Digitization is expected to have a strong impact on procurement as we know it today. The old paradigm of cost reduction and cost efficiency is drawing to a close – placing procurement professionals on the threshold of change. But what comes next?
On the threshold of a new age
New and revolutionary concepts are spinning from the technological leaps of our time. Big Data, Industry 4.0 and the Internet of Things are the buzzwords of the day. Despite the buzz, very few managers actually have the operational expertise to integrate these major changes in their organization. How do you plan for future change and complexity of this magnitude?
Future-proofing – we can no longer consider a single hypothetic future. KPMG’s recent global study “Future-proof procurement” is the first to purposefully compile the essential criteria for future-proofing procurement and supply chain management. To mitigate the risk of being off the mark with a solitary “shot”, the study anticipates four possible future scenarios – taking a wide range of options and uncertainty factors into account – and offers management robust solutions.
The four possible future scenarios potentially shaping new procurement paradigms are:
- Technology renders procurement as we know it obsolete
- Digitization leads to diversified roles and procurement takes center stage
- Decentralization reigns as legions of freelancers replace the procurement department
- Procurement reinvents itself becoming the central, creative agent for business development
Starting off our series of articles on future-proofing procurement, we’ll look at the “Rest in Peace Procurement” scenario which forecasts a future in which dramatic technology development renders procurement obsolete.
Year 2030: artificial intelligence ends the reign of cost reduction and cost efficiency
Imagine that the world as you know it, has changed dramatically. In 2030, there are more robots and artificial intelligence entities than people on earth. Prices for products, services and raw materials can be accessed in real-time from the cloud thus enabling fully automated and live risk management.
Algorithms have replaced humans for all information processing jobs – particularly office jobs. Companies produce goods in a predominantly uninhabited machine-operated world. Almost all processes are digitized and automated. One of the main tasks of people in this world is to ensure safety and stability. Therefore, most corporate jobs serve monitoring purposes as well as improving existing processes and systems. How would such a scenario impact procurement?
Traditional procurement departments no longer exist
In such a scenario, procurement’s tactical and operative tasks have been taken over by systems and machines, by networked cyber-physical devices and artificial intelligence Strategic decisions determining, for example, supplier partnerships in a corporate network, are no longer made by procurement, but are now the responsibility of product management and development or of executive management – and even these decisions are researched and established by the systems.
As a result of technical innovations and algorithms, the traditional procurement department has gradually self-destructed. The systems handle all processes on a fully automatic basis, within a defined parameter. They procure material/services, initiate the order, handle monitoring and even learn from previous mistakes. System monitoring and testing for inconsistencies is now in the hands of so-called data strategists and system operators. In the era of cloud dominance and transparency, little attention is given to cost-saving measures. The focus now lies on system stability and winning the best partners for your network.
So, that’s it for the procurement function?
Procurement is under powerful pressure to transform. If it’s to survive in this disruptive environment, procurement must quickly and extensively reinvent itself and demonstrate added value. In addition to the traditional roles of cost reduction and compliance, the procurement function needs to become more future-oriented, flexible and shock-resistant – an agile provider of innovation and speed for the organization. Doing so will ensure procurement is indispensable even in a highly digitized future.
What is your point of view as Procurement professionals? Let’s discuss!