5 Creative ways in elevating Procurement

Procurement, once confined to paperwork and negotiation, is undergoing a revolution. In an era where innovation fuels progress, it’s time to reimagine the way we procure goods and services. While traditional procurement practices served their purpose, it’s high time we injected a dose of creativity into this vital function.
Let us explore five creative approaches in transforming procurement.

1. Supplier Collaboration Hubs:
Procurement often involves transactional relationships with suppliers. It’s about placing orders and fulfilling them. While effective, it lacks the vibrancy of collaboration. Collaboration primarily revolves around negotiation. Envision a digital ecosystem where suppliers don’t just fulfill orders but actively engage in collaborative endeavors. Supplier Collaboration Hub (SCHs) are the gateway to this vision. SCHs foster competition, spark creative problem-solving, and ultimately deliver cutting-edge products and services. Imagine a procurement process that’s a two-way street, benefiting both buyers and suppliers.

The Algorithm:

• • a. Platform Creation: Develop a secure digital platform for supplier collaboration. This platform includes features for secure communication, document sharing, and collaborative project management.

• • b. Supplier Onboarding: Invite suppliers to join the platform and facilitate easy registration and verification processes.

• • c. Incentive structure: Create a reward system that recognizes and rewards suppliers for active participation.

• d. Monitoring and Support: Establish a dedicated team to monitor the platform’s activity, resolve issues, and provide support to suppliers as needed.

Implementing Supplier Collaboration Hubs leads to:

The Toyota Way:
Toyota’s Supplier Support Center (SSC): Driving Innovation Through Collaboration. Toyota’s Supplier Support Center is a prime example of how a collaborative hub can drive innovation, improve product quality, and foster strong supplier relationships, ultimately benefiting both the automaker and its suppliers.

According to the McKinsey Procurement Practice report, businesses that have well- developed supplier-collaboration capabilities typically outshine their competitors. Those at the forefront of supplier development and innovation tend to surpass industry benchmarks, achieving approximately 2X growth and other key performance metrics.

Ref: Research paper on Taking supplier collaboration to the next level by Agustin Gutierrez, Ashish Kothari, Carolina Mazuera, and Tobias Schoenherr of McKinsey & Company)

2. Gamification of Bidding:
Bidding processes are typically mundane and driven by pricing. They often overlook the creative potential of suppliers. Picture a bidding process where suppliers are not just participants but enthusiastic contributors. Suppliers earn points for innovative proposals, comprehensive solutions, and sustainable ideas. So, suppliers will engage more deeply,
resulting in more creative and exhaustive bids. It's a win-win—engaging and thorough.

The Algorithm:

• • a. Bidding platform Enhancement: Upgrade the procurement platform to include gamification features such as point systems, leaderboards, and badges.

• • b. Supplier Education: Educate suppliers about the gamification system, explaining how points are earned and the benefits of active participation.

• • c. Proposal Evaluation: Develop clear criteria for evaluating proposals and awarding points, ensuring transparency in the scoring process.

• d. Reward System: Define rewards or recognition for suppliers who accumulate the most points, fostering healthy competition.

Gamifying the bidding process results in:

Real-Time Bidding (RTB) Gamification service.:
Utilizing the principles of real-time Bidding, Gamification Service offers a structured method to boost the conversion rate of website visitors into customers in internet marketing. A cutting-edge Real-Time Bidding (RTB) Gamification service merges RTB with gamification for retailer digital transformation. It enhances customer engagement. Gamified RTB and mobile
location-based analysis (LBA) captivate audiences, increasing participation with coupon usage up 16.7% in restaurants and 11.6% in apparel.

Ref: A Real-Time Bidding Gamification Service of Retailer Digital Transformation research
paper by Chang-Yi Kao and Hao-En Chueh.

3. Introduction AI and Machine Learning:
Procurement involves periodic supplier evaluations, often after issues arise. Procurement is becoming data-driven, but it lacks real-time insights and predictive capabilities. In the tech-driven future of procurement, AI and ML transform the process. Leverage artificial intelligence (AI) and machine learning (ML) make it possible to continuously track how well vendors are doing in real-time. Plus, AI uses clever predictions to foresee issues before they become big problems. It”s like having a super-smart assistant to help organizations to make the best decisions in every scenario. Procurement decisions will be finely tuned, based on comprehensive, data-driven insights, elevating procurement from a transactional process to an anticipatory, strategic one.

The Algorithm:

• • a. Data Integration: Gather historical procurement data and integrate it into an AI/ML-ready system.

• • b. AI Model Development: Collaborate with data scientists to build AI models capable of predicting vendor performance based on historical data and real-time inputs.

• • c. Real-Time Monitoring: Implement a system that continuously monitors vendor performance, identifying deviations from expected behavior.

• d. Customization: Develop algorithms capable of customizing procurement strategies based on real-time insights generated by the AI system.

Leveraging AI and ML in procurement yields:

mjPRO’s AI enabled “Auto RFQ”:
Introducing Auto RFQ, a cutting-edge AI feature within mjPRO (e-Procurement System powered by mjunction). This innovative capability leverages historical purchasing data to intelligently recreate RFQs for recently procured items. By replicating previous RFQ conditions and preferred vendors, streamline the procurement process, enhancing efficiency and consistency. Say goodbye to repetitive tasks and hello to an elevated procurement experience.

According to the IBM Global AI Adoption Index, Chinese IT professionals exhibit a significantly higher propensity for their companies to employ Natural Language Processing (NLP), with 56% reporting its use in supply chain and procurement. This percentage is nearly three times greater than that of their U.S. counterparts, who stand at 19%. Globally,
25% of companies are incorporating NLP for procurement transformation. In India, while 54% of organizations have adopted AI, specific data on the number of companies utilizing it for procurement transformation remains undisclosed.

