Procurement in the Industry 4.0 Era
Brian Hoey - April 14, 2020
Industry 4.0 is coming, and it has the potential to reshape the entire supply chain. To wit, the Hackett Group found that 84% of procurement professionals expect Industry 4.0 to change the way that they do business within the next few years. On the one hand, this shouldn’t be too shocking: procurement has the potential to be a data-driven process like anything else that’s being touched by the Fourth Industrial Revolution. At the same time, smart procurement based on cyber-physical systems and advanced analytics would be a real turnaround from how procurement works right now in most supply chains.
As the manufacturing landscape continues to evolve, the tremendous influx of data from every touchpoint on the value chain has the potential to give procurement professionals the tools to create smarter, more value-additive sourcing processes. But how can those working on procurement make sure that they’re actually using that data to their advantage? Just as importantly, what changes to the face of procurement can we expect in the next few years as the global supply chain evolves?
Procurement in the Modern Supply Chain
As a jumping off point, let’s talk a little bit about the current state of procurement. Though the process has certainly evolved over time, it has historically been thought of an area where the best possible outcome is keeping costs low. The idea that procurement processes could actively add value for a manufacturer is, in that sense, comparatively new, and it reflects the increasing agility with which many supply chain businesses are able to move in the modern era. Thus, where once procurement was largely a matter of placing phone calls or sending faxes to your suppliers, it’s now entering the digital age. This means that at the very least it’s more common to see procurement via email and other digital means—and some procurement departments even boast a modicum of supply chain integration, meaning that they can source raw materials via shared IT infrastructure that connects them to suppliers.
When it comes to processes like these, a little bit of digitization goes a long way. Creating a record of transactions that can be tracked (difficult to do with phone calls) creates much more visibility both within procurement and for other stakeholders who might have an interest in the specifics of the sourcing process. At the same time, it’s easy for, say, email records of purchases to become stuck in a silo where they’re difficult to access or analyze. By the same token, digital processes might make it possible to access information about pricing and better estimate order turnaround times from suppliers—but there’s no guarantee that the mere presence of a digital record will improve your predictions or your ordering patterns, especially if the information is unstructured and disorganized.
Like we suggested above, digitization is a crucial first step—but it’s what comes after that digitization that will truly define your future procurement workflows. This is where Industry 4.0 technologies like the cloud, advanced analytics, and the IoT (internet of things) come in. In an integrated IT environment that centralizes data from your operation and your suppliers, you can both boost visibility and increase flexibility in sourcing workflows. How? By using advanced analytics to analyze all of your previous orders, plus your suppliers’ shared data, in order to come up with predictions for future price levels, delivery timelines, and product demand. If, for instance, you were considering whether to diversify your sources for a particular raw material, an Industry 4.0-equipped IT environment might give you the tools to analyze the likelihood of a supply chain disruption, the potential cost savings associated with finding a new supplier, and other relevant factors to help you make the right decision.
Industry 4.0 also has the power to drive another layer of sophistication on top of that. Let’s say you’re in the same situation, but you have 3D printing workflows and live tracking of supplier shipments via IoT devices: all of a sudden, you’re making sourcing decisions proactively and on-the-fly based on where a particular container of raw materials already is in the world. Maybe you can reduce shipping costs via backhauls by partnering with a specific supplier. Maybe it makes sense to 3D print a particular part for an upcoming production run based on the way costs have been fluctuating. Maybe you’re able to receive live alerts about late shipments of goods and tweak your future procurement plans as needed to power your next production cycle. You might even be able to automate certain elements of the procurement process based on smart analyses of live data streams. In any event, you’re able to become proactive rather than reactive and do more than just manage costs.
The Power of End-to-end Visibility
Of course, the benefits we’re discussing don’t come about by accident. Rather, they’re the result of an ongoing technological and operational commitment to end-to-end visibility. Technology for technology’s sake isn’t a guarantee of successful operational change—instead, you have to make decisions about IT adoption and process definitions that prioritize visibility. What does this look like in practice? For starters, it looks like a commitment to using supply chain management software and tools that will help break down data silos. It also looks like a responsive planning cycle time that spans hours rather than weeks.
Prioritizing visibility in this way is no mean feat—companies across the global supply chain often fall victim to rigid modern ERP systems or software that doesn’t play nicely with other solutions, resulting in processes where teams can’t coordinate or collaborate with one another. For procurement in particular, there is always a risk that poor IT choices will result in sourcing decisions being carried out over the phone, rather than through approved channels that promote visibility. To keep this from happening, you’ll need to have clear discussions about the needs of various stakeholders and use proven technological solutions to create the right environment for smarter procurement. This can help you build a strong foundation on which to build out smart, responsive Procurement 4.0 workflows.