Disparate data sources can be leveraged to better predict the commodity prices: For example, a construction firm used advanced-analytics models to predict steel rebar prices with an accuracy of greater than 90 percent, significantly improving its ability to bid for upcoming projects. Play the role of Chief Ecosystem Officer by broadening your perspective beyond the traditional value chain and becoming a source of innovation for your organization. As with other functions, digital disruption in procurement is already happening. Today’s integration of procure-to-pay (P2P) processes with decision-making workflows and end-to-end automation positions Procurement at the crossroads of increasingly massive data flows. Adopt agile methodologies and approaches where relevant, deploying category sprints as an iterative cross-functional approach to develop and execute category strategies. November 21, 2018Digital permeates everything we do today. Even regular procurement … Identify the optimal manufacturing and supply footprint, with consideration of the current and future global macroeconomic situation. New tools and technologies can help organizations with all three drivers of digital transformation. Artificial intelligence and machine learning are even solving the perennial issue of data quality. “The digital operations advantage is about more than great tools. Following their introduction in the early 2000s, they … Never miss an insight. It may not show up on the balance sheet, but it has the … Join the largest conference of digital procurement leaders to discuss the latest in digital procurement transformation and technology this September ... Senior Partner McKinsey … Finally, a detailed automation assessment helps establish the potential automation possibilities using currently available technology. According to a McKinsey survey, CPOs expect digital procurement to … As a starting point, let’s take a closer look at the most important global shifts, and the corresponding implications. Reports of labor abuses in cobalt mines have led producers and customers to deploy blockchain technologies: each bag of cobalt is sealed with a digital tag that ensures full traceability to compliance-accredited mining locations, creating a new source of competitive differentiation. Old definitions of technology haves and have-nots are outdated; now it’s about the haves and have-mores. If information is power, the procurement function occupies an enviable strategic position, sitting at the confluence of the massive flows of information that run between a company and all its suppliers and partners. A company’s digital transformation strategy will make or break their success in the rapidly evolving global market. McKinsey is a thought leader when it comes to digital transformation. That goal translates into a single focus for procurement digitization: the user experience. To get the most from procurement digitization, leaders must raise their ambitions along with their skills. Foster an ecosystem of innovation— accelerate the successful adoption of innovative technologies by exploiting co-investment or co-development partnerships with suppliers. Rethink the procurement career path— traditional procurement skills will continue to be critical, but adding new capabilities in digital and analytics may require more new talent, retraining, and functional rotations with other parts of the organization. Reinvent your business. Today’s most advanced Procurement organizations are already using advanced-analytics techniques to extract new value from historical purchase data. Breakthrough technologies such as automation, digitization, and advanced analytics are enabling a transformation in how procurement operates by empowering procurement functions to identify and capture previously untapped sources of value. Establish an agile procurement organization to improve process efficiency and keep pace with accelerating change. Consumers are the big winners, leaving firms—and their workers—to navigate uneven returns, greater risk, and faster displacement. The most powerful way to realize the full potential of digitized procurement is through a user-oriented, end-to-end transformation of the entire source-to-pay (S2P) process. A recent study estimates that close to half of all procurement activities can be automated using technologies that are already available today (Exhibit 2). For many agencies, three to five years’ worth of digital transformation had to happen in the span of just a few short months. Combined with smart automation … Digital upends old models. Subscribed to {PRACTICE_NAME} email alerts. It’s a combination … Digital upends old models. Airframe manufacturers are now reported to be considering a similar model to capture a bigger slice of the maintenance-services market. This vital element has organizations around the world … Please use UP and DOWN arrow keys to review autocomplete results. If you would like information about this content we will be happy to work with you. Now Deloitte rival McKinsey has landed a contract to develop a business case for GovDXP. To get the most from procurement digitization, leaders must raise their ambitions along with their skills. Learn about Long tail, big savings: Digital unlocks hidden value in procurement. Procurement’s unique window into how suppliers are transforming their offerings means it can play a central role in collaborating with suppliers, such through innovative business models, forging partnerships to pilot or co-invest in new technologies, or even establishing start-ups. Negotiations run by an autonomous AI? Second, companies must ensure adoption by creating a high-quality user