If businesses can guide their procurement functions to obey three golden rules while avoiding seven deadly digital sins, then the opportunity before them is huge. Matthew Rose, Procurement Advisory Partner at KPMG plays out this game of supply chain Snakes and Ladders, reiterating that the odd fall is not necessarily a bad thing.
Hi Matthew. To dive right in, what picture would you paint of the current business landscape when it comes to procurement? What are supply chains actually dealing with in the here and now?
It really is just an ever pressing need to do more with less. To achieve more despite almost-uniquely strong headwinds.
Geo-political issues and post-COVID supply constraints have piled the pressure on many procurement functions to enhance risk management procedures. This has come at the same time as a huge acceleration in the importance of ESG and new and growing roles for procurement to manage ESG in the supply chain. The result has been a scramble to automate procurement in order to pivot resources to these new areas demanding attention, and away from their traditional focus which has been on transactional and low value operational procurement processes.
Indeed, this is what we’re seeing at KPMG with many of our clients seeking to make step changes in efficiency that are designed to drive as much as 30% or more in improvements.
Before diving into how they’re achieving such drastic changes and what your proposed roadmaps are, let’s take a step back. What is KPMG’s, and indeed your own, role as a facilitator in this procurement space?
I lead the Procurement Advisory team for KPMG’s Corporate clients in the UK. I have worked in Procurement for more than 20 years starting out in consumer goods in the early ‘00s and then joining the world of consulting. I am passionate about procurement and its potential to play an increasingly important role in delivering business value – from innovation and competitive advantage to risk and sustainability.
At KPMG, I lead a team that helps clients to transform these procurement functions. This means moving to leading practice operating models, deploying best-of-breed digital solutions, unlocking value from supplier spend, and driving sustainability in the supply chain.
It’s a fast-paced customer-centric environment focused on driving innovation and delivering tangible outcomes for clients. We are always researching new solutions, scouting for ideas and trying to cut through the hype to identify what will deliver real value to clients.
‘We’ seems the operative word here?
Absolutely – both internally here at KPMG, and externally with clients, there are always interesting conversations to be had. Our team is formed of people from a diverse range of backgrounds, spanning procurement and the supply chain, but also finance, technology and sustainability. It includes experience from a multitude of different sectors including automotive, energy, natural resources, consumer goods, retail, defence, pharmaceuticals, diversified industrials, telecoms and technology.
I am extremely proud of the practice we have built and the awards we have won as a result of this strong team, including a Highly Commended award for Commercial Impact at this year’s Management Consultancy Association awards.
Matthew Rose – KPMG
You seem perfectly positioned to tackle some of those aforementioned challenges, and certainly the pace of change that businesses are facing right now, then?
Importantly, the broader digital procurement landscape has risen to the challenge with new technology solutions and promising automation coming to market almost weekly.
Technology has historically focused on automating core transactional processes such as PO generation or approvals or payables, as well as operational processes like sourcing. We are now seeing emerging technologies starting to impact more operational and strategic activities to increase the value generated by each technology.
For example, we now see technology automating the negotiation process for low value suppliers – AI-driven sourcing bots negotiating with suppliers to agree key commercial terms. There are examples of organisations delivering double digit savings in addition to efficiency gains just by using this technology.
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Building on that example, when you talk about digital step changes, is AI at the centre of that transformation? And what are the typical outcomes at the other side of a proposed digital intervention?
AI has certainly been significant. For example, we’re seeing companies use GenAI to enhance the supplier risk management process – analysing risk data from multiple sources, evaluating that data, offering consolidated risk scores and proposing mitigations. This helped one pharmaceuticals client to reduce the number of heads focused on supplier risk assessment by 60%, and allowed the smaller team to pivot activity toward proactive risk management and mitigation.
More broadly, we now see digital solutions helping to drive insight and automation across the end-to-end process. This spans category management, market intelligence, sourcing, negotiation, contracting, onboarding, buying, supplier performance management and payables.
We have run more than 200 digital procurement programmes for clients around the globe, redefining the technology ecosystem to provide end-to-end automation and insights that deliver high levels of user experience and satisfaction. Recent analysis of those projects suggests that clients typically achieve benefits worth 2-4% of spend impacted. In the case of one media sector client, the digital procurement programme delivered more than $300m in business value.
With the pharmaceuticals example in particular, the benefit seemed to be as much cultural and business-focused as it was around the specific technology. How often is the business case overlooked when it comes to digital transformation, especially when the speed of change is so pressurised?
There are huge opportunities to be realised through digital transformation. However, we often see clients’ digital efforts trip at certain hurdles. They fall foul of at least one of what we call ‘the seven deadly digital sins’.These are:
- Missing the business case: as alluded to, with any change programme it’s vital to have a compelling case for change underpinned by a robust business case. This is vital to galvanise business support for the programme and secure the change attention the programme will need.
- Thinking technology is a panacea: no matter how good the new technology is or how much the UI impresses, technology rarely solves challenges on its own. Successful digital programmes tackle the operating model (process, roles, skills, data, governance) as well as technology.
- Underinvestment in solution scouting: there is a huge technology landscape that is growing almost daily. It’s fundamental to selecting the right technology that clients have both a strong understanding of the vendors and market trends out there, to match perfectly with their internal requirements and use cases.
- A silo mentality: the key to unlocking the big benefits of digital transformation is creating a seamless end-to-end process – automation from category strategy to vendor payment. A closed loop. Many programmes underestimate the importance of end-to-end thinking and languish in a patchwork of unconnected technologies with inconsistent data.
- Underestimating change management: many solutions fail to achieve the desired levels of adoption. Often, this is not down to the technology, but due to the way the technology has been delivered to the business, and how unprepared the business is for the technology.
