THE ST RATE G IC E NA BLERS FO R TOMORRO W
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T HE S T RAT EG I C ENABL E R S F O R T OM OR R O W Dr Jan Joachim Herrmann, Partner at PwC Germany, shares his four key procurement trends for 2022 and beyond. ith the urgency to act on raw material shortages and inflation, Dr Jan Herrmann is mindful that price increases will be one of the most important topics in the coming years.
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That said, there are four key enablers related to the current situation, which he outlines as follows: 1) Digitalisation 2) Technology Development 3) Sustainability and 4) Risk Management. Here, Jan shares his views on each of the aforementioned procurement trends, as well as advice on how companies can best prepare. 4
Taking the first point, Jan begins, “When we talk about the digitalisation of procurement, we are focusing on getting rid of old manual procurement processes, such as tendering, negotiations, ordering, invoicing, order confirmations, goods receipts, and contract and supplier management, with everyday tasks becoming more and more
“I R ECOG N ISE A N EXPON EN TIA L G R OWTH OF PR OCUR EMEN T D IG ITA LISATION IN TH E N EXT F EW Y EA R S, PR OCESS BY PR OCESS, U N TIL EV ERY TH IN G IS C OV ER ED” Dr Jan Herrmann
digitalised. At the moment, we have a lot of the tools available, but the only obstacle explaining why we haven’t as yet solved everything is the fact that companies are at the beginning of the digitalisation of procurement and are not able to cover the complexity of digital possibilities. They will soon evolve from classical processes to, for example, supplier-network
management (n-tier supplier), contract lifecycle management, and new disciplines like data and analytics or risk management. I recognise an exponential growth of procurement digitalisation in the next few years, process by process, until everything is covered.” However, Jan flags up that having knowledge of the market trends 5
does not take into account unprecedented global events such as the Covid-19 pandemic, the war in Ukraine, or a container ship blocking the Suez Canal. He adds, “It is important to bear in mind that the impact of such unexpected events of the last decade cannot be solved by digital solutions. You need the solutions to ensure an early and proactive involvement in solving upcoming events to reduce the long-term effect on your business.” The second trend refers to the development of technology. According to Jan, for the digitalisation of procurement, the technology is readily available, but the challenge lies in understanding how it works. He explains, “There is no new technology surprising us at the moment. What we are seeing is that when you have solved the first steps of procurement, you can fill the gaps with technologies such as RPA, AI or blockchain. We have all heard about these, but nobody really understands what is behind them. The chances offered by these solutions are therefore not really understood right now. If we can start to understand how we can use the solution 6
“ FO R T H E D IG ITALIS AT ION OF P R O C U R E ME N T, T H E T EC H N OLOGY IS R E AD ILY AVAILABLE , B U T T H E C HALLE N G E LIE S IN UN D E R S TAN D IN G H O W IT WORKS”
in the right manner, we will open up more opportunities with these new technologies.” Jan cites the example of using blockchain for track and trace. With this technology, you can follow containers around the world and ensure special requirements are considered across entire value chains.
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This offers fantastic potential to understand how the value chain is working, enabling companies to see for themselves how they can use this solution in practice. A further example is semantic folding. Jan continues, “Having the possibility to evaluate all the information on the world
wide web in every source, in every language, is a very strong development. The technology coming through understands the meaning behind all sentences and is able to find the right information in the right language. It is a great chance for us to use technology as a lever to increase the impact on procurement.” 7
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Perhaps Jan’s favourite trend of all, sustainability is next, but he stresses that it is difficult to say whether or not something is sustainable procurement at the moment. Jan explains, “The focus for sustainable procurement is making sure the supply chains I have behind my suppliers are transparent and able to react on effects in the supply chain. This means that when there is an issue in the supply chain, the system and network are able to change
“When I have this transparency, I can then take the next step to create the best portfolio of suppliers in terms of ESG, financial risk, raw material shortages etc. We call it an optimal supplier portfolio. Having the right portfolio of suppliers ensures that the ESG equilibrium can be maintained.” The final trend Jan mentions is risk management, highlighting the difficulty of evaluating the risk
“CO UPA S OF TWA R E HAS AN E N T IR E S U IT E FO R P RO C URE M EN T, SU P P LY C HAIN AN D R IS K MANAG E ME NT. JAN REF ER S TO TH EM AS AN E N D -T O - E N D D IG ITAL E NAB L ER F OR P R OCU R EM E N T, A PART N E R T O FU LFIL T H E C O MP L ETE SU PP LY C HAIN V IS IBILIT Y MO D ULE ” the structure of the network itself, so I am able to create new supply chains for suppliers to get raw materials or resources to enable the supplies to reach my sites. Therefore my supply chains are able to react to environmental hazards, social impacts and governance issues, for example, due to high transparency and analytics to raise the red flags, and therewith a chance to implement (automatically) preventive or remedial actions.
