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Procurement 4.0 Explained

March 28, 2019

Advances in supply chain technology are transforming the procurement process. Are supply chain companies ready for procurement 4.0?

If the First, Second, and Third Industrial Revolutions involved advances in mechanization and power, mass production, and computer technology respectively, the Fourth Industrial Revolution (a.k.a. Industry 4.0) is directly related to the rise of cyber-physical systems that are increasingly bringing the physical world online.

Indeed, the Internet of Things (IoT), artificial intelligence (AI), and other information (and operational) technologies have transformed what’s possible across nearly every vertical. Through the use of data management platforms that synthesize information streams, end-to-end visibility is now an achievable goal.

While this visibility has found multiple use cases throughout supply chains, there’s one area where it’s especially exciting: procurement. In fact, the rise of Industry 4.0 has given birth to a mini-revolution of its own, known as Procurement 4.0. By tapping into the potential of cyber-physical systems, Procurement 4.0 is empowering Chief Procurement Officers and other supply chain professionals to leverage better data to their benefit.

 

procurement benefits

 

The Procurement Process Defined

Historically, the procurement process has been broken down into essential steps that ensure businesses source necessary materials for a competitive price, work with reliable partners, and deliver value to their own customers. While purchasing is an important part of this process, it’s just one part of a larger procurement operation.

Procurement begins when businesses identify a required product or service for their own operational outputs. A purchase request will be created, which will then be authorized and approved by the appropriate stakeholders. The next stage of the procurement process begins when supply chain professionals solicit proposals from vendors, negotiate possible working relationships, and select their final supplier. Then, the purchase order will be acknowledged by the vendor, at which point the relationship becomes one of “vendor management.”

 

procurement profit

 

The Current State of the Procurement Process

Today, the procurement process is in a state of transition. While new technologies are making it possible to bring greater transparency into the supply chain — whether between businesses and their suppliers or their own customers — complete end-to-end visibility has not yet been achieved on an industry-wide scale.

Instead, Chief Procurement Officers and their teams are in a sort of limbo. For instance, transportation, warehouse, and order management systems may be giving managers essential insights into the state of vehicles, their inventory levels, and the location of in-process orders, while other parts of the supply chain will still be constrained by paper order forms, phone calls between businesses, and outdated email communication.

Essentially, this emerging challenge involves making use of available information in order to provide key stakeholders with actionable insights. By doing so, procurement professionals can gain independence from slower models of communication and collaboration and focus on driving value for their operations.

 

procurement technologies

 

What Digital Technology Can Do for the Procurement Process

Given the changes that Industry 4.0 is driving, Procurement 4.0 will likely have a transformative impact on next-generation supply chains. As IoT technology and AI capabilities make better use of the data collected by devices at the edge, data integration and situational awareness platforms will be able to synthesize that information into real-time, digestible insights — effectively bypassing the old, unreliable, inefficient means of sharing information and taking action. This means that Chief Procurement Officers will one day be able to sync data from suppliers, drivers, internal teams, cyber-physical systems, and customers for the benefit of their operation and their enterprises as a whole.

Procurement 4.0 should be viewed as something of a paradigm shift. While the procurement process has almost always been about reducing costs for the larger enterprise, it can instead be a profit center of its own. Imagine: procurement teams leveraging data-driven insights into market forces — from supplier relationships to consumer habits — to not just drive down costs for their own department but also to identify new revenue streams, partnerships, and opportunities for the larger operation.

Given the extreme complexity and endemic fragmentation of supply chains, making a rapid shift to Procurement 4.0 isn’t likely. Instead, businesses will need to partner with and exert leverage on their partners in the supply chain to achieve the end-to-end visibility they’re looking for. Those supply chain partners who develop the requisite capabilities will align around shared priorities and ultimately deliver on the promise of this next wave in procurement.