Low return, high risk
Twenty Five Years Ago
Martin was Head of Procurement and Supply Chain. His background was Operations and he relied on his team for procurement insights.
In a team meeting, Martin formally raised something everyone had been taking about, automation and analytics. The executive board members had asked him if Procurement was doing enough, so Martin suggested to his team that they may need technology to improve savings, cut lead-times, reduce transactions and minimise operational costs.
The team listened carefully.
Pamela, the departmental administrator, responded first: “Six months ago, we introduced auto-replenishment and catalogue ordering, eliminated stocks and redeployed one FTE. All the users love the new system. Is that what you have in mind?”
“That’s exactly what I want”, said Martin, his enthusiastic praise somewhat tinged with embarrassment because he’d known nothing about it.
Kai, head of raw materials, asked if the current electronic data interchange (EDI) system for automatic call-offs qualifies as technology and automation. The supplier had established it at their own expense. Martin agreed this was another good example.
Belinda, who ran the Procurement Centre of Excellence and managed analytics and reporting, was next. She added that all their data sets were structured and could therefore be handled by existing MI tools.
Stefan, the Finance person in the team, asked if Martin had considered the business case for technology investment. Would the benefits be increased revenue (unlikely, he thought), improved savings (unconvincing); or reduced operational costs? “The last has the simplest cost/benefit analysis“, he suggested, “but may have a low RoI because Procurement’s total costs are less than 1% of corporate revenue“.
A thoughtful silence followed.
“It seems to me”, Martin ruminated aloud, “that we don’t need to be proactive. We just need to be alert to new ideas and opportunities. And we already have great examples to show the board. Thanks, everyone!”
Fast Forward
That was twenty-five years ago. What has changed in quarter of a century?
Two things spring to mind.
The first is that we throw technology, automation, analytics and AI into one bucket and call it digitisation. The second is that Martin’s wise strategy of alert opportunism has been forgotten or overlooked.
Everybody is under pressure to digitise but without anything resembling a business case.
IT projects are notoriously high risk. Even a well-conceived project holds risks of delay and cost overruns during implementation and integration. In Procurement & Supply, there is the bigger hazard of business disruption.
Stefan’s point is as true today as it was twenty-five years ago. Why would anyone consume scarce and expensive IT resources for a high-risk project where the benefits are no more than a proportion of one per cent of corporate revenue?
Better not to be a trail-blazer, but to await well-tried and proven solutions? At least…think about the business case before going high profile.