BCG Helps Orgs Jumpstart Their Way into Digital Procurement
Daniel Weise, Managing Director and Partner at Boston Consulting Group (BCG), is a self-proclaimed “procurement enthusiast” and leads BCGs procurement business line globally. Founded in 1963, Boston Consultant Group is an “O.G.” (original) in business strategy. Today, working with industry leaders, BCG tackles some of the world’s biggest challenges.
Working in a highly collaborative business model, BCG helps clients clear the path on their digital transformation journey, making way for opportunities that generate high-impact and truly transformative results. Across industries and around the world, Weise focuses on value delivery, going beyond cost to encompass supply chain resilience, sustainability, operating model redesign and digitisation programs.
Together with his colleague, Dr Wolfgang Schnellbächer, Weise literally wrote the book on digital procurement. “Jumpstart to Digital Procurement: Pushing the Value Envelope in a New Age” reflects on the insights Weise and Schnellbächer have garnered in their nearly 100 digitally-focused, value-minded and objectives-driven procurement projects. Throughout its 140 pages, Weise and Schnellbächer help guide executives in leveraging digitisation to increase the value beyond savings that procurement can bring.
In “Jumpstart to Digital Procurement” the pair write, “Few CPOs doubt that digital will strongly affect their function; however, only a handful claim that they are happy with the digital advancements they have made so far. Indeed, the majority of CPOs struggle to find a digital vision—a clear strategy to communicate with their employees, internal business partners, and suppliers.”
“We need a new model, a revolutionary narrative of what procurement does on which to base our digital thinking. To put it more simply, if we want to make digital procurement with all its benefits real, we need to think differently.”
But differently, how? We Zoomed so I could find out.
Finding the Right Fit(s)
“What we see is 80% want to digitise then only 20% are actually happy with the outcome.”
It seems the way to a digital roadmap that leads to unleashing the type of competitive advantages that allow companies to thrive can often be littered with confusion bred from ambiguities on priorities and objectives.
Weise says he believes, and the reason why they wrote the book , is that many companies often approach digitisation from the wrong perspective. Organisations look to the tech market in search of vendors and options, but what they should be doing, Weise says, is taking an objective first approach.
First, figure out your priorities, and determine whether you are looking to achieve, savings, sustainability, innovation, risk, quality or speed. Then, assess your starting stance and look for opportunities where you can “leapfrog to the next level of excellence.” And only then do you begin to look at an execution strategy.
Weise says he firmly believes that procurement needs to follow organisational values and objectives. He lends a few examples. For retail, cost will be of the utmost importance, while in the high luxury segment, speed to market would be the main objective. Yet, in other industries like packaging and Fast-Moving Consumer Goods (FMCG) sustainability would be the focal point. “I would even go as far as arguing that some consumers are accepting higher prices if they receive a good closer to nature or packaging from recycled cartonnage.”
About misconception that may be leading organisations astray, Weise says, “I think the biggest misconception is that there will be this one thing which solves it all for you.
It is simply not the case. There will be those 20 things which will help you a whole lot but not to 100%... I think that is the biggest misperception towards digitisation. And it's probably the best excuse why people keep on waiting instead of really starting.” Weise says.
Get the People, Empower Your People
Organisations have to be more deliberate about making sure they have the right people for the job and ensuring that they bring them all along for the ride.
Organisations often try to digitise without inserting the necessary talent for managing digitisation into their organisation. “You need to have your own people who can work with data. You need to have your own people who can maintain a bot program and new functionality and keep those tools up to where we are in time. And if you don't do this, if you only rely on the outside market, it's a very good way to fail, unfortunately.”
Weise says they see many organisations that acquire the tools that they need, but they don’t empower their people and set up the organisation for success. There are, of course, budgetary concerns as well. Weise points out that although digitisation can increase procurement efficiencies and free up people, the savings in labour costs is almost irrelevant compared to the potential for digitally empowered cost savings from shaving a few points off of a suppliers price.
Automate, Then Elevate
“For me, digitisation is not a synonym to reduce the workforce. What you're trying to do with digitisation, is set people free to work on value-creating tasks,” said Weise.
Weise believes the path to better outcomes and a more fulfilling career in procurement is automating things such as tail spend, so procurement can be freed to engage in more strategic discussions and unearth innovation and other differentiators.
Digitisation can be a means to bring more joy to the people in the workplace, he says and can be the driving force behind procurement, bringing a higher level of satisfaction to the job. “As digitisation takes over more menial tasks, people should be repurposed to work on higher-value projects.”
When looking for where best to automate, Weise suggests looking for “leapfrog” opportunities.
