Digital Economy - How Hyperconnectivity Will Reshape the World of Procurement and Help Manage Your Indirect Spend

Digital Economy - How Hyperconnectivity Will
Reshape the World of Procurement and Help Manage
Your Indirect Spend
Simon Ellis, IDC Manufacturing Insights / March 2016
Public

© 2016 SAP SE or an SAP affiliate company. All rights reserved. 10Public
Agenda
Digital Transformation
Implications for Procurement
Closing Thoughts

The Productivity Imperative
Source: US Government Data
Platform 1 –
Mainframe to
Client/Server
Platform 2 –
Client/Server to
Internet

Digital Transformation
is the approach by
which enterprises
drive changes in their
business models and
ecosystems by
leveraging digital
competencies.
By 2018, 1/3rd of leaders in each industry will be
disrupted by 3rd platform competitors
Digital transformation through the 3rd Platform
13

Digital transformation examples in manufacturing
14
Smart Manufacturing
• Production or asset optimization
• Energy management
• Safe workforce
Extended Supply Chain
• Supply Chain integrated with design, manufacturing and service
• Cloud-based business and procurement networks
• C2 Centricity
• Sustainability/Resource Scarcity
Connected Products
• Vehicles and industrial machinery
• Remote operations and content/service delivery
• Product as a Service

Most manufacturers aspire to better supply chain performance
15
Top 3 Business
Priorities of
Manufacturers
Top 3 Challenges of
Manufacturers
Product innovation
Improved supply
chain performance
Better organizational
excellence
Accelerate new-product
time to market/success rate
Gain greater control of
new-product development
Manage increasing
complexity of new products
Source: IDC’s 2015 Product Innovation Survey

IDC sees data generation from any source, both internal to the
manufacturer and external, comprehensive and fast analysis, and
then ubiquitous consumption — initially with on-premise access as
significant, but declining over time in favor of cloud
Data
Internet
of Things
Social
ERP +
202020102005
Volume – Quantity, Moore’s Law +
Velocity – Speed (both in and out)
Variety – Structured, Unstructured, Uncertain Value
– Relative, Specific, Case-by-Case
Analytics
‘gap’
Today
Technological underpinning
ERP
IoT (sensors)
Social (both internal and
external)
Data
Collection and
Analytics
Cloud
Mobile
On-Premise
16

Managed
Digital Transformer
Opportunistic
Digital Explorer
Ad Hoc
Digital Resister
Repeatable
Digital Player
Optimized
Digital Disrupter
65% of Organizations are
“Digital Explorers” or “Digital Players”
14%
32% 33%
14%
8%
Digital Resister Digital Explorer Digital Player Digital Transformer Digital Disrupter
Manufacturer maturity – US
17
Source: IDC, Digital Transformation Maturity Model Benchmark, 2015; n= 317 IT and LOB Executives, March, 2015
Though most organizations are in the early stages of their
Digital Transformation Journey…..
They’re moving quickly!

Procurement priorities
Unsurprisingly, cost reductions sit atop the CPO priority list (74%; Deloitte 2016 CPO Study)
70% of procurement organizations are using self-service portals (43% in 2014); 45% are using
cloud (26% in 2014); 2016 Deloitte CPO Study
Procurement professionals are increasingly worried about supplier risk (supplier insolvency,
WWW and resource scarcity) and business resiliency; IDC discussions with manufacturers
Skills gaps suggest a broader role for technology into the future
In a recent KPMG study, only 8% of manufacturing procurement organizations considered
themselves to be ‘excellent’ in terms of technology adoption/capability

