Welcome to the Internet of Things! It’s time to rethink The Purchasing Business Model
By Hervé Legenvre, PhD EIPM
Is the Procurement Function ready for the Internet of Things Revolution?
With the rise of the Internet of Things (IoT) significant industry disruptions, societal benefits and productivity gains are emerging. The procurement function is only beginning to understand the speed and full impact of this transformation.
More than ever, how companies strategise, innovate and engage with external changes will influence their success. Presented with this once in a life-time opportunity to re-think their business models and position themselves as the pioneers driving this transformation, modern procurement teams find themselves at a crossroads.
As we are moving from today’s world into tomorrow’s world, our once clear cut ecosystem is changing fast. Many new players, technologies and operating models appear and challenge the status quo. The traditional buyer-seller relationship that focused on people, systems and processes has forever changed and it’s time for procurement teams to adapt or to be left behind. Below we list the 6 disciplines that procurement professionals and teams must understand in order to achieve success within the new business landscape.
Discipline 1: Buying Solutions
Today, Procurement activities are still segmented around the nature of what people buy. Teams are often structured using the traditional direct materials versus indirect materials logic. In the future, procurement teams must increasingly look for solutions that integrate offerings and capabilities across multiple markets. The indirect/direct procurement logic is no longer relevant in the current economy. In order to move to a more integrated approach, purchasing needs to establish innovative commercial models. Some businesses have taken steps in this direction and developed contracts and relationships that involve all relevant parties.
Discipline 2: Thinking in Ecosystems
The IoT is making some markets more open and fluid and others more closed and controlled. Change is constant in the new business environment.
The traditional procurement practice of thinking in silos needs to be challenged in order to incorporate new players and technologies. Internal functional divisions, spend classifications, preferred or incumbent supplier relationships and a belief in the classic market, all this needs to be questioned if procurement (and the business) is to benefit from the rapidly changing business landscape. Teams should be identifying their challenges and then looking at outside opportunities objectively for a solution, rather than passing each decision through the lens of ‘how we’ve done it before’.
Discipline 3: Thinking in Options
As we offer options to customers, in procurement we also need to think in options. Instead of having a 9-month plan as a category strategy we can go to the business with a set of options and they can choose amongst them. As the flexibility of our marketplace changes, so too must change the way that procurement interacts with it. Changing our traditional cycles will allow our businesses to become more responsive to opportunities as they arise.
Discipline 4: Supply Chain Transparency
The IoT offers solutions to the increased consumer interest in sustainable business practices. There is an expectation now, not only that businesses will act in an ethical manner, but that they will be able to productively highlight how effective they are at doing it. Increased connectivity allows us to understand and report better what is happening throughout supply networks. Procurement can now be more alert, responsive and better positioned to respond to these expectations.
Discipline 5: More Automation
The rate of automation in the last decade has been staggering and there is far more to come. Delivery through drones and automated demand planning triggered by consumption are just two examples. This increased automation has huge potential for improving the efficiency of our businesses, but the path to success is not an easy one. The impact on society of these new technologies will be closely monitored and reported. Concerns have already been raised around employment privacy issues and there are probably more to come. Procurement teams heading into this space to enhance their process and to support internal transformation must be aware of the social and economic ramifications of the decisions they make.
Discipline 6: Cost Revenue and Price Modelling
Today cost models remain basic. In tomorrow’s world we will use data to create real-time cost, revenue and emission simulations. We’ll be able to plot out multiple scenarios based on what could potentially happen in our industry and understand the possible outcomes. We’ll monitor and track the outcomes in real-time and make the requisite changes to the models as we go.
In this fast moving ecosystem, data needs to be translated into valuable information. Buyers need to distinguish between what are important signals and what is noise. The core skill set of the buyer will move traditional procurement skills such as negotiation to analytics and relationship management.
In essence, the traditional buyer and seller relationship is over. New emerging companies, changing industries, new ways of working, cross-industry collaboration are changing the business landscape. As we see a new generation of younger more technologically adept employees join the profession, this path is likely to accelerate. Welcome to a new procurement landscape!
At EIPM, we have been looking for the past 12 months at the impact of the Internet of Things on the Purchasing Business Model. After a series of interviews, events and workshop on the topic, we are now looking at documenting some short testimonials and case studies on this topic. So if you have been involved in such a project and if you are willing to share your experience, please contact us at info@eipm.org!
This article was published on the Jul-Aug 2016 edition of the Italian magazine The Procurement. Subscribe at http://www.theprocurement.it/
