INDUSTRY INSIGHT

Driving procurement leadership in the digital world

Bernd Schreiber, Partner, Arthur D. Little, and speaker at the 11th GPCA Supply Chain Conference, says that chemical companies need to create procurement systems that not only “Do” but “Think” and even “Learn” to generate greater value for their business

Procurement is an essential part of chemical companies’ operations. What are some of the best in class practices for achieving procurement excellence in chemicals?

Procurement leaders in the chemicals industry have a strategic impact on the company. They contribute heavily to implement the companies’ strategic agenda in terms of cost efficiency, generating value out of the assets and implementing new growth areas. Another best practice area is bringing innovation to the chemical operations with the creativity and new ideas from existing and new vendors. Procurement needs to manage and accelerate innovations with suppliers. The third best practice area is leveraging digital technologies to reduce cost and to increase quality of service.

How would you describe the meaning of the term “Procurement 4.0” and what do chemical companies need to do now to adopt and adapt to the rapid digitization trend that is impacting procurement and wider supply chain dynamics?

Procurement 4.0 is an abbreviation of “Procurement leadership in the digital world”. Essentially what it means is the utilization of digital technologies in procurement and supply chain management to make processes more efficient and effective. It enables the seamless integration of suppliers, contractors, service providers and customers into the extended supply chain of a chemical company. The term Procurement 4.0 also means that procurement can source new, digital technologies and solutions for the existing as well as for new digital business units. It further enables procurement experts to work in an agile way to ensure fast time-to-market of new projects and programs.

“Procurement 4.0 means that procurement can source new, digital technologies and solutions for the existing as well as for new digital business units. It further enables procurement experts to work in an agile way to ensure fast time-to-market of new projects and programs.”
“The end-game is to have procurement systems which not only “Do” but “Think” and even “Learn”. All of this will lead to a quantum leap in the improvement of procurement’s performance.”

Cost reduction is key for chemical companies as they seek to maximize profitability and increase efficiencies. How can new procurement technologies, processes and supplier collaboration lead to cost savings?

Digital technology is a key enabler for process efficiency and effectiveness. As one of many practical examples, state-of-the art procurement platforms have a “guided procurement” features, which allows to procure any material or services as easy as we buy for private business from Amazon and/ or other e-commerce platforms. At the same time this feature ensures compliance with company-wide frame contracts which are bundling volume and ensures lower prices. Another more generic example is using Robotic Process Automation (RPA) as a basic technology to automate strategic, tactical and operational procurement processes. Such automated processes require less labor cost, are faster and much more reliable. The end-game is to have procurement systems which not only “Do” but “Think” and even “Learn”. All of this will lead to a quantum leap in the improvement of procurement performance.

What are some of the key gaps or pitfalls in the GCC chemical industry’s new procurement practices (or in the chemical industry in general) and how can they be addressed?

One of the main pitfalls is that, compared to other industries the chemical industry is much more conservative and therefore missing out on the opportunities. This is true in many aspects but also in the willingness and ambitions to use new digital technology to generate value. In a recent study published by the World Economic Forum the usage of more than 15 digital and technologies have been assessed per sector. Therefore, on a global scale, the chemical industry is a clear laggard in generating value and opportunities with new technology. From my experience, this is also true in GCC chemical industries. Another key pitfall is that we also see less maturity in process thinking in the GCC region. Good people are working in a more silo and conformance-oriented organization. In this environment digitization has the risk to automate unfavourable processes with a lot of iterations and waste. In consequence digital and lean management needs to be implemented in procurement in a joint approach to ensure maximum cost benefits

In an increasingly complex market environment – what organizational and process changes will be needed to improve chemicals procurement performance in the GCC region and in the chemical industry in general?

Procurement of the future in the chemical industry needs to have an impact on the strategic agenda. It needs to accelerate innovation and leverage digital to cost reduction for improved quality of service. To achieve this, procurement needs to evolve from a transactional oriented function towards a value generating function with best-in-class and end-to-end designed procurement processes such as “Strategy-to-mplement”, “Source-to-Contract”, “Procure-to-Pay” and “Supplier-to-Perform”.

What value can the regional petrochemical producers derive by collaborating in procurement? How can they link this to the GCC national visions?

Collaboration and alliances have the potential to generate massive value for regional petrochemical producer. Let me give you an example from the telecommunication industry. Two large telecommunication operators with several subsidiaries and brands have founded a procurement joint venture, which is consolidating their procurement demand of more than USD 15 billion on CAPEX and OPEX. This joint venture has proven to generate significant savings to the shareholders and is perceived in several procurement benchmarking exercises as a performer in the top 25%.

“Procurement needs to evolve from a transactional oriented function towards a value generating function with best-in-class and end-to-end designed procurement processes such as “Strategy-to-Implement”, “Source-to-Contract”, “Procure-to-Pay” and “Supplier-to-Perform”.