, remember? This means you need biodiversity to become elite and sustainable! Organisms of different species, living in harmony, is the key to any ecosystem built to last.
Don’t worry about which interface you’re working within on an operational level at the early stages of adoption, but rather the ability of solutions to gather reliable data sets, visualize data, push & pull data between other platforms, and utilize that data for predictive benefits as the boundaries of AI and ML expand within technological offerings.
All-in-One or Best-of-Breed
Not to become repetitive, but you might want to consider building a best-of-breed approach to remain agile, lean and address multiple focus areas within the sourcing and procurement process, alongside specialized solution providers.
See the model below. Even in the case of S2P providers, there are likely gaps in functionality that will need to be addressed by other business systems. So, why not begin with this approach rather than be forced into it?
Best-of-Breed has been seen to create better time-to-market, easier adoption, and easier execution (Tiwari 2018).
As stated above, (bio)diversity is important in an ecosystem. “Ecosystems with higher biodiversity tend to be more stable with greater resistance and resilience in the face of disturbances, and disruptive events” (khanacademy.org). This same line of thinking could be applied to the adoption of a solution ecosystem; variation and agility could create small disruptions to the ecosystem at first, but great stability will build over time if the solutions are harmonious.
Digitalization and the adoption/assembly of a digital procurement ecosystem requires a step-by-step approach even if one needs to have a holistic understanding of the bigger picture.
You may run into barriers along the way within a digitalization or systems and processes. 30% of CPOs in the 2018 CPO Survey listed “limited senior stakeholder endorsement and prioritization”, as a significant barrier to the effective application of digital technology in procurement (Deloitte 2018).
Digitalization ties directly into a competitive edge, driving collaboration and innovation within the supplier base, and the ability to make more intelligent, data-driven decisions.
Identify which areas are the most crucial for digitalization, and adopt solutions that fill that particular purpose. After you’ve implemented one part of the ecosystem, methodically and systematically move to the next area of focus; and repeat.
A step-by-step approach will allow you to slowly evolve the overall infrastructure of your digital procurement ecosystem, continuously reference back to your overall digital procurement goals, ensure you’re addressing the missing elements in the gap analysis, and ensure that you’re properly gathering and utilizing quality data sets.
And, there you have it.
The pillars to build a digital procurement ecosystem are in place. But, are you ready to plant the seed?
Until next week.