Businesses around the globe have adapted to the digital transformation strategy. Every piece of news includes the phrase "unprecedented," and massive adoption of digital transformation is taking place. Although many of us are familiar with this, the need to adapt to the shifting landscape is new.

In all honesty, the idea of digital transformation has been around for a long time, even though it has been discussed at boardroom tables, in meeting rooms, and in businesses over the past few decades, society has been adapting to this kind of technological advancement ever since the 1940s.

Keeping the digital transformation going has become a necessity for all industries which are into procurement. Let us identify the primary procurement challenges faced by industries and how we can solve them.

Digital transformation presents unprecedented innovation opportunities across all sectors. Businesses have been prepared to adapt to the rapidly changing workplace. Digital transformation technologies are used to run every part of a business, right from operations to management.

Adapting to Multi-Sourcing Strategy

The age old approach of consolidating spend with a single supplier to cut costs has become outdated. Similarly, the relationship between cost and risk has also changed. The impact on risk management is now simply too significant. To significantly improve their own resilience, a growing number of businesses are abandoning single-sourcing in favour of multi-sourcing. Procurement organizations are now taking the responsibility to follow the same strategy across their entire procurement process.

Building Healthy Supplier Collaboration

Due to the recent global economic crisis, prices for locally sourced goods have seen an increase due to the rising demand of the products and services. Global economic crisis, such as energy shortages in the EU and the ongoing COVID-19 outbreaks in China are forcing factories to close, which in turn is making it difficult to find suitable substitutes.

Done is the era of far-flung global supply chains. According to one Harvard Business Review, manufacturers are shifting to a regional sourcing and production model. Some experts have coined this change as "deglobalization".

Balancing Production Costs in Volatile Global Crisis

Let alone the cost issue, or shortage of truck drivers in Europe, suppliers are facing issue like the rising energy costs to price pressures concerns. As a result, some businesses are unable to make a profit or they are forced to charge more for new orders. The risky strategy of balancing the production costs might look completely different four weeks after their offer has been accepted against the current prices.

This in turn, puts their customers in procurement organizations at risk.

This gives the businesses of analysing on aspects pertaining to certain foreseeable aspects such as, “Do we tighten our pricing or run the risk of driving out our suppliers or their suppliers' suppliers?”

Such a question always has an answer. But in order to get clarity you need to be able to quantify the risks and costs.

Risk & Compliance Issues

Problems with Compliance and Risk Supply risk can be a challenging obstacle to overcome during the procurement process. Your supply chain could be disrupted by changes in the economy, fraud, and sudden changes to pricing, quantity, or delivery times.

Additionally, compliance is frequently taken into account when purchasing project supplies. You can't afford to work with a vendor who can't guarantee compliance if you need supplies that meet quality or regulatory standards. Choosing to consolidate vendors in favour of the most trusted suppliers can go a long way toward assisting with this, as can cultivating long-term relationships with vendors based on trust. The idea of eliminating risk factor from procurement is difficult. However, working with vendors you are familiar with or who is recommended which in turn can be beneficial for you.

Utilizing Technology in an Inflationary Setting

Inflation is affecting many parts of the supply chain. This includes

• Energy
• Logistics
• Transportation
• Costs of raw materials
• Costs of production and logistics

In this inflationary environment, software applications can help improve planning and disruption anticipation. One needs to have a clear idea on the below mentioned questions before taking a call.

What effect will rising costs have on demand? | How much must we alter the quantities of materials and components we purchase? | How much of the additional expenses can we absorb and how much can we pass on to our customers?

In order to make procurement processes more targeted, more detailed, and more agile in 2023, manufacturing businesses will need to harmonize all participants in their supply chains and achieve cross-functional collaboration on issues like demand forecasting.

Addressing Costs Issues

Let’s take the instance of design-to-cost (DTC) methodology. In this method, the cost enabled is considered throughout the entire process of developing a new product. By doing so, the time invested in the product development time and materials can be saved exceptionally. This in turn necessitates seamless information sharing and collaboration among all product development teams.

