Procurement Department 4.0: challenges and trends
Knowing the challenges and market trends is essential so that the purchasing department does not run the risk of becoming obsolete and losing value within the organizational structure.
In this post we will address these two aspects, that are essential for the industry to be in line with the major market changes resulting from Industry 4.0, by acting strategically and generating greater competitive advantage for the company.
We will also focus on the role of the purchasing team in this process, as well as the technologies that are already being used to make the industry and the supply chain more effective.
The Age of Post-Digital Transformation
Since the expansion of computing and the emergence of the Internet, we have experienced a real revolution in personal life and within organizations.
The adoption of technology has become essential for companies of all sizes and segments, changing the way they operate. According to IDC (International Data Corporation), companies have been investing more and more in technological resources – of course, each one of them is on a different level, due to the investment capacity and the understanding of the subject by their managers – and they closed the year 2019 with an investment of US$ 1.25 trillion in digital transformation.
But just investing in technology is not enough. According to experts, we have reached the age of Post-Digital Transformation, also known as the second wave of Industry 4.0.
In this phase, machines and human beings connected by advanced technologies such as 6G Communication and Intelligent Automation have the chance to make production systems even more agile and efficient.
In other words, more will be required from managers than simply the implementation of technological solutions. It will take a skilled team to deal with all these resources, to plan their acquisition and to turn them into competitive differentials for the purchasing department and for the company itself.
Purchasing Challenges in Industry 4.0
The report, 2019 Key Issues Study, by the The Hackett Group, states that digital transformation is a critical goal for many purchasing departments. This is because, of the purchasing professionals interviewed, 90% believe that Industry 4.0 will change a lot the way the area works – but there is still a lot to be done for this change to reach the sector and generate the desired advantages.
Continuing the information from the study, the gap between companies that have already adopted digital transformation in their purchasing processes and those that have not will increase more and more.
As a result – and because managers will increasingly perceive the need and potential of the digital transformation for work efficiency in this area – by 2021, an increase in the adoption of new technologies in the purchasing department is expected.
Some of them are already being directed to the supply chain, helping in the planning and control of the purchasing process and resulting in benefits such as greater efficiency, lower costs and improved services.
By making use of modern elements such as RFID (Radio Frequency Identification), robots and process integration, many are the benefits of an intelligent supply chain, which can be implemented in any company.
Nevertheless, for Accenture the technology is still neglected or outdated in the purchasing sector. The consulting agency believes that as the digital transformation takes place in a structured way in the purchasing department, there will be an evolution in processes that are already automated – or partially automated.
This is because it is not enough to have technologies, but to integrate them into a more comprehensive strategy. By being able to gather information and process it – adopting tools such as analytics, artificial intelligence – the purchasing department will further improve its performance.
The Purchasing Manager in times of Industry 4.0
According to the recruitment consulting agency Michael Page, in 2019 the position of purchasing manager was one of the most sought after positions in middle and senior management in Brazilian companies, which shows the increasingly strategic role this professional has.
In general terms, companies seek people who, among other knowledge, master technology and use it to automate processes, minimize errors and, as a consequence, reduce costs and improve productivity.
Therefore, purchasing professionals need to have a good understand of the solutions available in the market, using them to obtain better results for companies, if they want to be seen differently.
Following this line, The Hackett Group study also investigated the role of purchasing executives, concluding that managers with the capacity to analyze the data offered by technological tools, using them to make more assertive decisions and to reduce costs, will have a seat at the companies’ strategy table.
It also concludes that the impact of advanced analyses on the purchasing department should triple by 2021, rising from 20% to 60%, which makes professionals who have this ability stand out – and those who do not, prepare themselves to acquire it.
The purchasing managers themselves agree with this data, since 4 out of every 5 executives in the area have pointed out the domain of analytical capacity and functional reports as extremely important for the development of their tasks.
This increase is fully justified, since previous HG surveys also found that analytically driven organizations have twice as much chance of improving their financial performance and five times as much chance of making quick, positive decisions.
Thus, analytical capacity and also critical analysis and creativity have become indispensable characteristics for 4.0 purchasing professionals. The good news is that these essential skills of the purchasing manager in the 4.0 industry can be developed – or enhanced – by following the tips of our experts.
And counting on these differentials is urgent. For The Hackett Group there will be an increase to 73% in the use of industry spending analysis, as well as from 16% to 35% in the use of Artificial Intelligence and Internet of Things (IoT).
