The future of procurement in the age of digital supply networks The DBriefs Driving Enterprise Value series Joe Chmielewski, Senior Manager, Deloitte Consulting LLP Vinod Venugopal, Principal, Deloitte Consulting LLP October 11, 2017
Welcome to the next episode in driving enterprise value Shareholder value Revenue growth Operating margin (after taxes) Asset efficiency Expectations Volume Price realization Selling, general & administrative (SG&A) Cost of goods sold (Cogs) Income taxes Property, plant & Equipment (PP&E) Inventory Receivables & Payables Company strengths External factors Acquire New Customers Retain and Grow Current Customers Leverage Income- Generating Assets Strengthen Pricing Improve Customer Interaction Efficiency Improve Corporate/ Shared Service Efficiency Improve Development & Production Efficiency Improve Logistics & Service Provision Efficiency Improve Income Tax Efficiency Improve PP&E Efficiency Improve Inventory Efficiency Improve Receivables & Payables Efficiency Improve Managerial & Governance Effectiveness Improve Execution Capabilities Product & Service Innovation Product & Service Innovation Cash/Asset Management Demand & Supply Management Marketing & Advertising IT, Telecom & Networking Product Development Logistics & Distribution Income Tax Management Real Estate & Infrastructure Finished Goods Accounts, Notes & Interest Receivable Governance Operational Excellence Marketing & Sales Account Management Price Optimization Sales Real Estate Materials Merchandising Equipment & Systems Work in Process & Raw Materials Accounts, Notes & Interest Payable Business Planning Partnership & Collaboration Retention Customer Service & Support Human Resources Production Service Delivery Program Delivery Relationship Strength Cross-Sell/ Up-Sell Order Fulfillment & Billing Procurement (Excluding Production Materials & Merchandise) Business Performance Management Agility& Flexibility Business Management Strategic Assets Financial Management The above graphic depicts Deloitte s Enterprise Value Map for building and enhancing shareholder value. Copyright 2017 Deloitte Development LLC. All rights reserved. The future of procurement in the age of digital supply networks 2
Today s agenda Digital is broadening procurement s mission to support the CFO in delivering on the business agenda enabling organizations to unlock additional value Implementation is typically rapid and requires minimal investment but also requires adjustments to the talent model Copyright 2017 Deloitte Development LLC. All rights reserved. The future of procurement in the age of digital supply networks 3
Digital in context Digital is broadening procurement s mission to support the CFO in delivering on the business agenda Copyright 2017 Deloitte Development LLC. All rights reserved. The future of procurement in the age of digital supply networks
We are in an era defined by disruptive technological change Exponential technology change Disrupting supply chains across industries $1,245 per Gbps Cost of Performance $569 per GB $222 per million transistors 1992 1 2 Enhanced Computing Expanded Storage Exponential change enables: 3 Increased Bandwidth <$10 <$0.06 <$0.01 Today 90% of CPOs anticipate disruption from digital technologies, but only 44% are adequately preparing Connectivity Internet of Things Mobility The Cloud CPO Survey Insight Source: Deloitte University Press Deloitte s 2017 Global CPO Survey captures sentiment from over 480 procurement executives across 36 countries and multiple industries Copyright 2017 Deloitte Development LLC. All rights reserved. The future of procurement in the age of digital supply networks 5
This disruption creates a burning platform to develop new capabilities Core technology disruptors 1 2 3 Enhanced computing Expanded storage Increased bandwidth Applications to supply chain Cognitive / Artificial intelligence Digital supply networks Plan Intelligent content extraction Deliver Support Robotics Digital Core 3D printing Make Develop Blockchain Source Procurement that has full visibility of supply base alternatives, prices, and risks Copyright 2017 Deloitte Development LLC. All rights reserved. The future of procurement in the age of digital supply networks 6
As a result, procurement s mission is broadened to support the CFO in delivering on the business agenda Main mission Where procurement delivers cost leadership & supply assurance Leadership agenda Where procurement supports CFO decision-making and value creation Predicting demand and attaining cost / pricing transparency Optimizing current supply base and securing future suppliers Executing transactional processes Proactively moving away from risks Source to contract Procure to pay Supplier management Accelerating cost savings Establishing new partnerships that support new offerings Driving M&A strategy by leading operational due diligence Influencing market entry decisions to promote growth and expansion CPO Survey Insight 75% of CPOs believe that their role in delivering digital strategy will increase in the future Copyright 2017 Deloitte Development LLC. All rights reserved. The future of procurement in the age of digital supply networks 7