© 2016 SAP SE or an SAP affiliate company. All rights reserved. 20Public20
1
2
3
4
5
6
7
8
9
10
By the end of 2016, the majority of all manufacturers will be actively employing commerce networks in
their supply chains to facilitate either demand, supply, or the development of new products
By the end of 2018, 25% of manufacturers will have implemented a micrologistics strategy within part or
all of their business to support a more distributed inventory management strategy
By 2018, 75% of manufacturers are coordinating enterprise wide planning activities under the umbrella of
rapid integrated business planning.
By 2019, 50% of manufacturers will have modernized their logistics network to leverage 3D printing,
robotics, and cognitive computing to support innovative postponement strategies
By the end of 2019, enterprise wide improvements in resiliency and visibility will have rendered short-term
forecasting moot for 50% of all consumer products manufacturers and 25% of all others
By the end of 2016, one third of all manufacturers are actively integrating their 'traditional' supply chain
processes with product design, manufacturing and service
By the end of 2017, the need for visibility, scalability, and flexibility across the value chain will drive 60%
of manufactures to invest in cloud based WMS and TMS solutions aligned to their trade partner networks
By 2018, 40% of manufacturers will be investing in robotics and autonomous guided vehicles, and
associated systems, within their warehousing operations to drive automation into their fulfillment
processes
By 2018, proliferation of advanced, purpose built, analytic applications aligned to the IoT will result in 15%
productivity improvements for manufacturing supply chains
By 2020, 50% of the operational jobs in the supply chain have evolved into ‘knowledge’ roles required to
support new technologies like cognitive computing and modern robotics
ORGANIZATIONALIMPACT
TIME (MONTHS) TO MAINSTREAM
Asingledepartment
orabusinessunit
Multiple
departments
orbusinessunitsCompanywide
0-12 12-24 24+
Supply Chain IoT
Micro-Logistics
Networks
1
2
3
6
87
9
10
5
Commerce Networks
Resiliency
&Visibility
Modern
Postponement
Talent
Cloud
WMS/TMS
Rapid Integrated
Business Planning
Robotics
4
Broadening Supply Chain
IDC Manufacturing Insights supply chain predictions for 2016
and beyond

© 2016 SAP SE or an SAP affiliate company. All rights reserved. 21Public21
1
2
3
4
5
6
7
8
9
10
By the end of 2016, the majority of all manufacturers will be actively employing commerce networks in
their supply chains to facilitate either demand, supply, or the development of new products
By the end of 2018, 25% of manufacturers will have implemented a micrologistics strategy within part or
all of their business to support a more distributed inventory management strategy
By 2018, 75% of manufacturers are coordinating enterprise wide planning activities under the umbrella of
rapid integrated business planning.
By 2019, 50% of manufacturers will have modernized their logistics network to leverage 3D printing,
robotics, and cognitive computing to support innovative postponement strategies
By the end of 2019, enterprise wide improvements in resiliency and visibility will have rendered short-term
forecasting moot for 50% of all consumer products manufacturers and 25% of all others
By the end of 2016, one third of all manufacturers are actively integrating their 'traditional' supply chain
processes with product design, manufacturing and service
By the end of 2017, the need for visibility, scalability, and flexibility across the value chain will drive 60%
of manufactures to invest in cloud based WMS and TMS solutions aligned to their trade partner networks
By 2018, 40% of manufacturers will be investing in robotics and autonomous guided vehicles, and
associated systems, within their warehousing operations to drive automation into their fulfillment
processes
By 2018, proliferation of advanced, purpose built, analytic applications aligned to the IoT will result in 15%
productivity improvements for manufacturing supply chains
By 2020, 50% of the operational jobs in the supply chain have evolved into ‘knowledge’ roles required to
support new technologies like cognitive computing and modern robotics
ORGANIZATIONALIMPACT
TIME (MONTHS) TO MAINSTREAM
Asingledepartment
orabusinessunit
Multiple
departments
orbusinessunitsCompanywide
0-12 12-24 24+
Supply Chain IoT
Micro-Logistics
Networks
1
2
3
6
87
9
10
5
Commerce Networks
Resiliency
&Visibility
Modern
Postponement
Talent
Cloud
WMS/TMS
Rapid Integrated
Business Planning
Robotics
4
Broadening Supply Chain
IDC Manufacturing Insights supply chain predictions for 2016
and beyond
By the end of 2016, the majority of
all manufacturers will be actively
employing commerce networks in
their supply chains to facilitate
either demand, supply, or the
development of new products
1