- Forgetting the customer: users or customers are more digitally capable than ever before. Their expectations of technology and procurement are based on experience using retail platforms like Amazon. It’s imperative that technology is selected and configured with the customer at the centre.
- Being late to the data consideration: data is at the heart of any digital ecosystem. It’s the lifeblood that flows through processes to deliver automation and insight. Thinking about data early – definitions, structures, curation, integration – is the foundation of a successful programme.
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Presumably, part of your responsibility is to steer businesses away from these ‘sins’. But how does that play out in practice?
I firmly believe in a business-led transformation approach enabled by technology. This means starting with the business goals and performance ambition, then the procurement operating model, and finally the enabling technology. An organisation’s digital landscape can look radically different depending on the relative priorities of cost, speed, time, quality, sustainability and risk.
As such, at KPMG we have built an approach called Powered. Powered is an outcome-focused transformation approach. What this means in practical terms is that we start with a very clear view of a client’s performance ambitions. For example, 70% of their transactional processes to be automated, and 90% of spend managed through professional procurement processes. We then build the operating model and enabling technology around those performance ambitions.
Powered then accelerates this journey by providing leading practice reference operating models (processes, organisation structures, service delivery models, roles, controls, KPIs, governance, data structures, etc) as part of a transformation toolkit that guides clients from vision to results.
Of course, every client and business case is different, but are there certain technologies that you would always look to incorporate into a new-look procurement infrastructure? Or priorities that should always form the first step of a transformation?
I often get asked what I believe the leading technology solutions are, and how to create a digital ecosystem.
In 2023 we undertook an assessment of clients’ digital procurement strategies, to assess what approaches have proven most successful across different procurement functions. That work concluded that it remains important to have a core source-to-pay technology backbone (for example, Coupa, Ariba, Ivalua, Jaggaer) to best support a connected end-to-end process. However, we also found it is best to then augment that backbone with integrated best-of-breed solutions to exploit advanced emerging technologies (eg, Pactum, Cirtuo, GenAI).
The challenge for many organisations is identifying which of the backbone and best-of-breed solutions to use, and then to work out how to connect the ecosystem as part of seamless end-to-end processes and data flows. With the huge proliferation of procurement technologies available and the continuous development of the core source-to-pay backbone technologies, it can be hard to identify the right recipe of solutions.
Is that where that often used word, ‘agility’ comes into the mix? Establishing a culture that is flexible enough to find the best option – not just generally, but for each organisation’s specific business needs?
Yes, but there are three golden rules that tie in with that flexible culture and way of strategising…
The first one is to remember that digitalisation is a journey, not a destination. Leaders continuously evolve their technology landscapes over time – monitoring and managing the performance of the technology solutions (eg, driving adoption, addressing bottlenecks, etc), adopting new functionality from new releases or updates, or augmenting the landscape with new point solutions.
Moreover, they’re not afraid to step back and review the complete ecosystem. In the past six months alone, I have worked with two global multibillion dollar clients to do just that. With the pace of technology change and fast-moving consumer markets, it’s important to periodically reassess the whole landscape. Layering on new technologies has its limits. At times, it may be necessary to go backwards to move forward… to remove legacy technology that no longer meets business requirements and replace it; rather than seeking to address gaps through a multitude of point solutions. You’ve got to be ready to fail fast!
…and that’s the second golden rule?
Absolutely. You can’t be afraid to fail. Not all new technology will succeed. Leaders are prepared to run rapid pilots, test solutions, to scrap them if they don’t deliver, or scale fast if they do. Not only does this lead to some really exciting use cases, like AI reading contracts identifying weaknesses and lost value, but it also helps to build digital skills and instil a culture of innovation within the procurement team.
In a world where digital capability is increasingly the mark of a leading procurement function, digital skills and that innovation culture are key enablers of competitive advantage.
And the third golden rule?
Data has to be at the heart of design. Start with the decisions that need to be made and work back to the data required to make those decisions. It sounds simple but it really isn’t.
Procurement is at an exciting nexus of internal and external data, uniquely positioned to provide insight that will drive real competitive advantage for their businesses. It leads to some fascinating, impressive case studies, such as a food company using weather pattern data to forecast future crop yields and associated market prices with the aim of adjusting ingredients to optimise product costs. Or the aforementioned pharmaceutical company looking back through tiers in the supply chain to manage supply risks, inform inventory planning and shape sourcing strategies.
Those leading the way when it comes to digital procurement aren’t the ones just giving themselves to the most exciting new technology and hoping for the best. They’re the ones doing their due diligence but still moving quickly; making optimal decisions but being willing to fail; and – critically – the leaders are those that best nurture and exploit the vast swathes of data they have.
To that end, and considering both the pace of change and the abundance of options out there when it comes to procurement technologies, what is your rallying cry to businesses in 2024?
Seize the opportunity now. Digitalising procurement is a fantastic opportunity for the function to be at the forefront of a change that is impacting all functions across the business. Those procurement functions acting on the front foot will enhance their profile and build vital digital skills that will be highly valued by their business stakeholders.
Those that sit back and wait risk becoming an afterthought, relying on technologies that have bolt-on procurement capability rather than being best of breed.
And, critically, what can we expect from your team in the coming months to ensure you remain primely positioned to guide these businesses?
We strive to help our clients become digital leaders. That means: continuing to scout the ever changing procurement technology market to provide vital insights; building client business cases to get programmes off the ground; sharing learnings from hundreds of KPMG Digital Procurement projects to de-risk client programmes; co-creating GenAI solutions with clients to harness the latest innovations; redefining procurement operating models to realise the digital potential; and driving customer-centric change programmes in a way that makes them resilient and sustainable into the future.