Polling question #1 What elements of the CFO agenda are you most expecting sourcing & procurement to deliver? Cost Leadership (accelerating cost savings) New Offerings (establishing new partnerships that support new offerings) M&A (driving M&A strategy by leading operational due diligence) Growth/Expansion (influencing market entry decisions to promote growth and expansion) Don t know / Not applicable Copyright 2017 Deloitte Development LLC. All rights reserved. The future of procurement in the age of digital supply networks 8
The future of digital procurement Digital procurement enables organizations to unlock additional value Copyright 2017 Deloitte Development LLC. All rights reserved. The future of procurement in the age of digital supply networks
Digital procurement technologies enhance sourcing and procurement value Value from sourcing and procurement Source-to-Contract (S2C) Stakeholder complexity How can we build trust with the business & influence decisions using data & insights? Cost Savings Quality Speed to Market Innovation / Technology Diversity / Sustainability Procure-to-Procure (P2P) Efficiency Visibility Controls How can we tap the latest supplier innovations while delivering holistic value? Supply market complexity Supplier Relationship Mgmt. (SRM) Supply Chain Visibility Risk Mitigation Regulatory Compliance Using Digital Procurement technologies S2C becomes PREDICTIVE Supply base, prices, costs are all predicted empowering you to reach transparent agreements P2P becomes AUTOMATED Transactions are all automated, requiring minimal human intervention to address incongruity SRM becomes PROACTIVE Risk mitigation strategies are proactive and preemptive, allowing continuous ops. optimization Copyright 2017 Deloitte Development LLC. All rights reserved. The future of procurement in the age of digital supply networks 10
These changes are enabling new possibilities across procurement processes S2C becomes PREDICTIVE P2P becomes AUTOMATED SRM becomes PROACTIVE Imagine Imagine Imagine Managing spend in real time Predicting demand with artificial intelligence Automatically sensing material demand and requisitioning delivery Eliminating repetitive processing Monitoring risk in real-time Conducting supplier visits utilizing augmented reality Knowing total cost for commodities Predicting sources of future supply Triggering payments in real-time Exchanging goods through decentralized ledgers Performing supplier audits through crowd sourcing Monitoring sustainability using automatic reporting / visualization Copyright 2017 Deloitte Development LLC. All rights reserved. The future of procurement in the age of digital supply networks 11
Leaders are investing in maturing capabilities and technologies to maximize value Sensors / Wearables Spend analytics Contract management Supplier info mgmt. einvoicing esourcing Electronic catalogs eprocurement eauctions Cognitive / Artificial intelligence Intelligent content extraction Robotics Predictive / Advanced analytics Visualization 3D Printing Collaboration Networks Crowdsourcing Block chain Cyber tracking Virtual reality / Spatial analytics Core Solutions that are already procurement mainstays HIGH Maturing Solutions that are transforming procurement with minimal investment CURRENT DEPLOYMENT IN PROCUREMENT Emerging Solutions that could impact Procurement in the future LOW Copyright 2017 Deloitte Development LLC. All rights reserved. The future of procurement in the age of digital supply networks 12
Next generation procurement functions are enabled by digital solutions Improved inputs Improved decision making & efficiency Results Physical data files Contracts, specs, bills of materials Unstructured databases Supplier spend, accts payable Movement of goods tracking Deliveries, demand, material consumption, receipt of goods Extract data Categorize data Detect movement Intelligent Content Extraction (D-ICE) Cognitive Computing (CognitiveSpend*) Sensors Digital Solutions Grow in value when used together Cognitive Computing (CognitiveSpend*) Advanced Should Costing (GSI*) Cyber Tracking (Marigold) Collaboration Networks Advanced Visualization Decision support Predictive S2C Automated P2P Third party data Supplier data, social media, commodity trends, duties and tariffs, country risk, 3rd party payment clearing Enrich Blockchain Robotics (RPA*) * See example on following page Automation Proactive SRM Copyright 2017 Deloitte Development LLC. All rights reserved. The future of procurement in the age of digital supply networks 13