“I think back when I started procurement, and we wanted to do LPPs with a large amount of data, it took us days to do one calculation. And today, I just press a button, and it's there. The same with the AI Negotiation Coach by BCG, you answer questions and provide input to about 20 parameters, and you get a ready-to-use go-to-market strategy within minutes. And that's where I think leapfrogging is possible today because we have the computational power.”
Analytics and tools like BCG’s AI negotiation coach can help coach you to do the right things with your major or upcoming supplier event so you can focus on value add things like innovation. “Innovation… that is where the art of procurement happens, where we need to think about partnering, where we need to elevate.”
More often than not, innovation comes from outside of your company. Typically, 60 % of your cost base is in procurement. You could have thousands of engineers within your supply base. And if you manage to leverage that right, that's when you can create real value.
Once you’ve linked digitisation to the respective value you are looking to bring you must build your business case and create a shortlist. Weise says he sees that the companies that try to do everything fail and that the ultimate goal for CPOs should be to create a shortlist by putting things into perspective and “business casing it out.”
Digitisation is among the most critical topics in procurement and will remain so for the foreseeable future. As the competitive landscape continues to evolve, only those who digitise their procurement models are likely to remain viable and deliver additional value to their organisation. For anyone working in procurement or supply chain or is looking to drive digital transformation, “Jumpstart to Digital Procurement: Pushing the Value Envelope in a New Age” is a must-read, and the BCG guys are must-follows.
View this article on the BCG on Opertations Linkedin page.
Find a short excerprt 'Jumpstart to Digital Procurement: Pushing the Value Envelope in a New Age' here.
How Covid-19 Shook Up the Who's Who of American Retail
According to the new Digital Commerce 360 Top 500 analysis report, the massive shift in ecommerce habits due to COVID-19 resulted in a windfall for the US’s largest retailers, including Amazon, Walmart and Target.
The study found that the top 500 companies generated a combined total of $849.5 billion in online sales in 2020, representing a 45.3 per cent increase YoY, the largest jump since Digital Commerce 360 began tracking the statistic in 2006 and more than double the median growth of 18.0% seen over the last decade.
Although retailers of all sizes saw an uptick from online sales, in large part, throughout the pandemic, customers looked to familiar big name brands to fulfil much of their essential needs. Demand for items began to spike as manufacturing in Asia was forced to shut down, causing supply chain shortages. As large retailers tend to hold more inventory, this became a crucial differentiator for customers, says Digital Commerce 360.
Combined, Walmart Inc., Amazon.com Inc. and Target Corp. added $265 billion in US revenue to the $791.70 billion U.S. ecommerce market in 2020, accounting for a third of the market.
Considering the need for people to stay busy during lockdowns as well as the requirements of homeschooling, it’s not surprising Joann, a crafting company, showed the fastest online growth of Digital Commerce 360’s top 500.
- In 2019, the bottom 100 of the top 500 registered the fastest growth while the top 100 showing the slowest growth rate. In 2020, however, the analysis showed the opposite, the top 100 largest companies grew at a rate greater than that of the whole, and the top 10 on the list enjoyed a growth rate even faster than the top 100.
- In 2020, collectively the top 10 grew web sales 52.5%, almost five percentage points faster than the top 100 and accounted for 62.8% of Top 500 sales, up from 59.9% in 2019.
- Who made the top 10 was shaken up some. For example, Walmart made it into the second spot, both Kroger Co. and Costco Wholesale Corp. crept into the top 10 for the first time, landing at No. 8 and No. 10 respectively
Segments of retail that enjoyed fueled courtesy of COVID included toys and hobbies, jumping an average of 24 spots in the rankings and food and beverage merchants moved up an average 23 ranks. In contrast, apparel retailers dropped an average 15 positions in the Top 500, whereas jewellery retailers fell an average of 10 spots.
Although Digital Commerce 360 attributes some of the growth to stock positions and the ability of large retailers to manage supply chain issues, even the largest internet retailer experienced disruption. In March of 2020, during the first save of the US pandemic, even the Amazonian giant found themselves running into meeting customer commitments and delivering orders on time. Order cancellations and extended lead times became commonplace. For a time, Amazon stopped fulfilling orders for items considered “non-essential”.
Despite the issues, Amazon maintained its spot as the top online retailer in North America by a large margin, representing 35.7% of all Top 500 sales. Although it should be noted that the share is down from the 36.7% it saw in 2019.
At the outset of the pandemic Etsy, a solely ecommerce company focused on handmade, vintage items and craft supplies, was expected to perform poorly. However, as supply chain shortages for face masks caused a sudden need for cloth masks, many began to turn to Etsy, tripling its stock value by June.