The importance of intelligent spend in demand-driven supply chain

Far-reaching process digitalization is unavoidable if you want to make your supply chain demand-driven. In addition to minimizing manual labour, you will also have to build in intelligence in order to fully automate the more straightforward decision-making. Various companies demonstrated their progress so far during the SAP Ariba Live international user conference held in Barcelona recently.

By Mirjam Hulsebos

The event included the announcement of the findings from a University of Mannheim survey among 460 CPOs and COOs within large companies to study the digital transformation of procurement organizations. 84% of the respondents regard digitalization as a top priority in relation to improving purchasing performance. SAP calls this ‘intelligent spend’ and likens it to the self-driving car; in a traditional car the human driver is the source of all the intelligence, whereas an autonomous vehicle makes all the decisions itself, e.g. how fast to go and when it is safe to make a manoeuvre. The human operator simply enters the destination and the car does the rest.

Demand-driven supply chain

This is a nice longer-term aim for Purchasing. Lisa Gonzalez Smith from Ford Motor Company talked about the company’s journey over the past 18 months to prepare Purchasing for that kind of future. “First of all, we examined all kinds of companies in various sectors to see ‘what does good look like?’ We then designed 14 standard purchasing processes that we now use globally. To put this in perspective, we used to have around 25,000 different processes worldwide. We’ve extensively automated the new processes and, where possible, included artificial intelligence (AI). In fact, it wasn’t the technology itself that posed a problem but rather the adoption of the technology and the new processes. The role of humans has changed considerably in those processes, and it can be difficult to make people enthusiastic about such changes. That’s why we’ve appointed hundreds of ‘change agents’ to train the purchasers and provide guidance in the new way of working.”

Touchless orders

If you want to transform to an intelligent spend approach in the longer term, it is extremely important to adhere to the standards. Pia Kupka Persson from Tetrapak is well aware of that: “We’re aiming for almost 100% touchless orders, but we will only succeed if everyone follows the standard processes. For all fixed-price products, for example, it is a strict condition that suppliers provide us their catalogues digitally. Another change is that we want to minimize the use of free text because that is also a barrier to automated processing. This is a big adjustment for many people, because they’ve been used to having a lot more freedom. But if you don’t stick to rigid processes, you’ll never achieve your goal.”

GlaxoSmithKline (see photo) has chosen vendor managed inventory (VMI) as its starting point, beginning with packaging suppliers. Bruno Palacios Serra, Director Supply Chain Collaboration and Demand Planning: “Fully automated VMI is not particularly complex from a technical viewpoint. The complexity lies in reaching agreements with suppliers. We’re now working entirely touchless with eight of our suppliers for 2,000 SKUs that are delivered to six of our plants. But it will take a while before we can work in the same way with all our suppliers.”

Change management

If one thing became apparent during the conference in Barcelona, it is that the long-term aim – a fully autonomous supply chain – is already possible from a technical standpoint. However, it is being prevented by many immature processes and a business culture that does not yet truly embrace change. Companies that try to rush the implementation of technology without paying sufficient attention to change management risk a rude awakening.