In the Middle East, the Need for Risk Management Guides the Transformation Journey to Procurement 4.0Supply Chain Risk
Risk management, cost reduction and digital transformation — these are the three top priorities for procurement organisations in the Middle East today, according to a global survey conducted by Ivalua’s global partner PwC. The research firm asked more than 400 respondents across Europe, the Middle East and Africa 12 questions related to some key themes:
- What are the strategic priorities of purchasing departments in the region?
- How do these priorities impact the digital roadmap and future investments?
- What was the impact of Covid-19 on digitization?
- What are some digital use cases and their perceived value?
During a recent webinar hosted by Ivalua, Partner Dr. Bashar El-Jawahari, PwC’s Middle East Procurement and Supply Chain Leader, explored the findings unique to the region. According to Dr. El-Jawahari, procurement’s priorities have shifted in the Middle East since the pandemic’s onset. Whereas prior to March 2020, digital transformation was the top priority, today risk management has replaced it, as organizations struggle to keep supply chains operational. In fact, the survey found that 62% of respondents reconsidered their priorities as a result of the Covid-19 crisis. “Risk management has become critical, because it’s no longer just about sourcing efficiencies and cost reduction; it’s about ensuring the availability of products, and the materials needed to manufacture those products,” Dr. El-Jawahari said.
Strategic Investments Target Risk Reduction
But managing risk will require digital transformation, and as such, organizations are investing in digital procurement initiatives despite the economic pressure of Covid-19 and the need to reduce investments in general.
About 70% of respondents expect to sustain or increase their investments in digitizing transactional and strategic processes. This is particularly true in the Middle East. “The average investment across all companies we surveyed is about $1 million, but in the Middle East, it’s even higher,” said El-Jawahari. “On average, companies in this region plan to invest $1.5 million over the next two years to digitize more of the procurement function.”
Respondents to PwC’s survey from the Middle East region reported higher levels of investment than other regions in several digital transformation use cases, including data analysis and visualization, administrative task automation, supply chain traceability and smart sourcing. “High-potential use cases such as smart sourcing will see increased adoption over the next few years,” said Dr. El-Jawahari.
Striking the Balance between People, Process and Technology
Will digitization improve performance? According to PwC’s findings, definitely. Organizations with high levels of adoption showed significant improvement in purchasing department performance, simplified processes, internal customer satisfaction and team efficiency.
“Companies who have mid-level to optimal levels of deployment have achieved quite a bit of improvement across all four dimensions,” said Dr. El-Jawahari. “Companies with limited adoption are seeing some improvements but are lagging behind quite a bit in certain areas such as customer satisfaction and efficiency, compared to companies who have invested more heavily in digitization.”
But even among those companies who’ve made significant investments, adapting existing processes to the new digital solutions remains a barrier to success. In fact, 54% cite this challenge as a key obstacle to digital solution deployment, along with change management and involvement of internal stakeholders — in other words, the human component of technology implementation. “Time spent on process redesign and change management will bring more value to a digital transformation project, than the technical aspects of choosing the solution and technology integrator,” said Dr. El-Jawahari.
High-Potential Transformation Use Cases Will Impact Procurement’s Future
Dr. El-Jawahari said that the digital journey of the future can be mapped according to the adoption of high-potential use cases. Organizations will move away from what he calls “tail spend automation,” in which processes related to managing low-value tenders are automated, freeing up purchasers to focus on strategic suppliers. To satisfy the need for more efficient risk management, they’ll begin identifying high-risk suppliers and finding potential alternatives, leveraging technology and AI to simplify the process. Next, organizations will adopt process intelligence to optimize procure-to-pay and accounts payable processes. They’ll also leverage data mining and advanced data analytics to identify and eliminate bottlenecks. Finally, the emergence of virtual purchasing assistants will automate communications between suppliers and procurement teams.
Dr. El-Jawahari added that blockchain technology will gain momentum as a trend, due to its potential in the areas of supply chain traceability and the traceability of quality-related events to improve risk management. “One major airline leveraged blockchain technology to track the delivery of champagne from its origins in France all the way to destinations across the globe,” he said, adding that for many products, controlling the temperature, humidity and storage parameters are critical. “Leveraging sensors, blockchain technology can be used to create a ledger of a product’s journey and pinpoint if a failure occurred,” he said. This capability has been essential for distributing Covid-19 vaccines by Pfizer and other manufacturers.
Among survey respondents, 13% stated they are testing the use of blockchain in their organizations, and another 37% have identified it as an opportunity.
Where Are You in Your Digital Transformation Journey?
To progress along your digital transformation journey, it’s important to understand your level of digital maturity. PwC defines six stages, from “beginner” all the way to “Procurement 4.0.” Companies in the “beginner” stage are still working on the foundational blocks of digital procurement, and the purchasing function isn’t yet considered strategic. They may also lack visibility into overall spend, spend categories and suppliers.
As companies progress through the stages, they begin digitizing source-to-pay processes, and by the third stage, digital transformation has begun and procurement is considered a strategic function. In the latter stages, processes become more developed, and technology solutions are in place. Only the most mature organizations have fully integrated procurement technology and other advanced systems such as AI-powered solutions and blockchain.
Sachin Halbe, Procurement and Supply Chain Director at PwC, said that most of the companies in the Middle East region are just beginning their journey. They are in the first few stages of procurement maturity, and their ability to jump ahead to the latter stages depends primarily on data availability. “If you are at the lowest stage of the maturity framework, most of your data is still in manual PDF format,” he said. “It’s difficult to become more digitally mature without first establishing this initial foundation.” But, Halbe added, once processes are mostly automated and there’s a shared and integrated supplier database, it’s much easier to accelerate along the digitization journey.
Sara Omer, Middle East Sales Director at Ivalua, said that your level of digital transformation maturity will determine your next steps and you progress toward embracing Procurement 4.0. If you’re just beginning to digitally transform, the first step is to define the value proposition to the organization. Make sure you have the foundation blocks in place, including data availability, the right digital processes and tools, and the talent and skill set to execute. Additionally, everyone should be accountable to embrace and drive change.
Choose the Right Vendor to Ensure Success
PwC’s survey revealed that 30% of responders consider vendor selection as a critical success factor for digital transformation adoption. Ivalua is helping companies across the globe digitize procurement from source to pay, and maximize adoption and the ROI of their digitization efforts. To learn more about how Ivalua can support your organization with its digital transformation initiatives at any stage along your journey, contact us today.