of human rights, modern slavery and raw material shortages in the supply chain. Jan says, “The risk analytics behind these issues are not available right now, so there are methodologies in place within companies across their entire supply chain to understand how risk can be evaluated and prioritised. This is a huge trend in procurement at the moment.” Sustainability and risk management are related insofar 9
as sustainability is the target, and risk management is the enabler. For risk management to be in place, you also need technology and digitalisation at your disposal. Jan adds, “Risk management will be a connector of classical procurement decisions with, for example, network decisions, sustainability decisions etc. I believe that we are not able to 10
focus on just one of these angles. When new technology arises, we have to understand how we can use it for risk management, for digitalisation, for sustainability. You have to think about each of the individual quadrants.” Speaking of sustainability, the Supply Due Diligence Act 2023 was
“P R O C UREM EN T ACT S AS T HE O PERATIVE I NST I T U T I ON T HAT TRIES TO F U L F I L T H E R E G UL ATIO N S THAT COM E UP ON THE CO M P L IA N CE SI D E ”
adopted by the German Federal Parliament last June and will come into effect on 1st January 2023. It aims to improve the protection of international human rights and the environment by setting binding standards for large companies and their value chains. So, what do companies need to do in order to prepare? Jan answers, “When
we talk about the Supply Due Diligence Act, we are talking about human rights, which companies need to consider across their entire supply chain. There are six main obligations including a policy statement, risk analytics for the supply chain, a focus on preventative and remedial actions in the case of an incident, an evaluation of the impact of these measures, the expansion of your grievance mechanism from your company into the entire supply chain, and an external report on what you are doing on human rights. “When you look at these six obligations running across the entire supply chain, you can see there is a request from the German government – and in the future, the EU – to gain transparency on the specific topic of sustainability. When you bring this back to the four trends I mentioned, it is about creating the right risk analytics across the entire supply chain to gain transparency in this way, which is heavily related to technology and digitalisation. It is the first regulated step to ensure you cover a specific topic for your entire supply chain.” 11
The new law therefore offers the opportunity to focus on the four procurement trends Jan highlights. Once they understand what the regulation means, companies must consider what they already have in place (e.g. risk management, an agreements mechanism, policy statements, a code of conduct etc) upon which they can build. Jan continues, “Having looked at the status quo, you can then figure out where the
compliance side. Germany (PwC) assists companies by analysing the gaps and understanding what they need to do to fulfil these legal requirements alongside the company’s own ambitions. Jan says, “There is the law, the requirements, and then the gaps. If a company has transparency of their supply chain on human rights, they can then measure critical financial issues in their
“ P R EWAVE I S A NE WCOMER F OCUSED ON TH E R I SK MA NAG E MEN T AN D TECH N OLOGY ENA B L E ME NT OF SE MAN TIC F OLDIN G F OR TH E EN T IR E S UP PLY CHA IN ” gaps are and take the first step towards creating transparency. Where are your critical suppliers and critical supply chains on human rights? Once you have this information, you can take initiatives to convince the regulator you have sound processes in place that fulfil the law.” Procurement acts as the operative institution that tries to fulfil the regulations that come up on the 12
supply chain and increase their ambition level. They therefore gain more out of this transparency than merely human rights.” Jan believes that in order to maximise success, it is important for PwC to leverage key partnerships with other likeminded companies. He explains, “The complexity of a solution to have the view on technology, the law, procurement, supply chain, is such a massive
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task that no one can do it on their own. You need help from experts to satisfy each of the dimensions, especially on the technology side. Companies like Coupa Software and PreWave are at the leading edge, so it is essential for us to combine our strengths in order to meet the law, enable us to give excellent advice, and provide our clients with the best consulting experience.”
“ T HE IM P O RTA NT MESSAG E
T O TA KE AWAY IS T O TRY NO T O B O IL T HE O C EA N ! ”
Coupa Software has an entire suite for procurement, supply chain and risk management. Jan refers to them as an endto-end digital enabler for procurement, a partner to fulfil the complete supply chain visibility module. He adds, “We have named this software the entire procurement technology suite. It enables us to digitally analyse every single procurement process.” PreWave is a newcomer focused on the risk management and technology enablement of semantic folding for the entire supply chain. Jan elaborates, “It is a new technology, which enables an already implemented tool to give greater visibility in the entire supply chain. It is essentially 14
edge technology designed to increase and improve the current tools.” For Jan, it does not matter which innovations you decide on, or which angle upon which you choose to focus. He says if you have a strategy for the entire digitalisation of procurement,
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you can decide step-by-step what you want to improve. Jan concludes, “Whether you are process-driven or sustainabilitydriven, you need to make a plan offering an entire view and start to work on the pieces. The important message to take away is to try not to boil the ocean!”
For further information, visit www.pwc.de/en/strategyorganisation-processes-systems/ operations.html www.pwc.de/en/strategyorganisation-processes-systems/ operations/procurement.html
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www.pwc.de/en
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