Digital solutions in action Cognitive computing CognitiveSpend utilizes machine learning to classify complex, unstructured data Advanced should costing Global Sourcing Insights (GSI) analyzes and predicts market trends, assesses supply chain quality, and determines supplier viability Robotics Robotics Process Automation (RPA) automates manual activities by performing repetitive tasks using rules based software Classifies 40K line items per minute using machine learning Accelerates speed to insight from months to hours or minutes Uncovers 20% more sourceable spend by increasing spend visibility Leverages 90+ metrics across 1000+ categories and 10M+ data points to drive actionable insights Accelerates supplier identification by 75% via supplier databases with 40K+ suppliers Decreases processing time by up to 300% (15X faster than humans) Achieves 15-90% cost reduction depending on the function Increases productivity by 20-60%; reduces errors by 80-99% CPO Survey Insight ~90% of CPOs believe automation / robotics will impact procurement in the next 5 years Copyright 2017 Deloitte Development LLC. All rights reserved. The future of procurement in the age of digital supply networks 14
Digital procurement advances are making it easier for finance to deliver on the broader business agenda and uncover additional value Only 29% of CFOs say they connect analytics to action but 74% say their firms want to be data-driven Global manufacturer leveraged RPA to automate the requisition and invoice processing workflows leading to an evolved shared service delivery model Global company in process of an acquisition, leveraged Intelligent Content Extraction technology (D-ICE) to review and disposition 4,500+ agreements and identify synergy opportunities in time for Day 1 operations Source to contract Procure to pay Leading retailer leveraged cognitive computing technology (CognitiveSpend) to achieve visibility into $4B in global spend in a matter of weeks, including insights into sourcing opportunities and cost take-out Supplier management Leading retailer utilized visual analytics (Global Sourcing Insights solution) to build a new supplier ecosystem, using proprietary data to drive rapid cost and risk insights and enable smarter sourcing decisions Deloitte Digital + Analytics Academy Copyright 2017 Deloitte Development LLC. All rights reserved. The future of procurement in the age of digital supply networks 15
Polling question #2 Which of these maturing digital procurement technologies do you expect to most impact your business / supply base in the next 1-3 years? Cognitive / Artificial intelligence Intelligent content extraction Robotics Predictive / Advanced analytics Visualization Don t Know / Not applicable Copyright 2017 Deloitte Development LLC. All rights reserved. The future of procurement in the age of digital supply networks 16
Building digital procurement capabilities Implementation is typically rapid and requires minimal investment Copyright 2017 Deloitte Development LLC. All rights reserved. The future of procurement in the age of digital supply networks
Building tomorrow s digital procurement capabilities depends on where you are today Core technology maturity If your core technology strategy looks like Minimalist Little to no investment in core technology Typical Moderate investment in core digital technologies Advanced Significant investment in core technologies and early adopter of enhanced applications Then your maturing & emerging technologies need to Leap Frog Take advantage of enhanced digital applications to offset select core investments Plug Gaps Invest in technologies that can complement your existing core Accelerate Choose where you want to excel and differentiate Evolving from core to maturing and emerging technologies 1. For the foreseeable future, core and maturing / emerging technologies will work together 2. Maturing and emerging technologies are not a time and resource intensive capital investment 3. Payback is measured in weeks, not months or years Copyright 2017 Deloitte Development LLC. All rights reserved. The future of procurement in the age of digital supply networks 18
The roadmap to a successful digital supply chain relies on rapid deployment START SMALL ACT FAST THINK BIG Pick one or two solutions Begin with a small number of solutions that meet you where you are in terms of your existing systems & data. Rapidly validate, market success Leverage solutions that layer on to existing infrastructure and leapfrog major investments in systems. Champion your success to build momentum behind your digital procurement journey. Immerse yourself in innovation Join an immersive experience (e.g., technology demo with your data) to explore the art of the possible, inspire ideas, and build a culture of innovation. Copyright 2017 Deloitte Development LLC. All rights reserved. The future of procurement in the age of digital supply networks 19