For example, devices connected to IoT to track deliveries and help teams evaluate the performance of each vendor – in addition to IoT, other technologies are already changing global commerce and must be known by the professional who wants to keep pace with digital transformations.
Learn about 8 trends in the 4.0 Purchasing Department
We have researched the main publications – such as Gartner, The Hackett Group, Levvel Research and ProcuramentIQ – to compile a list of the main trends for the purchasing department in the coming years. And you can check the results down below!
1. The Purchasing Department generating value
One of the world’s most renowned consulting companies, Gartner, has produced a technical document entitled Procurement 2020: Your Action Plan to Prepare Now, which indicates a redesign in the purchasing department.
The document shows that, so far, the sector has mainly sought to reduce costs and risks. However, with the use of advanced technologies in procurement, an inevitable change will occur, making it possible to obtain information about the supply market, the organization’s purchasing behavior and the supplier’s performance.
With these insights it will be possible to leverage the perception over spending, the market and suppliers, which helps to identify new ways to generate value and puts the purchasing department on a much more strategic level within companies.
2. Purchasing consultants emerge
The role of purchasing managers will shift from “the simple expenditure control to strategic execution of purchasing functions that support the company’s financial and operational decisions, protect its results and mitigate the risk of the company’s competitive advantage,” says the Levvel Resarch report.
Instead of buyers, consultants with much more knowledge will emerge, leading to a transition within the industry, which will function as a center of excellence that is able to make the right decisions for the whole company.
3. Scarce talent in the sector
Experts from ProcurementIQ, a company that operates in the United States and Canada offering information on the purchasing area, believe that a major trend for the coming years will be the difficulty in finding talent to work in a more modern purchasing department, due to the incorporation of new technologies.
In addition to the change in profile, which requires more ingenious, creative and technologically savvy purchasing consultants, another factor that makes it difficult to attract qualified professionals to work in the 4.0 purchasing department is the false perception that careers in purchasing are uninteresting and that the job is more suited to experienced and mature people.
In this scenario, the sector risks having a staff with less than ideal qualifications, which increases the workload required to perform the job and generates more costs for the company.
One of the solutions to avoid this significant talent gap due to a shortage of qualified candidates is investing in internal development programs that is still currently very timid.
ProcurementIQ highlights that 75% of organizations spent less than 2% on training programs in 2019 and that companies will need to invest in order to attract and train professionals, without forgetting to retain the talent that is already part of the team, by creating an environment where they can feel stimulated to collaborate and grow, offering benefits that are interesting to people with this profile.
In this sense, it is worth highlighting two trends on the rise, both focused on professional training. These are the two trends:
- Upskilling: The ability to acquire new skills so that the employee can keep up to date in his/her role, as changes require new skills;
- Reskilling: The requalification or the achievement of new knowledge, allowing the collaborator to develop activities different from the one he was used to performing.
Both processes add training, which improves the performance of employees, raises the quality level of work and reduces the time to perform tasks – and, of course, avoids professional stagnation.
Finally, another important point – and one that deserves to be reinforced – is that professionals with analytical skills demand a higher remuneration. But, of course, this is a very positive investment for the company.
4. Need for greater digital protection
One of the biggest risks to the purchasing sector in the years to come, according to ProcurementIQ, is cybercrime, which is expected to generate losses of more than $5 trillion worldwide by 2020 alone. And unfortunately, the purchasing department is not immune to this problem.
The more digital solutions are incorporated into the industry, the greater the risks of vulnerabilities and attacks, which requires an effort to keep information secure.
In this context, it is recommended to follow the organization’s cyber-security protocols, by training and making the entire team aware of the need to comply with the standards.
Another important point is to be careful with vendor protection features, since most digital attacks in companies were the result of inadequate protection in third party environments, including vendors.
5. Better contract management
Contracts closed by the purchasing department are important documents, but in general, after they are signed, they are filed and forgotten.
The international marketing company, Aberdeen Group, asked purchasing managers how they managed the company’s contracts and the answers were surprising. Two-thirds said they no longer knew where the documents were, much less managed them.
One reason for the contract management process to be so disorganized is because 81% of organizations do not use any tools for this task. As a result, they face problems such as lack of consistency between contracts (53%) or supply chain discontinuity (36%).
Considering this, the trend is for companies to move their process and contract management to cloud computing. Built, stored and maintained in a centralized data repository, organizations can manage these documents, mitigating risk and reducing costs.