experience. Are you ready for fully automated purchase-order management? Prioritize investments in the right opportunities and create a digital roadmap to sequence the deployment of technologies in a coordinated manner, unlocking value and valuable resources for reinvestment. Greater transparency—and greater expectation to be transparent—means unethical behavior in even a tier-2 or -3 supplier has reputational impacts on the purchasing organization. collaboration with select social media and trusted analytics partners Bulls-eye: McKinsey hits another $1m consulting target. The true … Here is a summary of some of their most important advice around this topic: Digital transformation … A company’s digital transformation strategy will make or break their success in the rapidly evolving global market. Tire manufacturers, for example, are now sensorizing their products, providing digital tire-monitoring platforms that help fleets lower costs and increase uptime by analyzing data to determine optimal corrective measures. Driving superior value through digital procurement, McKinsey. Advanced analytics-enabled spend-intelligence solutions can offer deeper category insights to uncover opportunities in strategic sourcing of commodities—particularly for those with volatile pricing caused by the fluctuating cost of raw-material inputs. Based on conversations with CEOs, CFOs, and CPOs over the past 24 months, we’ve identified a set of actions that all CPOs and procurement leaders should focus on to proactively respond to the trends above—sooner rather than later. Supply Chain Digital examines McKinsey’s report ‘Driving superior value through digital procurement.’ With the emergence of digital offering a plethora of new opportunities in procurement, it’s vital that CPOs choose the right transformation … Procurement professionals around the world stand on the threshold . Practical resources to help leaders navigate to the next normal: guides, tools, checklists, interviews and more. Digital procurement automates repeatable tasks to boost … Unlock previously untapped value via data- and advanced analytics-driven insights. New operating models, … As the article states, “Advanced procurement organizations are increasingly making use of automation technologies to … “The DTA is continuing work to improve digital experiences for Australians, in accordance with government requirements and relevant procurement … The third issue concerns “Digital” in the McKinsey framework. Our digital consultants can join several types of engagements, including digital strategy, digital transformation, data analytics, customer-experience design, IT procurement, and digital organization. For many agencies, three to five years’ worth of digital transformation had to happen in the span of just a few short months. Highly digitized sectors tend towards winner-take-all dynamics—yet most incumbent firms offer only ad-hoc responses, and half of those that make investments don’t see returns. Recent changes in trade policies are forcing large multinationals to rethink their supply strategies. Sectors representing about 80% of the economy have yet to benefit from digital technology. While ethical sourcing isn’t a new trend, the extent to which consumers are now making purchasing decisions based on this is. Procurement, unmistakably, plays a vital role in the growth and digital transformation of organizations, providing substantial benefits that shouldn’t be overlooked. Invest in setting up the right data infrastructure to enable more insights, such as using spend intelligence to automate data cleansing and analysis, along with predictive models to better forecast commodity prices and inform procurement decisions. Digital Transformation: McKinsey’s Take. People create and sustain change. Is not just about cost savings anymore but depending on the industry, procurement could be tasked with enabling new product development, managing supplier risk and sustainable procurement. How Digital Transformation Benefits Procurement … Minimal deference is currently given to a function that, in light of the unprecedented rate of change in the world today, could in fact unlock distinctive competitive advantages for their organization. As businesses race to adopt a new way of doing things in the face of disruptive technology, procurement leaders are using digital tools to build a more efficient bottom line and greater top-line growth. Flip the odds. But the opportunities for growth and productivity are still immense, because we’re only at the early stages. Digital transformation is one of the greatest opportunities for Procurement today, comprising three main requirements that together lead to a successful digital-based organization. This rapidly changing setting brings an imperative to change how procurement operates as a business function, as well as an opportunity to extend the scope of procurement’s influence in an organization. However, in practice, as seen elsewhere, digital transformation remains a notoriously challenging area for procurement leaders. Subscribed to {PRACTICE_NAME} email alerts. “We … The third and final requirement is to incorporate both today’s and tomorrow’s technologies, including automation, big data, and block chain. September 2, 2020. Our flagship business publication has been defining and informing the senior-management agenda since 1964. Anyone interested in the subject would be wise to listen to their advice. “ Digitization, digitalization, and digital procurement transformation are … Yet despite the tremendous impact that strong spend management can have in value creation, the reality is that in many sectors, procurement is still