The CIO’s Blueprint for Digital Procurement Transformation

2“Two heads are better than one.” This is especially true when it comes to transforming procurement into a digital, data-centric function that will improve efficiencies, reduce costs, and help stay on top of things in a volatile, fluctuating global market. IT has a key role to play in the transformation.IT spend is one of the largest categories of indirect expense in a business, and it is necessary for both IT and procurement to collaborate to reduce the cost of owning technology and, importantly, to create real value for the enterprise from this investment. To upgrade and transform procurement into an agile, flexible entity, CIOs and CPOs must first develop a comprehensive digital strategy that will suit their business goals.Here are some key points that CIOs looking at digitally transforming procurement should consider: INVESTING IN CLOUD TECHNOLOGY TO SCALE PROCUREMENT OPERATIONS Enterprises like the cloud because of its economics — the absence of a heavy infrastructure investment — availability, deployment flexibility and on-demand scalability. Flexibility: Cloud solutions offer flexible capacity and respond better to changes in demand. In contrast, traditional on-premise solutions require large, upfront capital expenditure to meet incremental or peak demand. If the demand drops, on-premise solutions cannot be scaled back easily, leading to underutilization and higher technology debt. Availability: Another strength of cloud solutions lies in availability — in general, cloud vendors will commit to a service-level agreement (SLA) guaranteeing at least 99.5%, and frequently 99.9%, uptime or availability. Large capital expenditureCapacityPredicted DemandTraditionalHardwareActual demandAutomated cloud capacityTimeOpportunitycostYou just lost customersBased on illustrations by Amazon Web Services 3Cost-Effectiveness: Cloud solutions also reduce labor costs by lowering the ratio of in-house personnel, as cloud providers monitor and manage server provisioning, configuration, maintenance and upgrades. This frees up capital for other areas of the business. Other areas where cloud solutions provide savings include energy costs, software costs and cost of obsolescence. For example, one server can use 500-1,200 watts. If the average use is 850 watts per day, the total energy consumption would be 20,400 watt-hours, or 20.4 kWh, daily. In one year, the consumption would add up to 7,446 kWh per year. Given the US average electricity price of 13.93¢/kWh in 2018, server charges alone for a single server in one year would be about $1037.1 Apart from hard cost savings, a total cost of ownership (TCO) model also captures the following metrics: How easy is it to change the number of users? Do SLAs provide an uptime guarantee of 99.5%? If needed, the core cloud platform can be enhanced with buying channel partners such as Amazon Business, third-party supplier systems for electronic transaction connectivity and risk management applications. This flexibility serves well in today’s uncertain economic and political times.2 Scalability: It is important for CIOs to look at the scalability that cloud solutions provide, while balancing it with the business needs of richer functionality, availability, currency and the ability to change partners.PARTNERING WITH CLOUD PROVIDERS TO MANAGE CYBERSECURITY RISKSProcurement’s interest in cybersecurity is twofold: It must manage potential security issues within the supplier community; and it must concern itself with data security issues within its own operations. Hackers often target suppliers because they are more vulnerable. Quite surprisingly, in a recent survey conducted by Supply Chain Insights, only 37% of respondents indicate that they have visibility of extended-tier suppliers, and hence have little control on the risks they face when interacting electronically with their supply chain partners. It is estimated that over a third of corporate IT breaches occur via third-party suppliers.3 The lax use of Bring Your Own Device (BYOD) policies at suppliers can cause major security issues as malware protection and detection on such devices are often inadequate. Closely working with an in-house IT team is the first step in taking control of the situation, but this may not be enough as hackers are getting increasingly aggressive, and new malware is being created faster than anti-malware software. Both procurement and IT teams will face scalability issues when it comes to providing a comprehensive response to these threats. This is where cloud solutions come in — they are the perfect tool to handle such problems. