Ready, set, buy – Not quite yet

Look in any direction in procurement, and the race is on to adopt nextgen technologies. And all signs point to process automation. It starts with the cloud and moves on to robotic process automation, blockchain and machine learning, the leading form of artificial intelligence (AI). In fact, a range of nextgen technologies – robotic process automation, blockchain and machine learning – are all on track to deliver real-time procurement data to the people who need it when they need it. Not to mention shortening the procurement process considerably on the world stage.

“If you look back three to five years, there was a very limited adoption of technology in procurement,” says Balaji Abbabatulla, research director at Gartner. “But the adoption of technology has accelerated since then. The cloud makes it so easy for procurement people to adopt new technology software applications,” he adds.

Tom Derry, CEO of the Institute for Supply Management (ISM), couldn't agree more. He points to robotic process automation (RPA) software as the leading edge during the next couple of years. The focus here is on highly defined procurement processes such as tracking and reporting on suppliers. “The idea is to automate routine processes, freeing up 40 to 50% of full-time employees. The benefits to companies are faster cycle times and higher accuracy,” says Derry.

At this point, larger companies are the primary adopters of the cloud as well as procurement software. Balaji says the current sweet spot here is at companies with revenues in excess of $2 billion. But it doesn't stop there. Procurement automation is migrating into smaller companies, particularly those in the $500 million to $1 billion revenue range.

Balaji goes on to say that adoption is broadest in the U.S. followed by Western Europe, particularly the United Kingdom and Nordics. The next wave is developing in Australia and Singapore as adoption moves into Asia, and eventually the Middle East.

But it won't stop there. So say Derry and Thomas Choi, executive director of CAPS Research, a joint venture of ISM and Arizona State University. Choi is also the Harold E. Fearon chair of purchasing management at Arizona State University.

They agree that blockchain is in its early stages of adoption today with accelerating use in the immediate future. “The supply chain is dynamic and constantly changing,” says Choi. “Blockchain provides the scale to manage transactions in such a dynamic environment. That is, if blockchain works as we expect,” he adds. It's not that Choi doubts the potential value of blockchain, just that this is the early stage of its development.

In fact, CAPS has conducted research into blockchain and other procurement-related technologies for its more than 100 members, all Fortune 500-type companies. “We do leading edge practical research to move procurement and supply management forward,” says Choi. He continues on to say “supply chain in its current form is an inefficient and unfair system.”

“A supplier agrees to provide a product to a buying company. The supplier then funds the purchasing of all raw materials, production capacity and labor. It often pays its suppliers before it ever gets paid by its customer, which typically happens 30 to 60 days after the product is delivered. Blockchain can change all this,” says Choi.

“The potential is huge for procurement. It has implications for the corporate treasury. It could replace letters of credit and develop longer term chain of custody reports such as conflict minerals,” Derry says. He adds that the proving ground for blockchain is the next two to four years. And like Choi, Derry agrees that much about blockchain needs to be proven. While it can standardize and expedite transactions, says Derry, blockchain security generates skepticism these days.

There's an even greater challenge for blockchain to overcome – critical mass. As Derry explains, blockchain is a technology that has to be adopted by an entire trading community not just a company here and one there. “Blockchain will have arrived once it is adopted by industries, preferably global ones such as automotive and consumer electronics,” Derry says.

In fact, one prominent company has already started to build that critical mass. Choi points to Chinese consumer electronics supplier FoxConn (think iPhones).

Foxconn purchased a blockchain company and created an entity called Chained Finance. Suppliers don't have to pay to be a part of this network. They just have to supply data to build out the network. Fintechs can also be part of the network, but have to pay to play, says Choi.

The next frontier for procurement is machine learning, says Derry. He puts the time horizon here at three to five years. It will take that long to build neural networks that can predict demand based on factors ranging from weather to raw materials availability by region and season. Do it right, and there is great potential for not just managing inventory levels but staffing and sourcing, says Derry.

What's the outcome of all this technology moving into procurement? “It's all about the user experience, says Balaji. “We're already moving away from the clunky look and feel of software systems and moving more to a Google-like experience,” he continues. Then it's a matter of linking procurement systems into many different data sources and doing it all in real time (see NextGen Interview with Rob Handfield).

“Ultimately, the dream is the democratization of data. Giving access to everyone who needs it when they need it. That's the user experience we're after in procurement,” says Balaji.

Gary Forger is the special projects editor for Supply Chain Management Review. He can be reached at [email protected].

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