primarily a transactional function with a limited scope of influence. Identify which M&A opportunities should be explored to take advantage of emerging technologies or innovative business models. The Digital … Take, for example, the use of blockchain for the mining of cobalt, a critical mineral for the automotive and mobile-device industries. Tail spend isn’t going away. These new options let businesses convert large capital expenditures into smaller operational expenditures that are spread out over a longer time period. Practical resources to help leaders navigate to the next normal: guides, tools, checklists, interviews and more. People create and sustain change. The result reduced value leakage by up to 5 percent through improved performance discussions with suppliers on schedule and quality attainment. Explore with your strategic vendors innovative commercial models, such as as-a-service contractual arrangements to unlock additional value through performance-based payments or net-present-value-linked arrangements. The pace of advancements in new technologies is increasingly rapidly across sectors. 1: Procurement transformation roadmap. In total, McKinsey believes that the typical procurement transformation journey takes around 18-24 months, however, organisations may begin to see results much sooner than that. The first requirement is the development of tools that support all of the main functionalities across the digital procurement landscape. McKinsey: driving value in digital procurement With the emergence of digital offering a plethora of new opportunities in procurement, it’s vital that CPOs choose the right transformation for their organisation. Please email us at: McKinsey Insights - Get our latest thinking on your iPhone, iPad, or Android device. So, exactly where should procurement leaders start to transform their functions? New operating models, … Use procurement’s data to power your performance. Introduce digital solutions to help with the efficiency of the procurement process, such as cloud-based project managers for tracking actions across the team, or rich messaging platforms for cross-team communications. It is clear that the first five elements of the framework — even if not all … tab, Engineering, Construction & Building Materials, Travel, Logistics & Transport Infrastructure, McKinsey Institute for Black Economic Mobility. Our flagship business publication has been defining and informing the senior-management agenda since 1964. Digital McKinsey empowers our clients to reinvent their businesses for the digital world by bringing together experts in digital and analytics as well as our core strategy- and management-consulting … Gear up with the right technology and discover the next competitive advantage in the data you already have. Complex spend analyses can be automatically refreshed via spend-intelligence solutions that can extract and analyze spend data repeatedly to generate insights with minimal effort. The old paradigm of cost reduction and cost efficiency is drawing to a close. An alarmingly high percentage of nearly a third of respondents expect digital transformation … However, as with any major change, it can be difficult to know how leaders should begin the capitalizing on this disruption. Questions abound: What should the role of procurement in my organization now be? New and revolutionary concepts are spinning from the frenzied technological leaps of our time; especially in digital … For a procurement function, digital transformation can bring unprecedented benefits in process improvement, time management, value for money and market engagement to name a few. It’s a combination … It may not show up on the balance sheet, but it has the … Join the largest conference of digital procurement leaders to discuss the latest in digital procurement transformation and technology this September. Delivering expert advice to a range of industries such as the automotive, chemicals and oil and gas sectors, McKinsey & Company helps customers accelerate their digital transformation … Across industries, companies should act now to protect their employees and customers—and prepare … According to a McKinsey survey, chief procurement officers (CPOs) expect their digital procurement … For example, a resources company with geographically dispersed operations completely digitized the monitoring of suppliers’ key performance indicators (KPIs) through the development of a mobile application, which allowed field supervisors to provide real-time feedback on supplier performance. Digital is more than just using a software! Set up flexible, business-driven cross-functional teams to allow sharing of specialized procurement or operational skills across category teams, fostering idea generation and enhancing both category expertise and procurement capabilities. Procurement and operations teams can then unlock incremental total-cost-of-ownership savings in maintenance time, protecting tires from long-term damage while reducing tire-related breakdowns and improving fuel efficiency and safety. Digital Transformation in Procurement. Use minimal essential A truly digital procurement organization does many things that benefit the business. of a new age. Digital transformation is a digital-first approach encompassing all aspects of business, regardless of whether it concerns a digital business or not. hereLearn more about cookies, Opens in new Learn about But with so many options, which of the new digital … Please use UP and DOWN arrow keys to review autocomplete results. These advances promise to free up resources traditionally dedicated to transactional activities for reinvestment in strategic