Procurement, on the other hand, will be able to make a significant contribution to material availability or stabilize supply chains when DTC (the design phase) is involved in the early phase.

Digital Factory – Faster Cycle Times Achieved

Before diving into the scenarios involved in planning with the digitization models, let us have a look at the term ”Digital Twins”.

Centralized Information & Processes

The more diverse your supplier base becomes, the more crucial it becomes to centralize and consolidate data management. If you don't, you'll not only miss out on important efficiencies, but you'll also run the risk of introducing new ones. When looking for new suppliers, renegotiating contracts, or attempting to secure limited supplies in crucial categories during times of shortage, this is an essential concept to comprehend. In order to maintain and extend their competitiveness, businesses will increasingly need to manage these and other processes centrally and digitally by 2023.

Environmental, Social, & Governance (ESG) Considerations

Large and small businesses alike have turned to the supply side to manage their obligations, both mandatory and self-imposed, as much broader ESG considerations have replaced the more narrow CSR (corporate social responsibility) questions in recent years.

Before even discussing the numbers with any vendor, such ESG considerations are becoming a prerequisite for acceptable business.

• Do they agree with our goals and values?
• Are they an appropriate supplier for our company?
• Can we rely on them to fulfil their ESG responsibilities, regardless of their commercial merit?
• What will consumers and stakeholders think? Can they assist us in maintaining our social license?

Presently, stakeholders are in no mood for compromise and are significantly more interested in provenance. Suppliers are now expected to "comply" with customer policy if they want to become suppliers. ESG considerations are becoming more stringent. ESG used to be an afterthought, but now it is a requirement that suppliers, as well as their customers and potential customers, must take seriously.

Role of Dematerialization & Decarbonisation

Before we dive into what exactly “Dematerialization and Decarbonisation” mean, let us understand what and how these help in the changing the face of a digitized procurement process.

We are going through fundamental societal shifts on a scale we haven't seen in decades. These shifts are being sparked not only by climate change and the reality of limited material resources, but also by technological advancements. Two aspects of procurement will be affected by the concept of dematerialization.

Electronic and digital services are increasingly replacing the production of tangible goods in terms of production. CDs and DVDs are on the decline as more and more people switch to streaming services, for obvious reasons. Similarly, procurement will be further reshaped by this trend. The process of decarbonisation, which has received a lot of attention, presents a fascinating challenge as well as opportunities worth billions of dollars.

Low-emission products and processes will gradually replace established high-emission ones as the cost of renewable energy continues to fall and society legislates to achieve climate goals. Even though this means that business as usual will be disrupted once more, businesses need to get ahead of the curve by 2023 because the financial benefits will outweigh the risks. Naturally, procurement will play a significant role in this transition.

Making Innovation Initiatives a Priority

Many organizations are focusing on cutting costs and meeting short-term requirements in the face of ongoing economic crisis instead of investing in new opportunities. However, when the economy returns to growth mode, businesses that commit to innovation during a downturn typically outperform their competitors.

To become the key players in profitable innovation, businesses must operate quickly and effectively. The move from re-imagining partnerships by excluding the traditional hurdles is the norm that most of the organizations are following today. We are able to see that organizations are walking down the path of enabling real-time collaboration between the departments present.

Let us take a small example as to how a business can improve its planning accuracy. The organization needs to look out for the below mentioned criteria’s.

• Information sourcing
• Manufacturing constraints
• Product specification details

This insight can then be utilized by suppliers and manufacturers to confidently determine the most effective route to market.

Conclusion

Manufacturing industries are constantly under pressure to adapt to changing customer needs. In addition, the environment in which they operate is complex, where they face ongoing instability in the supply chain, with a significant inflation effecting the decisions taken. “Born digital” start-ups and established multinational corporations utilize collective expertise to innovate and excel in design, sourcing, or manufacturing.

Organizations and businesses in the manufacturing industry that place a strong emphasis on teamwork and speed are well-positioned to anticipate, adapt, and carry out their plans with confidence. Businesses that are able to align their objectives regarding cost, carbon emissions, and manufacturability are in a strong position to take advantage of new market opportunities or circumvent potential roadblocks in the upcoming years.