Old definitions of technology haves and have-nots are outdated; now it’s about the haves and have-mores. tab. And companies are responding: in the 2017 McKinsey Global Survey on Sustainability, respondents across all regions reported significant increases in the adoption of sustainability-related technologies. collaboration with select social media and trusted analytics partners As with other functions, digital disruption in procurement is already happening. Paradoxically, to get the most from procurement digitization, leaders must raise their ambitions along with their skills. Bulls-eye: McKinsey hits another $1m consulting target. Learn about Join the largest conference of digital procurement leaders to discuss the latest in digital procurement transformation and technology this September ... Senior Partner McKinsey … collaboration with select social media and trusted analytics partners Introduce digital solutions to help with the efficiency of the procurement process, such as cloud-based project managers for tracking actions across the team, or rich messaging platforms for cross-team communications. Traditionally, procurement has been the efficient workhorse for organizations, driving cost savings percentage point by percentage point, contract by contract. As corporates look to keep pace with technology and emerging business models, investments in Industry 4.0 start-ups have tripled in value since 2013, with corporate participation in deals growing to over 30 percent of total global investment. Practical resources to help leaders navigate to the next normal: guides, tools, checklists, interviews and more, Learn what it means for you, and meet the people who create it, Inspire, empower, and sustain action that leads to the economic development of Black communities across the globe. We use cookies essential for this site to function well. Among this group, a large majority indicate that their strategy is aligned with the enterprise digital … The potential cost take-out opportunity through digital transformation of the procurement function is dramatic, the research found. Subscribed to {PRACTICE_NAME} email alerts. Our mission is to help leaders in multiple sectors develop a deeper understanding of the global economy. Driving superior value through digital procurement. Advanced analytics-enabled spend-intelligence … Invest in setting up the right data infrastructure to enable more insights, such as using spend intelligence to automate data cleansing and analysis, along with predictive models to better forecast commodity prices and inform procurement decisions. It is clear that the first five elements of the framework — even if not all … Today’s most advanced Procurement organizations are already using advanced-analytics techniques to extract new value from historical purchase data. Why digital procurement and why now? Play the role of Chief Ecosystem Officer by broadening your perspective beyond the traditional value chain and becoming a source of innovation for your organization. tab, Engineering, Construction & Building Materials, Travel, Logistics & Transport Infrastructure, McKinsey Institute for Black Economic Mobility. Delivering expert advice to a range of industries such as the automotive, chemicals and oil and gas sectors, McKinsey & Company helps customers accelerate their digital transformation … Foster an ecosystem of innovation— accelerate the successful adoption of innovative technologies by exploiting co-investment or co-development partnerships with suppliers. Unleash their potential. Most transformations fail. Companies looking to be at the leading edge of technology and innovation are actively searching and scanning for suitable start-ups. Press enter to select and open the results on a new page. New tools and technologies can help organizations with all three drivers of digital transformation. US-based consulting organisation McKinsey & Company has been in operation for over 90 years. The Hackett Group found that digital transformation helps procurement organizations to optimize their processes, integrate with other systems and minimize error rates. Artificial-intelligence capabilities and advances in automation are changing not only how the Procurement department works, but also the value it generates for the larger organization. While this poses many questions around how to best redefine the role to capture value, it’s clear the function will have a much more strategic part to play. Our flagship business publication has been defining and informing the senior-management agenda since 1964. The global Covid-19 pandemic is exacting a terrible human toll and menacing the world economy. “The DTA is continuing work to improve digital experiences for Australians, in accordance with government requirements and relevant procurement … Disparate data sources can be leveraged to better predict the commodity prices: For example, a construction firm used advanced-analytics models to predict steel rebar prices with an accuracy of greater than 90 percent, significantly improving its ability to bid for upcoming projects. That’s particularly the case in sectors that are more mature, where firms are smaller, or where competition is less intense. Please use UP and DOWN arrow keys to review autocomplete results. Many other industries are also experiencing significant upheavals due to the changing nature of trade relationships between the United States and other countries. It’s a combination … A company’s digital transformation strategy will make or break their success in the rapidly evolving global market. Identify which M&A opportunities should be explored to take advantage of emerging technologies or innovative business models. For a procurement function, digital transformation can bring unprecedented benefits in process improvement, time management, value for money and market engagement to name a few. How do I know there will be a return on the investment? Procurement functions need to be more adaptable as ever to respond. The combination enables the companies to sell engine uptime rather than just the engines themselves—and extends engine life with better predictive maintenance at reduced cost. We use cookies essential for this site to function well. To get the most from procurement digitization, leaders must raise their ambitions along with their skills. Is not just about cost savings anymore but depending on the industry, procurement could be tasked with enabling new product development, managing supplier risk and sustainable procurement. It leads to the creation of entirely new markets and businesses. Yet despite the tremendous impact that strong spend management can have in value creation, the reality is that in many sectors, procurement is still primarily a transactional function with a limited scope of influence. I believe that companies should view their procurement spend as a kind of asset. Reinvent your business. of a new age. Digital upends old models. Practical resources to help leaders navigate to the next normal: guides, tools, checklists, interviews and more, Learn what it means for you, and meet the people who create it, Inspire, empower, and sustain action that leads to the economic development of Black communities across the globe, Brings extensive experience in the energy sector, including operations-performance transformations, accelerated cost-repositioning programs, procurement and supply-management excellence, and digital and agile procurement enablement, Serves global companies across a wide range of industries—such as advanced electronics, high tech, medical devices, automotive, and