Business/Commerce Networks
MANAGE
Partners
BUY SELL
Consumers Customers
Legacy applications Packaged applications Databases File systems
“Point-to-point relationships are too slow; if I need to connect to a new supplier, I want
a network where they are already a participant”
Global Heavy Machinery Executive
“Commerce networks have allowed us to recover from supplier failures far more
quickly than in a traditional supply model”
Global High Tech Executive
“Searching for and qualifying a new indirect supplier takes minutes on the network
when it used to take weeks”
Global CPG Company
Cloud-based extended supply chain business networks
Traditional SCM technology
investments are projected to grow at 5%
per year through 2020; Cloud-based
deployments at almost 20%
IDC expects that by the end of 2016,
80% of manufacturers will be actively
employing commerce networks in their
supply chains to facilitate demand,
supply, and the development of
new products
Global reach, global supply
Speed is the currency of the modern
supply chain
22

Collaborative trading adoption correlates to ROI measurement
0% 20% 40% 60% 80% 100%
No process automation (Fax, Phone, e-mail etc.)
Unilateral communication (your company is
automated and your trading partners are not)
Bilateral communication (transactional
relationship based on EDI)
Bilateral communication (transactional
relationship based on web-EDI)
Collaborative, shared and synchronous execution
of processes (cloud-based collaborative tools,
social technologies etc. - not asynchronous or…
Total
Driven by
Higher ROI
23
Source: IDC Manufacturing Insights and EDIFACE

Using technology to drive efficiency and mitigate risk
eProcurement and catalog management help
manage non-critical items
eSourcing and Category Management are key
tools for leverage items
Strategic Sourcing Tools are appropriate for
effectively managing strategic items
Supplier Management is a focal point for
bottleneck items
24
Source: Kraljic’s Portfolio Matrix
Strategic
Sourcing
Tools
eProcurement
Catalog
Management
Supplier
Management
eSourcing
Category
Management

B2B commerce
25
35.9% 34.0%
37.8%
15.7% 14.9%
16.5%
10.9%
10.9%
10.9%
13.9% 13.2%
14…
9.0%
9.3%
8.6%
14.7% 17.7%
11.7%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Total Manufacturing Discrete Manufacturing Process Manufacturing
We do not have this solution, nor are we evaluating it.
We have a home grown system
We plan to upgrade or enhance this solution
We plan to purchase this solution
We will be researching or evaluating this solution
We do not plan any additional investment this year beyond maintenance
Source: IDC’s Vertical IT and Communications Survey, 2015 (Total Manufacturing n-602, Discrete n-275, Process n-327)
QC4X1_19. B2B Commerce - In 2015 which statement best describes your organization's investment strategy for each of the following
solution areas?

• Political/Social instability
• Conflict Minerals
• Natural Disasters/ Weather
• Workforce (work stoppages, fair wage)
• Energy costs
• Counterfeit/Gray Market
• Product Quality, Safety
• Global Trade (regulation, trading rules)
• Resource scarcity
External Forces
• Just-in-Time
• Forecast-centric
• Globally Distributed Supply Networks
• Long lead-times
• Outsourcing (blend of owned and
outsourced supply points)
• From LEAN to BRITTLE
• Supply consolidation/ rationalization
• Cost obsessed
Internal Practices
Procurement
Risk
Procurement risk and business resiliency – why now?

Closing thoughts
While it’s tempting to extract every last drop of cost from the procurement process, indirect
(and direct) materials risk mitigation (supply scarcity) and sustainable supply have become
an equally critical focus area
Use tools like eProcurement and catalog management where possible to drive efficiencies
through automation – especially in areas of low strategic value like many areas of
indirect spend
B2B networks offer the ability to match the speed of your business, whilst driving efficiency,
visibility and agility

Thank you
Contact information:
Simon Ellis
Program VP
IDC Manufacturing Insights
sellis@idc.com

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