Interview with Ludovic Montécot
No stone is left unturned when digitalization takes hold: Digitalization is revolutionizing processes in purchasing. What this means exactly, which processes are being streamlined or automated, and whether “analog” buyers can still survive in the long term, tells us Kloepfel Senior Manager Ludovic Montécot.
In the big picture: What does digitalization mean in purchasing?
In practice, it means: Optimizing inefficient processes in purchasing by using digital tools or technical means that make your life easier. “Inefficiency” means, for example: The manual collection of data. This is completely unnecessary nowadays, because you can transfer many values from one system to another without having to copy them yourself. Even instructing documents can be scanned effortlessly, and the relevant data is then automatically captured and transferred to various modules of the ERP system.
Another example is supplier research. In the past, you had to work with the phone book, scattered business cards, the Rolodex or even networking. Then you just asked your contacts: “Do you know someone who reliably supplies this or that?” Today, that’s hard to imagine: Digital platforms make it possible to research potential suppliers quickly, effectively and, above all, globally. An invitation to tender can then be completely structured and largely automated – in the corporate design of the company issuing the invitation to tender! In the past, this was all done via price inquiries by fax or manually sent e-mails.
Last but not least, processes can also be optimized during supplier selection and contracting: Contracts are automatically checked for certain keywords and parameters. In the past, this had to be done manually – and still is in many legal and purchasing departments.
What do buyers do differently because of digitization than they did 10 or 20 years ago, for example?
Workflows have been completely turned upside down. It’s not uncommon for supply contracts and other incoming documents to go through different departments and hierarchies for approval. That used to happen either by foot and mail – or pneumatic tube. Nowadays, there’s document upload to the cloud and anyone can mark that they’ve read and approved. For example, accounting gets an invoice in the mail and can distribute it for review and approval at the push of a button after it’s been scanned.
Digitization also helps when it comes to sending out documents. If specifications, technical drawings for tenders are to be sent to suppliers, this is also much easier via the cloud than via e-mails or by post.
The possibilities for analysis and visualization have also changed considerably. In the past, you were happy if you could show a small diagram in a meeting with your boss. Today, meaningful diagrams for reports can be created at any time at the touch of a button – and uniformly across different employees, so that comparisons can be made. If you then want to show something to a colleague, it can be done quickly, even if he is looking over your shoulder. And the boss always gets key figures in the same format, possibly also continuously via a dashboard.
Supplier work in terms of communication has also clearly changed due to web meetings – they are still no direct contact face-to-face, but a quantum leap compared to the phone call. You can see how the other person is dressed, how they gesture, the facial expressions, and of course it also commands attention, because who knows what some people otherwise do on the phone on the side? All of this is very helpful for negotiations, but also for keeping everyday contact, and it’s a good middle ground between a phone call and a face-to-face conversation.
Is the digitization of purchasing proceeding in a comparable way in all companies, or are there different strategies?
The first thing to note is that strategies revolve around the available budget and differ accordingly. Digitization is not the top priority everywhere. In addition, many companies do not even perceive that purchasing is not at an appropriate level of digitization: they work without a cloud and think that telephone, e-mail and possibly even fax would suffice after all. The Corona pandemic has presented purchasing managers and CEOs with two contradictory facts.
First, it has illustrated that digital maturity is insufficient if the conditions for web meetings with suppliers have not even been created. Second, there was a financial risk for many business owners, so they were unwilling to make a sustained investment in digital tools. In this context, Corona has shown that digitalization makes you more crisis-proof. Nevertheless, we also observe that some customers do not have a cloud solution or a digital infrastructure for information distribution and transparency.
Is digitization in purchasing being driven forward in isolation or as part of a larger digitization strategy of the company?
We have often seen in projects that purchasing starts its digitization push on its own and infects other departments with it. When I was purchasing manager at a listed company for connection technology in Maintal, we initially worked with scattered tools depending on the area of responsibility. At some point, we decided to introduce a uniform Supplier Relationship Management (SRM) system via Microsoft Dynamics. Here, everything concerning supplier relationships was integrated in a standardized way: Inquiries, catalog purchases, contract documents, spend management. We spent a lot of money on this, but afterwards we were at a comfortable level that saved quite a few man-hours and thus quickly amortized the investment. Other departments suddenly saw the efficiency and approached us for access to individual modules. Our sales department, for example, was able to see whether we were complying with all the standards set by our customers in accordance with IATF 16949 by looking at our ERFQs (electronic supplier requests). They were thrilled with the transparency! What we also did was to link the CRM and SRM. This is very easy to do, but hardly any companies do it. Unfortunately, departmental silos often play a role here as well.
