Why Procurement Needs Clearer Insight into Industry 4.0
The impact of Industry 4.0 is already being felt. But procurement needs greater understanding in order to thrive in the digital era.
Download your copy of ‘Procurement 4.0 – The Digitalisation of Procurement’ on the Fraunhofer IML website.
In our previous article we introduced the concept of Procurement 4.0 – the profession as it might look in Industry 4.0. The key findings of BME’s study into the impact of digitalisation highlighted that procurement faces some major changes in the coming years.
And alongside those changes, there will be an array of challenges, and also benefits, to be faced. In this article, we’ll examine the significance of Industry 4.0 in procurement, but also why the profession needs to find consensus.
Industry 4.0 – Scope and Impact
The BME and IML study showed that many procurement leaders believe that Industry 4.0 has a very high influence on their organisation. Equally, they expect this influence to increase in the next few years.
There is consensus from survey participants that digitalisation will have a huge impact on the organisation as a whole. However, there is less agreement of its overall impact on the procurement profession itself. For many, continuing to look at procurement as a separate entity is impossible in the digital era.
But could this lack of consensus stem from a lack of a common definition of Industry 4.0? When we have discussed the fourth industrial revolution in the past, concepts such as ‘automation’, ‘robotics’, ‘digital’ and ‘technology’ have all been used.
However, similar terms have been used in the past to describe Industry 3.0. BME have concluded from this that the line between 3.0 and 4.0 is not clear, which may be causing confusion. There are two interesting quotes in the report worth considering to highlight the differences of opinion:
“Industry 4.0 is not a thing of the future – it already exists in the present day!”
“The next revolution, which will completely transform our cooperation on every single level.”
Neither one on its own appears to be unusual. However, when seen side-by-side, they serve to highlight two distinct groups. One which sees the changes already taking place; the other which sees them as a future occurrence.
How Organisations Have Prepared
Has your procurement organisation started its digital journey? How confident would you be at pinpointing the changes so far?
If these two, polar-opposite, opinions exist, in a small sample, it highlights a level of unpreparedness in the profession. In the study, only 5 per cent said that no digitalisation activities had taken place. But, interesting, a quarter of respondents claimed the first steps were now being taken.
However, without a pre-defined starting point, then some activities that are already in-progress may be overlooked. Some organisations may be making progress in Industry 4.0 without realising it, or considering it relevant.
Something as simple as an e-procurement system, or digital P2P process, might not be considered as an Industry 4.0 change. Particularly if this change happened a few years ago.
Prof. Dr Michael Henke, believes “Companies often attribute these developments to the third industrial revolution and do not realize that this was nevertheless an important step towards industry 4.0.”
Impacting Procurement Strategy
Currently, it is unlikely that you will find either Industry 4.0 or Procurement 4.0 contained in strategy documents. However, there is likely to be mention of digital transformation, digitalisation, and innovation.
Contained within these objectives will be more common procurement strategies for realising these objectives. Within the BME study, over half of organisations were accounting for digitalisation in procurement strategy.
However, only 20 per cent claimed to have fully explored the impact of Industry 4.0 on their organisations. In spite of this, nearly half of the organisations have a department dedicated to ‘Industry 4.0’. This is a central team, usually comprising of senior management level employees.
“The companies that have already included Industry 4.0 in their company strategy are often already more advanced in the implementation of Industry 4.0 as a company without a corresponding strategy ” Prof. Dr Henke continues.
Taking Procurement Forward
As with most activities, the incorporation into strategy is not sufficient for action. Digitalisation needs to have a specific roadmap, complete with action plans, timelines, and responsibilities.
As well as this, the activities need to be seen from an organisation-wide perspective. Consideration of this topic without full functional input will only hinder coordination.
The perception of these strategies is also key. Though many of the participants considered digitalisation to only be playing a supporting role in order to move procurement forward.
The Association Supply Chain Management, Procurement and Logistics (BME), founded in 1954, is the leading professional association for supply chain managers, buyers and logisticians in Germany and Central Europe.
Fraunhofer IML, founded in 1981, is a global expert on all fields of internal and external logistics. The Institute also currently heads up the largest logistics research centre in Europe.
To download your copy of the report, visit the Fraunhofer IML website.
The procurement function must adapt and evolve to accommodate technology changes and be ready to embrace what we’re calling Procurement 4.0. The question is: Are We There Yet? Join the conversation and register as a digital delegate for The Big Ideas 2017 in London.