machinery—with a strong focus on hardware and software product development excellence, operations, and digitization. Rebalance roles towards more strategic capabilities requiring new skillsets (in analytics, digital, lean, partner selection and development, sustainability auditing) and increasing automation of transactional activities. What technologies should we be investing in? The third and final requirement is to incorporate both today’s and tomorrow’s technologies, including automation, big data, and block chain. It may not show up on the balance sheet, but it has the … As we surpass the 9-month mark since COVID-19 first started impacting North America, now is the time for procurement … Finally, Internet of Things (IoT) sensors able to collect real-time data from operating equipment are now being used widely to reduce the total lifecycle cost of operations equipment and consumables. Minimal deference is currently given to a function that, in light of the unprecedented rate of change in the world today, could in fact unlock distinctive competitive advantages for their organization. McKinsey’s research believes that innovative digital solutions in procurement can harness as much as an incremental 3-10% rise in annual cost savings. Digital transformation … A truly digital procurement organization does many things that benefit the business. An example has been the emergence of “anything as a service” or pay-by-usage/subscription-based models, a market that is forecast to grow by 38 percent from 2016 to 2020 globally. As businesses race to adopt a new way of doing things in the face of disruptive technology, procurement leaders are using digital tools to build a more efficient bottom line and greater top-line growth. Adopt agile methodologies and approaches where relevant, deploying category sprints as an iterative cross-functional approach to develop and execute category strategies. our use of cookies, and Tarandeep Singh Ahuja is a partner in McKinsey’s Melbourne office and Yen Ngai is an expert in the Sydney office. New and revolutionary concepts are spinning from the frenzied technological leaps of our time; especially in digital … The digital transformation is rapidly changing how every procurement process, from contract management to procure-to-pay (p2P) to risk management, is handled. Winning in this more complex and digital future will require a complete transformation of procurement as a function: having a broader mandate, way beyond just cost reduction; investment in digitization, automation and analytics; and rethinking the procurement organization. “ Digitization, digitalization, and digital procurement transformation are … As the article states, “Advanced procurement organizations are increasingly making use of automation technologies to … The contract runs from 27 April to 10 July and is worth $997,425. Greater transparency—and greater expectation to be transparent—means unethical behavior in even a tier-2 or -3 supplier has reputational impacts on the purchasing organization. But with so many options, which of the new digital … The study finds that 63% of procurement organizations now have a digital transformation strategy (Fig. If information is power, the procurement function occupies an enviable strategic position, sitting at the confluence of the massive flows of information that run between a company and all its suppliers and partners. Are you ready for fully automated purchase-order management? Our flagship business publication has been defining and informing the senior-management agenda since 1964. Or bots employing advanced-analytics capabilities to select and govern suppliers? As we surpass the 9-month mark since COVID-19 first started impacting North America, now is the time for procurement … How Digital Transformation Benefits Procurement … Insights that previously were easy to miss instead can reshape not only what Procurement does but how, providing significant savings to the organization. Sectors representing about 80% of the economy have yet to benefit from digital technology. The digital revolution is upending the way operations work across industries and geographies, and Procurement is no exception. But the opportunities for growth and productivity are still immense, because we’re only at the early stages. This vital element has organizations around the world turning to leading … cookies, McKinsey_Website_Accessibility@mckinsey.com, Visit our Manufacturing & Supply Chain page. I believe that companies should view their procurement spend as a kind of asset. Procurement professionals around the world stand on the threshold . To get the most from procurement digitization, leaders must raise their ambitions along with their skills. For example, a resources company with geographically dispersed operations completely digitized the monitoring of suppliers’ key performance indicators (KPIs) through the development of a mobile application, which allowed field supervisors to provide real-time feedback on supplier performance. Digital procurement: For lasting value, go broad and deep. Digital is more than just using a software! Set up flexible, business-driven cross-functional teams to allow sharing of specialized procurement or operational skills across category teams, fostering idea generation and enhancing both category expertise and procurement capabilities. The first requirement is the development of tools that support all of the main functionalities across the digital procurement landscape. Several practical steps can help your procurement organization make the most of what digital has to offer. Now Deloitte rival McKinsey has landed a contract to develop a business case for GovDXP. Even regular procurement … Digital transformation is one of the greatest opportunities for Procurement today, comprising three main requirements that together lead to a successful digital-based organization. “ Digitization, digitalization, and digital procurement transformation are … Use procurement’s data to power your performance. Please try again later. Anyone interested in the subject would be wise to listen to their advice. Across industries, companies should act now to protect their employees and customers—and prepare … Procurement, unmistakably, plays a vital role in the growth and digital transformation of organizations, providing substantial benefits that shouldn’t be overlooked. These trends leave little doubt that procurement is being disrupted. It may not show up on the balance sheet, but it has the … Learn more about cookies, Opens in new Digital Transformation: McKinsey’s Take. Is your procurement function ready to shift the dial? tab. As a starting point, let’s take a closer look at the most important global shifts, and the corresponding implications. Tail spend isn’t going away. Recent changes in trade policies are forcing large multinationals to rethink their supply strategies. Why Should Digital Transformation in Procurement be at the Top of the Priority List? We'll email you when new articles are published on this topic. If you would like information about this content we will be happy to work with you. The big winners, leaving firms—and their workers—to navigate uneven returns, greater risk, and result in little. Is more than great tools analytics in procurement, leaving firms—and their workers—to navigate uneven returns, greater risk and. If you would like information about this content we will be a return on the corresponding and. Comments and questions regular procurement … however, in practice, as elsewhere. 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