In a Q&A with Marcell Vollmer, chief digital officer, SAP Ariba, B2BecNews discusses how the world of digital commerce is opening new challenges and opportunities for procurement pros.
Q: Let’s start with a pair of basic definitions. What is the role of e-procurement in B2B ecommerce and what is the role of the chief procurement officer?
Vollmer: Procurement has earned an unfair reputation of being a complicated process, but let’s break it down simply here. Procurement’s role in B2B eCommerce is to streamline the purchasing process, and ensure that businesses get the right goods and services that meet all of their specifications, from a corporate-approved vendor, for the right price. Call this the golden triangle of procurement. The most effective procurement providers help businesses with the entire process from end to end – from finding the right suppliers, to negotiating and managing contracts and discounts, to processing and ensuring accuracy of invoices and payment. Procurement platforms also help manage suppliers, provide visibility into the entire purchasing process and reduce complexity.
As for a chief procurement officer (CPO), this role is increasingly becoming more strategic – gone are the days of purchasing as a back-room function. For this reason, CPOs are collaborating more frequently and effectively with other members of the C-suite – particularly finance. And, while the CPO’s role is still about cost-cutting across the organization, it is also about much more than that today, in large part due to digital transformation. By linking together buyers and suppliers in real time, digital networks allow procurement leaders to foster collaboration, spur innovation and drive much of the strategic value that fuels business growth. As technology has transformed the role of the CPO, CPOs are now able to transform the entire source-to-pay function, making it more data-driven, strategic and value generating.
Q: How many companies have a chief procurement officer and how are they hired or promoted into that title?
Vollmer: It’s difficult to say an exact number, but from my experience I see the CPO role quite frequently used in North America, Australia and Europe. The title CPO is used less frequently in Latin America, Africa and large parts of Asia. This also reflects the maturity level of the procurement function, which is more advanced in the geographies where a CPO exists.
On the way to the CPO role, you see predominantly two typical career paths: internal promotion of procurement professionals and external hiring of CPOs from other companies. What may increase in the future is the cross-functional hiring of CPOs to bring in different expertise, but also benefit from experiences outside the procurement profession. In my case, I was promoted to CPO from a former role leading a strategic in-house consulting organization with shared services and post-merger integration as well as global restructuring programs. The restructuring experience combined with a deep process and systems understanding was the main reason I was selected to transform procurement from a tactical, operational function to a strategic value generating organization.
Q: In your forthcoming survey of chief procurement officers 83.9% of chief procurement officers consider the implementation of digital technologies such as artificial intelligence and others as “important to improve procurement performance.” What is the impact of these new technologies on B2B ecommerce?
Vollmer: With the advent of AI, machine learning and predictive analytics, CPOs gain much more insight into their spend and vendor relationships across the organization. This allows them to plan more effectively, analyze patterns and drive smarter, data-driven processes that have positive impacts throughout the business. It also allows CPOs to practice purchasing with purpose, making an impact beyond the four walls of their own business. For example, a CPO could use machine learning to analyze supplier and network data, current events, industry patterns and more, to determine where there could be risks within a business’s supply chain.
These risks vary from sustainability issues that negatively impact the environment, human rights violations (forced/slave labor), natural disasters, financial volatility and more. Whether it’s a tier-one or a tier-four supplier, businesses could be at risk and at the same time completely unaware. The potential for damage is grave from a business and societal perspective – businesses could suffer major financial losses and severe damage to their reputations, while also unknowingly negatively impacting sustainability and human rights efforts. Thanks to machine learning and AI technologies, businesses can avoid these devastating events by having more visibility and insights into their supply chains.
Q: Your report says that digital technology is changing how manufacturers at all levels are doing business as supply chain management and the purchasing cycle become even more automated and transparent? What’s the effect of this on ecommerce?
Vollmer: Similar to supply chain management, digital technology is helping to automate many parts of ecommerce, and creating far more transparency throughout the entire ecommerce process. For example, AI helps run automated auctions, and also intelligently matches buyers with the right suppliers to meet their specifications.
On the transparency front, analytics and data-driven strategies give buyers insights into their purchases from start to finish – where products are being made, what stage they are in in the purchasing cycle, etc. It also ensures there are no “hidden costs,” confirming accuracy and transparency of pricing and contracts. AI and machine learning can also help to recommend negotiations or automate discounts, ensuring that procurement always gets the best prices as they source goods and services.
Q: You mention four big roadblocks to the rollout of more digital procurement technology—budget restrictions (46%), Analytics and data insights (43%), internal talent shortage and lack of “know how” (43%) and master data management (40%). How are companies dealing with these roadblocks—or are they?
Vollmer: It was a surprise that on the one hand CPOs and procurement professionals responded that they see the need to drive digital transformation for their function, especially as they rated themselves as highly entrepreneurial, but on the other hand, they couldn’t execute the needed activities. The surprise comes as this is now the third year in a row that budget restrictions, data insights and the lack of internal know-how are mentioned as reason for the little progress made in between.
It seems that a lot of CPOs struggle to get the investments and funding for their own digital transformation. This is interesting as procurement can directly contribute to the funding of needed investments by leveraging the purchasing power and reduced transactional costs through automation.
Q: Let’s talk numbers. What does it cost a company in actual dollars to implement some of these digital procurement applications and services? Where are these manufacturers getting the money—new capital spending or shifting existing resources?
