Martin was head of Procurement and Supply Chain. His background was Operations and he didn’t claim a lot of Procurement experience. He openly admitted that he relied heavily on his team.
In a monthly team meeting, Martin formally raised a topic everyone had been taking about. He asked what they ought to be doing about automation and analytics. Executives had hinted that Procurement may be falling behind in technology and Martin wanted to know if there was a need for a technology-specific investment program to improve savings, cut lead-times, reduce transaction complexity, and minimise operational costs.
The team listened carefully.
It was Pamela, the departmental administrator, who responded first: “By introducing auto-replenishment and catalogue ordering six months ago we’ve eliminated stocks and redeployed one FTE. All the users love the new system and it’s saving money. Is that what you have in mind?”
“That’s exactly what I want”, said Martin, his enthusiasm somewhat tempered because he had known nothing about it.
Kai, head of raw materials, then asked if the current electronic data interchange (EDI) system for automatic call-offs of raw materials qualified as technology and automation. The supplier had established it at their expense with hardly any investment from us. Martin agreed that this was another good example.
Belinda, who ran the Procurement Centre of Excellence, and managed analytics and reporting, was next. She added that all our data sets were structured and can be handled by standard MI tools. For anything more challenging, they could use multiple regression analysis.
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 (what’s the baseline), or reduced cost of Procurement operations? The last, by far the easiest to calculate, would hardly reward any investment because Procurement’s total costs were less than one per cent of corporate revenue.
A thoughtful silence followed, broken by Martin.
“It seems to me”, he mused, “that we don’t need to be proactive. We only need to be alert to new ideas and technical opportunities. And it looks as though we already have great examples to talk about when I’m asked about it at the next board meeting. Thanks, everyone!”
That was twenty-five years ago. What has changed in quarter of a century?
Two things. The first is that everything to do with technology, automation, analytics and AI is now in a bucket called digitisation. The second is that Martin’s wise strategy of alert opportunism has been forgotten or ignored.
Everybody is under pressure to digitise, but with nothing resembling a business case.
All IT projects are notoriously high risk. Even a well-conceived project holds risks of delay and cost overrun during design, development and integration; but there are even greater hazards, to production and supply during implementation and roll out, if the concept is wrong.
Usually, IT projects require a large potential reward to justify these costs and risks. In Procurement, that potential is hard to find. 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 project where the benefits are no more than a proportion of one per cent of corporate revenue?