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The Digital in Procurement - Part 1

A wave of digital disruption is upon us and we are all being impacted. While this disruption is being led by a few organizations, the ones getting disrupted are trying hard to transform themselves and stay relevant. Most of these organizations are working on their digital transformation strategies to develop new products and services to improve their digital customer experience.

A core business function that has a big impact on the development of new products and services is procurement. For a true transformation to take place, organizations have to focus on the digital transformation of procurement. So, what is "digital procurement"?

Procurement very simply can be defined as "a process of acquiring goods and services from an external source". However, digital has no such simple definition. I really like the McKinsey article "What digital really means" because it provides one of the best explanations of what is "digital".

In the article, digital is all about "re-examining" and "re-thinking". It's about re-examining the entire way of doing business and understanding where new frontiers of value are and re-thinking how to use new capabilities to improve how customers are served.

What is Digital Procurement?

"Digital procurement" is a system of re-examining a complete process of acquiring goods and services to deliver best business value to an organization and rethinking how to use new capabilities to design and deliver best possible procurement experiences for users.

As important as digital procurement is for any business today, the fact is that not much is being done in this area by most organizations. In fact, as per a recent CPO Survey, "Only 18% of procurement leaders have a digital procurement strategy supported by a complete business case".

Why do Enterprises lack a Digital Procurement Strategy?

The two main reasons are:

  1. There is a lack of understanding of "digital procurement", how to approach it, and how to leverage digital technologies to transform the procurement processes.
  2. There is a need for a better understanding of their role to become strategic to the business.

Based on multiple digital procurement transformation experiences that I have seen, I believe any organization can digitally transform their procurement using a simple 4-step approach as shown below:

Digital in Procurement

This simple approach ensures that an organization can completely transform their procurement processes by making them contextual to the organization itself, to the business process and most importantly, to the people. I will cover the details for each of the above steps in my next blog post. So, stay tuned!