Vollmer: A company should have an overall strategic plan on how to drive the digital transformation. Procurement is one of the key functions when it comes to the back-office transformation as cost savings can directly contribute to fund some of the overall needed investments.
There is one additional aspect to consider: procurement can also create value by leveraging the ecosystems of suppliers. Supplier innovations are very well known and used as concept for manufacturing or automotive to name one industry. In automotive a new car model or engine is a long-lasting innovation partnership between an OEM (original equipment manufacturer) and suppliers.
Key to any transformation are people. When you investigate the skills procurement has today and the skills needed in the future, you will see that there is a huge gap. New skill areas, like data science, programming algorithms for machine learning, driving innovations are not at the level needed to be successful in the future. Therefore an employee training and development program is key to invest in the people today to prepare them for the future.
Q: Let’s talk more numbers. What kind of return on investment in actual dollars are manufacturers that have invested in digital procurement technology getting?
Vollmer: Every transformation costs money and therefore ROI is key. The beauty of procurement transformation is that procurement can contribute by generating purchasing savings and cost reductions by automation directly to the funding. Very often we see that the procurement transformation has an ROI of less than one year, this means you get the investment back within 12 months. But this is dependent on how rigid and fast the transformation is possible to execute in a given organization.
Q: How does artificial intelligence improve e-procurement and ecommerce?
Vollmer: One very important thing that AI does is simply automate certain parts of the procurement process, which frees up CPOs to be concentrated on more strategic activities and look at organizational trends outside their own department. As AI tackles more of the tactical day-to-day operations, procurement leaders can take on more collaborative, innovation-focused initiatives.
However, AI is much more important than just automation. While it can do things like automate bidding processes, it can also help identify and flag potential fraud, discover better supplier options, forecasts risks and trends, scan and review documents, interact with suppliers via voice recognition software, and overall streamline many processes.
Q: How does the Internet of Things (IoT) improve e-procurement and ecommerce?
Vollmer: IoT will provide an entirely new level of connecting data from ecommerce to procurement. Imagine the potential of having supplies and warehouse stock items connected to the systems. Automated ordering and leveraging machine learning will allow a new level of scalability and benefit from connected devices across supply chains. Logistics and suppliers can be added to the network with new technologies, like 5G to connect more or less all devices, spare parts, goods and also services to systems.
Another benefit is the transparency and track & trace along supply chains. You can use blockchain or distributed ledger technologies, but you still need to define how you connect the devices or transport methods to it. Here IoT will enable a fully transparent monitoring of all goods from the origination to the product sold to consumers.
Q: In the 2018 survey you noted “Respondents see the role of chief procurement officer morphing into more of a role strategic role, especially with a title such as chief value or collaboration officer.” Is that happening? If so, how?
Vollmer: Yes, this is happening across industries, as more and more CPOs are leveraging technology to become more effective leaders at their organizations. This transformation into a strategic role allows CPOs to orchestrate supply networks, drive innovation and growth, align business operations with companies’ ethical and social values, and manage risks, even as markets and technologies continuously evolve. For these reasons, procurement is so much more than just a cost-savings lever. Increased collaboration with the C-suite and with other departments also gives the CPO more visibility into overall business operations, allowing them to identify new patterns and opportunities to drive strategic growth.
On the title itself the CPO is still the title used for procurement leaders, but sustainability gets added more and more and collaboration is more and more important to create value in close alignment with the different lines of businesses. The time may come that the CPO will get a new title focusing on value, collaboration and sustainability.
Q: This conclusion from the 2018 report is very telling: “83% of executives see the “digital” transformation of their procurement program as a top priority, only 5% of companies have the full systems and technology in place to make it happen now.” Did the new survey report any progress? If so, how much?
Vollmer: The survey did reveal that a lot of procurement organizations failed in successfully delivering the digital transformation. This is and needs to be on the agenda of every procurement leader to prepare the organization for the future and offer a great place to work for the employees to deliver value.
Q: What are some of the other big takeaways from the latest survey?
Vollmer: The biggest takeaway is likely that this isn’t your grandfather’s procurement organization anymore. Procurement today is miles away from where it was just a few years ago – but for many organizations, it is still miles away from where it could be. CPOs have work to do to fully take advantage of technologies such as AI, machine learning and analytics. Most if not all procurement leaders do understand the value of digitally transforming procurement, but many still do not know where to begin, or don’t have the buy-in from the C-suite.
Therefore, adoption continues to be low for emerging technologies, as organizations take a “wait and see” approach – as evidenced in this year’s report. Over the next 6-12 months, we expect more CPOs to move on from this “wait and see” approach. The first step is to know why you want to invest in these technologies, and to get buy-in from the right decision makers. Transforming for the sake of transformation isn’t going to work. To succeed, CPOs need to invest in the right talent and technologies, and set clear goals and priorities. In doing so, procurement organizations will reap the full benefits that digital technologies have to offer, and become critical, strategic assets to the business’s bottom line.
The next survey in 2020 is expected to show some changes compared to this year’s results. It will be interesting to see how procurement is further evolving and personally I believe procurement has a beautiful future ahead by continuing to transform into a strategic, value generating function creating impact for all lines of business by delivering innovations, mitigating risks and securing a sustainable supply chain.
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