Critical Success Factors and Procurement Cycle
It is useful to relate the 8 Cs to the steps in the procurement cycle. This aspect can clarify the CSFs and evaluate better how it can support the procurement processes. Figure 4.1 shows which are the main CSFs for each of the procurement 4.0 subprocesses. All of them are important for each subprocess. Some factors are more important than others.
Figure 4.2 shows a graphical representation of the business model for procurement
4.0. With respect to each of the factors, Figure 4.2 also lists the enabling solutions to leverage procurement procedures, processes, and digitization supporting each component. It is not necessary to comply all the factors and the solutions examined in this chapter, but at least a certain number of them.
FIGURE 4.1 Procurement processes and CSFs.
FIGURE 4.2 CSFs model for procurement 4.0 and the supporting tools (Adapted from Nicoletti, 2020).
Robotic Process Automation (RPA) can support Cybernetics (Van der Aalst et al., 2018). RPA is the automation of simple and repetitive activities, which need no longer be carried directly by the procurement team. It is implemented with both physical and virtual robots.
The Connection can be implemented cheaply and effectively via the cloud, mainly the Internet. This solution allows to access from everywhere and any device, the applications that manage industry 4.0 and in particular procurement 4.0 (Nicoletti, 2013). It allows cheaply connecting partners even if small and not with many interactions.
Computer numerical controls (CNC) support Controllership. CNC is a method for automating control of machine tools through the use of software embedded in a microcomputer attached to the tool (Radhakrishnan, 2014). It is commonly used in manufacturing for machining metal and plastic parts. In procurement 4.0, this tool is extended to the entire production cycle or at least its principal steps. CNC can automatically provide information to procurement and partners on their needs of sourcing.
Collaboration has its basis on smart systems. They are applications and methods that can mimic human muscular and nervous systems. Smart systems collate leading technologies and solutions for the design of new generation embedded and cyber-physical systems (Crepaldi et al., 2014). They can be applied to a broad range of application domains, from everyday life to mission and safety critical activities. They can achieve a wide set of functionalities using diverse architectures. Thanks to them, collaboration can be automated and made more effective, efficient, and economic.
Internet of Things (IoT) can support Connection (Manavalan and Jayakrishna, 2019). IoT is the interconnection via the internet or the intranet of computing devices enclosed in everyday objects, enabling them to send and receive data. IoT can be used in logistics, warehousing, and transportation.
Assisted cognition systems mimic functions of the human brain in different ways, including natural language processing, data mining, and pattern recognition (Kautz et ah, 2003). Big Data Analytics can support Cognition. Cognition robots (physical or virtual) can help the administrative work connected with procurement or the selection of potential partners to hire. Enterprise resource planning (ERP) is the business process for managing and integrating the relevant parts of the organization. ERP software applications are essential to organizations as they help implement resource planning by integrating all of the processes needed to run organizations with an integrated system using a consolidated data base. An ERP software system can integrate planning, sales, marketing, purchasing, inventory, production, maintenance, administration and finance, human resources, and more. ERP applications can help Coordination within an organization. When they are extended to include other partners in the organization ecosystem, they are labeled as Extended ERP applications (Plikynas, 2008).
Cybersecurity solutions can help Confidence (Singer, and Friedman, 2014). Another emerging solution is blockchain, a computerized open ledger in which it is possible to record every type of transaction for a specific application (Harshak et al., 2013). The blockchain is available for all participants. If registered, a participant may also enter new data. They can see and check it. There is a log that allows standard visibility of operations and services. The automatic sharing of the data eliminates the need for data transfer between organizations. One can also imagine blockchain as “digital trust” (Harshak et al., 2013). This expression indicates that the blockchain is a set of data that can be considered reliable. Their correctness is based on the fact that a large number of actors have a consensus on them. From a technical point of view, a blockchain is a secure database. It is managed through a global network of independent servers. They provide a shared vision. Blockchain solutions are located in the cloud. So, they are easy to access from any location. Blockchain solutions help to eliminate all differences of data between partners and customers. They may provide the test according to where the materials originate, such as certified areas, environmentally and socially responsible. For example, blockchain solutions support the management of products and partner quality certificates, proofs of ownership, references of a specific partner, contracts, and purchase orders. They could help organizations quickly resolve delivery differences in the data end-to-end throughout the full process from request to payment.
Application of the Model
Alfa is a multinational food business operating in the global markets, with annual sales of two billion euros (The name is fictitious due to a nondisclosure request) (Perona, 2019). For moving to procurement 4.0, this company planned to use the following solutions:
• Cybernetics through RPA. It is the automation of simple and repetitive activities, which need no longer be carried out by the procurement team.
An example of this activity is the verification of the completeness of the documents provided by the bidders in a tender. This solution can verify if the managers have approved the order and all the operational and administrative steps required are complete.
- • Controllership through integrated analytics (IA) allows to switch from the provision of elementary information and information based on the knowledge of the analysis of aggregated processes to the statistical inference and multivariate analysis.