procurement, and in seeking out innovative sources of value. There are major shifts taking place globally today to which procurement must respond: value chains are becoming more complex and volatile, with increased risks and opportunities that accompany that complexity; developments in digitization, automation, and analytics that can unlock previously untapped potential; and acceleration of technological advancements and innovations are now more difficult than ever to keep pace with without external partnerships. The second stage, development of a high-quality user interface, can now incorporate advanced tools covering spend intelligence, category analytics, clean sheets, category-specific content, eRFX, and tendering analytics. Procure-to-pay solutions were among the initial digital tools available to support operational and tactical procurement activities. This vital element has organizations around the world turning to leading … Never miss an insight. According to a McKinsey survey, CPOs expect digital procurement to increase annual savings by 40%, reduce transactional sourcing time by 30% and reduce value leaks by as much as 50%. As we surpass the 9-month mark since COVID-19 first started impacting North America, now is the time for procurement … cookies, McKinsey_Website_Accessibility@mckinsey.com, Visit our Manufacturing & Supply Chain page. An example has been the emergence of “anything as a service” or pay-by-usage/subscription-based models, a market that is forecast to grow by 38 percent from 2016 to 2020 globally. New and revolutionary concepts are spinning from the frenzied technological leaps of our time; especially in digital … Leverage IoT technologies and advanced-analytics techniques to create new sources of insights that can be applied to unlock new sources of value, such as predictive maintenance to improve equipment uptime. Advanced analytics-enabled spend-intelligence … tab. By Lauren O'Neil, US Head of Marketing, Proactis. Several practical steps can help your procurement organization make the most of what digital has to offer. Aircraft-engine manufacturers, for example, are increasingly moving to power-by-the-hour service models that use IoT-linked sensors to collect real-time data on component conditions. Most transformations fail. Most transformations fail. Negotiation tactics, vendor management, procurement strategy—all can be transformed when procurement organizations abandon heuristic approximations and instead commit to in-depth analytics of actual purchase histories. Driving superior value through digital procurement. Flip the odds. Digital transformation is one of the greatest opportunities for Procurement today, comprising three main requirements that together lead to a successful digital-based organization. Insights that previously were easy to miss instead can reshape not only what Procurement does but how, providing significant savings to the organization. Select topics and stay current with our latest insights. Reinvent your business. Practical resources to help leaders navigate to the next normal: guides, tools, checklists, interviews and more, Learn what it means for you, and meet the people who create it, Inspire, empower, and sustain action that leads to the economic development of Black communities across the globe, Brings extensive experience in the energy sector, including operations-performance transformations, accelerated cost-repositioning programs, procurement and supply-management excellence, and digital and agile procurement enablement, Serves global companies across a wide range of industries—such as advanced electronics, high tech, medical devices, automotive, and machinery—with a strong focus on hardware and software product development excellence, operations, and digitization. analysis from a digital transformation performance study we conducted in 2017. Procurement can play a leading role in both identifying these types of start-ups, and in creating the right contractual agreement to allow for flexibility in collaboration and co-development. tab, Engineering, Construction & Building Materials, Travel, Logistics & Transport Infrastructure, McKinsey Institute for Black Economic Mobility. Supply Chain Digital explores McKinsey’s report, “Automation in logistics: Big opportunity, ... Supply Chain Digital Magazine covers procurement transformation, digital supply chain, supply chain of the future, P2P, S2P, procurement & supply chain technology, AI, Automation & Procurement … Among this group, a large majority indicate that their strategy is aligned with the enterprise digital … our use of cookies, and Please try again later. The McKinsey survey found that the COVID-19 pandemic has significantly accelerated the pace of adoption of digital transformation technologies, as well as other speeding up other business … World-class supply chain organizations can save up to 75 % through digital transformation. tab. Invest in new talent and capabilities for your procurement function, and rethink the procurement career path to succeed in a digital world. Senior management of any company now demands from procurement. We'll email you when new articles are published on this topic. Global trends affecting procurement today are evolving at pace; the function must elevate the focus on the corresponding opportunities and respond strongly. The business of what digital has to offer has landed a contract to a! Contractual arrangements to unlock additional value through digital procurement is an expert in the data you have... Now it ’ s beyond their expertise, or Android device often, procurement digitization: the experience! 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