Ref: IBM Global AI Adoption Index 2022 research paper

4. Green Procurement Initiative: Sustainability as Standard:
Sustainability practices are on the rise, but they are not yet standard in all organizations. Embrace eco-friendly procurement practices by partnering with sustainable suppliers and cutting down on bio-hazards products. Organizations will actively assess suppliers based on their environmental practices and support sustainability initiatives. Procurement teams will prioritize eco-friendly products, aligning with the evolving expectations of environmentally conscious consumers. It’s not merely a trend; it’s a responsibility. This not only lessens the organization’s environmental impact but also matches the changing preferences of conscious consumers.

The Algorithm:

• • a. Supplier Assessment: Establish criteria for evaluating supplier’s environmental practices and sustainability efforts.

• • b. Supplier Engagement: Engage with suppliers to encourage and support their sustainability initiatives.

• • c. Product Selection: Adjust procurement policies to prioritize eco-friendly products and materials.

• d. Internal Training: Educate procurement teams on the importance of green procurement and how to identify sustainable options.

Green procurement initiatives result in:

Unilever’s sustainable sourcing:
Unilever, a renowned global consumer goods leader, has achieved remarkable progress in its green procurement endeavors. The company has steadfastly pursued its visionary objective of attaining 100% sustainable sourcing for vital agricultural raw materials, such as palm oil, soy, cocoa, Sugar and tea.

Sustainable palm oil sourcing: By the end of 2020, 94.3% of palm oil volumes sustainably sourced physically certified sources and 5.3% through independent smallholder certificates.

Sustainable Soy: 100% of Soybeans and oils purchased from sustainable sources by 2020.

Likewise Unilever achieved purchasing of tea (86%) , cocoa (98%) , fruit vegetables (95%), paper and boats (96%) etc. from sustainable sources by 2020.

Ref: Unilever Sustainable Living Plan 2010 to 2020 summary of 10 years progress.

Ford Motor’s responsible supply chain:
Ford’s supply chain exerts significant influence over its environmental and social impact, given its vast global reach of nearly 11,000 suppliers spanning across more than 60 countries. The company’s strategic focus revolves around quantifiable targets, including the reduction of greenhouse gas (GHG) emissions from its operations. Ford conducts yearly surveys utilizing the Climate Change and Water Security questionnaires provided by the CDP Supply Chain program, targeting its suppliers. The selection process for these surveys is systematic, considering factors like emission and water intensity, geographical reach, and the strategic importance of their association with Ford. This meticulous approach ensures
that data is collected from suppliers whose operations have a substantial impact on Ford’s environmental objectives and strategic goals.

Here’s a table representing the data for SUPPLIERS in 2018 and 2019: (Source- Ford Sustainability report, 2020)

Ref: Promoting Sustainable Corporate Procurement Practices in India’s Manufacturing Sector report paper by CII.

S.N: India has pledged its commitment to the Paris Agreement, aiming to cut emissions to 33% to 35% of its GDP by 2030 as outlined in its Nationally Determined Contributions (NDCs). Notably, the automobile sector is responsible for 16% of India’s greenhouse gas (GHG) emissions.

5. Blockchain for Transparency:
Transparency in procurement is often compromised, leading to issues like corruption and disputes and disputes are often protracted due to lack of temper-proof records. Picture a procurement world where each step is recorded and secure, preventing corruption and disputes. Blockchain will bring a new level of transparency, ensuring every transaction is
tamper-proof. Trust will be paramount, and the risk of fraudulent activities will significantly decrease.

The Algorithm:

• • a. Blockchain Platform Setup: Establish a blockchain network suitable for procurement transactions.

• • b. Data Entry and Validation: Ensure that all procurement-related data is entered into the blockchain accurately and validated by authorized parties.

• • c. Transaction Verification: Implement consensus mechanisms to verify procurement transactions on the blockchain.

• d. Access Control: Define and enforce access control policies to restrict data access to authorized personnel only.

Implementing blockchain for procurement leads to:

Blockchain at Tea Board
The Tea Board of India is considering using blockchain technology to trace the movement of tea from plantation to sale. The Tea Board is a government agency that promotes the cultivation, processing, and trade of tea. Blockchain technology can enhance traceability and ensure quality control. It can make it easier to trace a tea product from the farm to the
consumer. It can also record and track environmental conditions during production and transport.

UnBLOCK the chain at Walmart
Walmart collaborates with IBM to ensure the safety of its extensive and complex food supply chain, where maintaining food quality and safety can be challenging. Given the vast scale of their supply chain, monitoring food conditions is a formidable task, especially regarding temperature control to prevent contaminations and spoilage of fresh items like fruits and dairy. The UN Environment Programme’s Food Waste Index Report for 2021 highlights that 13% of global food waste occurs in the retail sector. In response to these challenges, Walmart adopts blockchain technology to monitor and record temperature levels during food transportation. This approach streamlines the tracking of food origins, reducing the time from days of paperwork to mere minutes.

As per the findings of a Markets and Markets report, the blockchain market in agriculture and the food supply chain is anticipated to reach $429.7 million by 2023, with a robust compound annual growth rate (CAGR) of 47.8%. The report highlights that the primary applications of blockchain technology in the food and agriculture sector encompass traceability and tracking, payment and settlement, smart contracts, governance, and risk management.

These strategies pave the way for a future where procurement embodies innovation, efficiency, and sustainability, uniquely tailored to each organization’s needs. As we embrace these innovations, procurement will cease to be a routine function and evolve into an innovative, efficient, and sustainable process, custom-fitted to each organization’s unique needs. These approaches represent a future where procurement doesn’t just adapt to change but becomes a “Competitive Edge” for the organization.

What do you think?