What does the currently “perfectly” digitized purchasing department look like? Is it possible to determine the “digital maturity level” of a purchasing department?
In principle, it is of course possible to define degrees of digitization based on continuously updated factors that are collected. For example, there is the Digital Transformation Index. However, the extent to which this makes sense for individual purchasing departments must be questioned. For a rather small company with only one location and a few employees, a fully developed SRM makes little sense; it would be oversized. In this case, it would be pointless to attest to a low level of digitization. If anything, you would first have to look at the relative requirements of the company and, in a second step, see how far away you are from the goal that suits your purchasing department. That way, one would know what level of digitization would make them the “perfect” digitized department.
Nevertheless, it is possible to identify areas where the progress of digitization can be measured, namely toolset, skillset and mindset. Toolset means that purchasing staff have all the infrastructure, i.e. hardware and software, they need to participate in digitization. For example, smartphones, laptops, scanners, webcams, on the hardware side, but also VPN, cloud storage, software licenses and a solid IT infrastructure setup on the other. Skillset, meanwhile, expresses that they are also able to use the various tools, platforms and new opportunities because they know the features and how to use them. However, tool and skillset are of no help if the mindset is not right: The willingness to learn new things and find your way in the digital world.
What are the benefits of digitizing purchasing?
Overall, great transparency and time savings, which purchasing can then invest in other areas. The less buyers are tied down by operational minutiae, the more they can focus on strategic tasks, cultivating their supplier network, improving their risk management, and so on. It can be observed that many purchasing processes can be digitized at the same time, which in turn creates synergies: these include needs analysis, market analysis, strategy determination and implementation.
Does purchasing have to be digitized at all, or can you still get by as an “analog buyer” these days?
We are in a period of change, and yes, you can still get by “analog”. But two questions arise. First, at what price? And second: For how long? Because there are many buyers who don’t even know how Excel works efficiently. They get by, too, but of course much more slowly – and therefore more expensively. Yet there is a lot of pressure to be efficient, if only in competition with China. In ten years, the world will be a different place, and it will certainly not turn any slower – those who do not learn today will quickly be out of the running.
What are the challenges of digitizing purchasing?
The data basis is often a massive problem. Without good data, nothing can be automated. On the contrary, if bad data is fed in, nothing useful comes out in the end. Another challenge is the introduction of digital capabilities itself; systems want to be introduced cleanly, after all. In the meantime, of course, day-to-day business continues to challenge buyers. For production, for example, the priority is always to get the parts onto the production line! In addition, creating the capacities for digitization is a challenge, as with every project. Of course, these are also the very cases in which customers call on our help and advice. This makes day-to-day business all the more challenging, as it is often lived inefficiently. We help to break this circle.
Otherwise, it must be clear that while it is possible for purchasing to advance in isolation, it makes absolute sense for digitization to be declared a top priority by management and to be lived out in all departments. Otherwise, of course, a major challenge lies in the triumvirate of toolset, skillset and mindset – employees must be well equipped and qualified.
Are all buyers coping equally well with these challenges?
Digitalization is only one aspect of purchasing in transition. Many “old hands” still have the idea of the buyer as a pure order processor. Today, however, buyers can and must play a key role in the company – the current shortage situation for a wide range of materials shows that simply “pressing the order button” is not enough. Anyone who does not have procurement expertise and a resilient supplier network may be responsible for a production standstill! On the other hand, those who currently manage to supply their colleagues with raw materials, despite the market shortage, can advance to become the savior and hero of the company.
The mindset must therefore be right, and those who have grown up without digitization and are stuck in old processes will fare correspondingly worse. The next generation often consists of well-educated “digital natives” who can quickly learn new software in the age of Big Data and find their way around in the cloud environment. They have grown up with the digital mindset! This next generation is immediately on board and understands what it’s all about: more time for other tasks. To keep “old hands” in the game, they need to show initiative and receive advanced training. Then the older ones will also realize that digitization is not rocket science.
There is no other way, because in the long term, the shopping world is moving to new shores. Those who prefer to sit back instead of learning to swim will drown when they are pushed into the water by progress.
Mr. Montécot, thank you for the interview!
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