Digital transformation is currently one of the most trending topics in business, impacting all areas of a company. But how does it change the collaboration between buyer and supplier? In this second part of our short series on this topic, we take a look at the example of the chemical industry and analyze to what degree companies already use digital tools to support supplier management and which potentials managers see for further digital transformation.
Leveraging technology to focus on strategic tasks
Digital transformation in supplier management includes the support of internal processes through the use of big data and automation as well as the reinforcement of supplier relationships driven by supplier ecosystems and dynamic supplier portfolios.
However, a study by Gartner estimates that 60% of big data investments in 2017 failed to go beyond the piloting and experimentation phase. These numbers show that companies are currently struggling to understand how big data can be transformed into valuable information and business insights. Our latest research study “Impact of digital transformation on supplier management” shows that procurement managers are aware of the potential of big data and data-driven decision support. All study participants see significant advantages of a digital solution in the reduction of administrative and operational tasks to collect and analyze relevant supplier information, which currently covers a significant stake of their daily work. Comprehensive and centralized information is essential to evaluate which supplier relations hold potential for innovation and a value-adding long-term collaboration and which relationships should be reduced or kept on the current level because of lacking development potential. Even though providers of digital supplier management tools already offer suitable solutions, so far only a few of the interviewed companies have implemented such comprehensive tools.
Combine the human factor and the impact of digital transformation
Besides the challenges regarding big data implementations, digital transformation has triggered a controversial discussion about the interplay of automatic tasks and human beings. We already see a clear trend that operational tasks and decisions are going to be automated, but also the opportunity for supplier management to evolve and become a more sophisticated decision-making task that still depends on human intuition, trust, and experience.
Especially the social interaction in the area of supplier management is unlikely to get replaced by automated decisions. The study results support this expectation. They confirm the increasing automation of operational and administrative tasks as well as human involvement in strategic decision-making and the development of personal supplier relationships. Especially the identification, selection, and onboarding of suppliers for non-strategic commodity products show high potential for automation.
Companies have already implemented tools to request quotations from a large group of suppliers or create online catalogs for non-strategic products. Procurement tool providers indicate the trend towards open networks and marketplaces, from which managers can select the most suitable supplier in case-by-case decisions. These networks offer transparent information about a large number of global suppliers and allow the supplier manager to identify suitable suppliers without extensive external market screening. Furthermore, they ensure up-to-date information, as the supplier company itself is responsible for the maintenance of its data.
Creating supplier intelligence by managing supplier data effectively
The next big topic for digital transformation in supplier management is the further development and implementation of platform technologies, which enable multiple players to interact and communicate on a centralized channel. Platforms are the first stage and baseline for supplier ecosystems, which have the potential to transform the traditional supply chain structure and revolutionize the collaboration between buyers and suppliers. The two advantages deriving from supplier ecosystems include the bundled know-how of all players at a centralized knowledge hub and the increased transparency across the whole value network, which allows better coordination and e.g. an early identification of supply shortages. However, only a few procurement executives see ecosystems in the short term – they rather expect that this topic will take at least a couple of years to come alive and create significant benefits.
The growing availability of information and data leads to higher transparency of suppliers. This transparency increases the exchangeability of commodity suppliers, allows the supplier manager to select the most suitable partner for a specific business agreement, and can lead to a more dynamic supplier portfolio. The increasing automation of the supplier identification and selection process point into the direction of dynamic supplier portfolios for non-strategic commodity products.
However, the collaboration with strategic partners is fostered and increased and is still seen as a major driver for competitive advantage. We see an unbroken trend towards the reduction of operational supplier relations, which frees up resources for collaboration with strategic suppliers.
Collaboration on a single platform is crucial to reduce complexity
Our study shows the tremendous potential of digital transformation in supplier management but also reveals the low adoption of digital tools in practice yet. Challenges especially arise due to the human resistance to change, the lack of know-how, and the lack of standardization. Managers need to provide a consistent digital strategy to coordinate the digital transformation and to show a comprehensible way for their employees. Furthermore, they need to offer training and new skill developments to build up internal know-how. The technical component requires more effort in the standardization of processes and clean master data to gain valuable information about the suppliers.
However, the trend towards supplier ecosystems can only become successful if all players coordinate their forces to effectively use network effects. As long as there are too many different solutions and platforms in place, it will remain challenging to coordinate the whole supply network. Our clear recommendation is either an industry-specific network or even better a further consolidation of existing platforms into a global standard.
I would like to thank Carlotta Schüßler for her contribution to this article.