Automating contract management will provide organizations with a variety of facilities:
- All documents will be in a cloud database and can be accessed from anywhere by authorized users – even via a smartphone;
- Automated notifications, triggering alerts to highlight renewal dates and chances for renegotiation;
- Monitoring vendor performance, tracking delivery time, price fluctuations, whether agreed-upon terms are being met, etc.
6. Environmental and social responsibility on the rise
The number of large companies opting for partners who take nature care and social responsibility seriously is increasing each day.
And consumers are adopting the same criteria, no longer buying from organizations that do not show this same consideration for both topics or that have in their list of suppliers companies that harm the environment or, for example, exploit some group to have access to very cheap labor.
Therefore, one of the purchasing department’s trends is to make sure that its entire network of partners is made up of organizations that are trustworthy and committed to the environment and to building a fairer society.
In our blog we have some articles about this important subject for the new era. Take a look:
7. Change in the relationship with suppliers
International trade is slowing down and one of the reasons is that technological evolution has leveled products and services, making it easier for consumers to find what they need in a place close to their location – we suggest reading the article How Slowbalisation affects the supply chain to learn more about the subject.
However, even with this significant change, the guarantee and reliability of supply remains one of the basic premises for the good performance of the purchasing department. In order to have greater security in procurement, strengthening the relationship with suppliers is an increasingly strong trend.
Create consistent communication channels, increase transparency in transactions. In return, the best prices and delivery times are expected.
8. Greater transparency in the purchasing department
Purchasing trend number 8 is having as much transparency as possible in the purchasing process. And this can be achieved by following these steps:
- Define and implement policies for the sector;
- Monitor and document each phase of the procurement process;
- Manage a list of approved suppliers or hire a Trading Company;
- Establish purchasing contracts, archiving them appropriately to better manage them;
- Perform frequent audits;
- Use technological solutions to make the industry process more practical, agile, effective and… transparent!
Purchasing 4.0: facilitating processes
The purchasing process is complex and presents critical points:.
- Long or unclear requisition or approval procedures;
- Imprecision of data in orders;
- Part of the processes is still manual;
- Purchasing systems are not integrated;
- Outdated or inadequate technology.
It demands the ability to research, qualify and manage suppliers, as well as dealing with the pressure of getting the best possible deal and ensuring that the material arrives on time – even when the order is received in the purchasing department with little time to purchase or, worse, when the material is already out of stock.
For a more efficient industry, Business Intelligence (BI) is one of the great bets to help in the intelligent control of information. Founded in 1958 by the German Hans Peter Luhn, BI gained a new meaning in 1989 when Howard Dresner defined it as “a set of concepts and methods to improve decision making through data analysis systems.
In short, it is the collection and interpretation of large volumes of data in order to support decisions and organizational strategies. For that, BI uses technological solutions – Artificial Intelligence (AI) and Machine Learning are part of the options – to provide total visibility of the company.
With this 360o vision, the manager can identify expenditures, evaluate performance and detect risks, making more assertive and faster decisions.
Within the purchasing industry, BI can, for example, cross-reference a vendor’s data by category, geography, or seasonality. It can also identify problems such as delivery delays or product quality.
Take a look at our article about the best ways to measure your department’s performance.
Purchasing Department: preparing for the future
Every day new things are being announced, which requires adaptation, but offers the possibility of a new way of acting. Much more practical, fast and efficient.
And since the pace of technological transformation will not slow down – quite the opposite, it will become more and more accelerated – professionals need to be attentive to follow this growth, using it as a strategic element in the development of the area and the organization.
They must also prepare themselves to share knowledge. Developing the potential of the entire purchasing team will allow the sector to gain a broader and more fundamental participation within the organizational structure.
In this article we seek to show how the purchasing department has been changing and offer tips that deserve to be analyzed to increase the sector’s visibility – among them, counting on experienced partners such as Soluparts.
We are specialized in the purchase and delivery of industrial materials, with offices in Brazil, Germany, Portugal, Hong Kong and the United States.
With our experienced team, we can find any product, regardless of brand, that your company needs. This is because we work with reliable suppliers in all segments, allowing us to decrease the number of registered suppliers and, as a consequence, also decreasing the risks of relating with several different manufacturers.
For more information, we suggest reading the article Benefits of a Trading Company for the purchasing department. It will show you how to improve the efficiency of your purchasing department.
Our goal is to make your purchasing process much more practical, agile and reliable, allowing you to have more time for the strategic issues that the purchasing department currently requires and that it will require more and more, as we’ve seen.
For more information about our performance, please contact us.