Rapid deployment utilizes an agile approach to build capabilities from iterative sprints The agile approach IMAGINE Explore The Art of the Possible DELIVER Prioritize and create rapid impact Deliver RUN Measure performance and increase scope Deliver Capability Sprint 1 Capability Sprint 2 Capability Sprint 3 Capability Sprint 4 Illustrative procurement journey: Enable spend & contract management Deliver Develop sourcing strategy Build efficiency and speed Deliver Manage supplier Risk proactively Copyright 2017 Deloitte Development LLC. All rights reserved. The future of procurement in the age of digital supply networks 20
Polling question #3 How would you describe your function s core technology maturity? Minimalist (little to no investment in core technology) Typical (moderate investment in core digital technologies) Advanced (significant investment in core technologies and early adopter of enhanced applications) Don t Know / Not applicable Copyright 2017 Deloitte Development LLC. All rights reserved. The future of procurement in the age of digital supply networks 21
Talent implications Digital procurement requires adjustments to the talent model Copyright 2017 Deloitte Development LLC. All rights reserved. The future of procurement in the age of digital supply networks
Procurement teams need investment in talent to execute the broader mission Team has skills to deliver CPO s strategy Tech areas that will have the most impact in the next 2 years Areas of training focus for 2017 52% 65% Analytics 71% Technical procurement skills 43% 38% 40% 37% 25% 20% Cloud computing Cybersecurity / data privacy Emerging technology 66% 31% 9% Soft skills Digital skills No formal training 2013 2014 2016 2017 13% Robotics Process Automation 87% of CPOs think talent is the greatest factor in driving procurement performance but 60% believe their teams lack the skills needed to deliver their strategy 65% regard analytics as the most impactful technology over the next two years while analytics is the largest reported skills shortcoming for managers & specialists 75% of respondents claim procurement will be key to the future digital agenda however less than a third provide digital training CPO Survey Insight Copyright 2017 Deloitte Development LLC. All rights reserved. The future of procurement in the age of digital supply networks 23
Digital procurement will fundamentally impact the talent landscape Procurement professionals must be well-versed in digital as Solution buyers Solution implementers Solution consumers and users Stay educated on innovative solutions and recommend the suite and sequencing of technologies Own technologies that involve minimum integration & prepare for a different working relationship with IT Extract value from digital solutions and drive substantial, measurable, and differentiated impact Copyright 2017 Deloitte Development LLC. All rights reserved. The future of procurement in the age of digital supply networks 24
Polling question #4 How is your organization most adjusting its talent strategy to adapt to the change digital is driving? Targeting a new talent profile (Highly strategic resources with deep analytical and digital expertise) Targeting a new source of talent (recruit talent from top tier programs, including MBAs and engineers) Employing innovative retention strategies (offer rotational programs, leadership opportunities, and nonlinear promotion paths) Implementing effective training programs (invest in interactive training focused on strategic skills and digital technology enablement) Don t know / Not applicable Copyright 2017 Deloitte Development LLC. All rights reserved. The future of procurement in the age of digital supply networks 25
Question and answer Copyright 2017 Deloitte Development LLC. All rights reserved. The future of procurement in the age of digital supply networks 26
Contact information Vinod Venugopal Principal Deloitte Consulting LLP vinvenugopal@deloitte.com Connect with me on LinkedIn Joe Chmielewski Senior Manager Deloitte Consulting LLP jchmielewski@deloitte.com Connect with me on LinkedIn Miles Ewing Principal Deloitte Consulting LLP miewing@deloitte.com Connect with me on LinkedIn Copyright 2017 Deloitte Development LLC. All rights reserved. The future of procurement in the age of digital supply networks 27
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Join us November 1 at 2 p.m. ET as our Driving Enterprise Value series presents: Digital talent and CFOs: Technology is just one part of the equation Copyright 2017 Deloitte Development LLC. All rights reserved. The future of procurement in the age of digital supply networks 29
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