- • Cognitive procurement processes optimize the implementation of responses of the procurement based on the context. Cognitive computing, for example, allows the interpretation and response to requests of the partners, made via emails, chats, or calls.
The use of these solutions can bring benefits, such as the possibility of reducing the number of the procurement office staff of 41 full-time equivalents (FTEs) out of 112, corresponding to 37% of the total procurement workforce. There are other benefits regarding procured materials and services. They can decrease the procurement costs of these materials/services, delivery times and time reliability, quality of materials and services, and similar.
The benefits can be analyzed based on the organization’s and process points of view and that of the processes.
The procurement organization is composed of the following:
- • The front office takes care of the relationships with the internal functions and the external partners;
- • The middle office is a go-between front office and back office. It helps the front office to respond to external requests and manage the relationships of the front office with the back office;
- • The back office takes care of the administrative activities and management of the documentation.
The organizational benefits are relative to the back-office, middle-office, and front- office innovations:
- • The savings in the back office are up to 89%. Repetitive and standardized activities are a big part of this area. RPA can support them.
- • The front office needs creativity and interpersonal competencies. It has savings equal to 7% of the FTEs.
- • The middle office can get savings of 75%
The improvement in the processes can be strategic, tactical, and transactional benefits.
- • At the transactional level, procurement 4.0 can generate savings of 12.2 FTE, equal to 90% of the current workforce in this sector. This level includes all routine and repetitive activities. They are well suited to the adoption of analytics tools;
- • At a tactical level, the savings are 15.7 FTE. They correspond to 36% of the total employment in this sector. This level takes a routine and sometimes reactive approach to procuring materials and supplies using quick quote and order processes to support the production operations. It aims to ensure that the organization has the right supply at the right price and right time;
- • At a strategic level, there are savings of 13.1 FTE equal to 24% of the total workforce in this sector. This level includes activities such as spend analysis, market research, vendor rating/selection, and relationship management.
Conclusions, Practical Implications, and Future Research
This chapter presents an innovative and integrated set of CSFs for procurement 4.0 and of the tools which can support them. It is composed of eight CSFs that are synergetic among themselves: Cybernetics, Communication, Control, Collaboration, Connection, Cognition, Coordination, and Confidence. The scope of Procurement 4.0 is creating new additional value propositions, supporting old and new business needs, and moving to a data-driven organization based on Big Data Analytics with data across different functions and value chains (Strategy & PwC, 2016).
Transformation into a data-driven, linked innovation needs to follow the eight factors described above. It takes years, since - in addition to digitization of processes- a culture change and empowerment of procurement are required. The early implemented of procurement 4.0 in several industries digitally transformed in the medium-long term their businesses by integrating all the listed factors into their internal and value network.
The factors examined are the basis for the success of a procurement 4.0 initiative in a specific organizational context.
The management of the procurement processes is undergoing structural changes. Procurement 4.0 is an essential model to realize and support industry 4.0. It goes beyond it in the creation of an effective, efficient, and economical data-driven procurement. This chapter also defined the solutions that can make procurement 4.0 real (Nicoletti, 2017).
It is not easy to predict what the future reserves. Procurement 4.0 is a revolution with respect to e-procurement. For instance, blockchain solutions, as a digital consensus tool, and smart contracts, as self-executing contracts, are only some examples of future solutions. New solutions will surpass the imagination. Some managerial implications are focusing on procurement 4.0 to stimulate managerial capabilities for the entire organization, starting from procurement 4.0.
The adoption of procurement 4.0 strategies can initiate and support the procurement (and not only) managers. They can get important capabilities in terms of collaborative relationships, operative know-how with the partners, and advanced solutions. At the same time, they can improve transparency and traceability along with the value network basing their decision-making and operations on sound data.
Digitization can improve globalization and communications. Whereas it was once enough to know about specific supply markets such as Asia and Eastern Europe, procurement 4.0 requires a truly global organization. For example, having the core of the procurement organization housed at headquarters might have worked in the past. Looking ahead, more and more procurement team members will be active (physically or virtually) in the most competitive supply markets for each category (Nicoletti, 2017a).
The intervals of time for moving from one industrial revolution to the following one have decreased over time. Procurement 5.0 is approaching. It will be a new way to innovate procurement. The expectation is that more and more the role of procurement will change substantially. It will move from an internal purchasing function to a data-driven controllership and coordination of the ecosystem. This study and related model furnish the CSFs to consider for the realization of the digital transformation to procurement 4.0. They will be necessary to implement also for procurement 5.0.
3D Three Dimensions
BDBA Big Data and Business Analytics
CNC Computer Numerical Controls
CSF Critical Success Factors
FTE Full-Time Equivalent
ICT Information and Communication Technology
LSCM Logistics and Supply Chain Management
RBA Robotic Process Automation
SCA Supply Chain Analytics
STP Straight Through Processing
UK United Kingdom
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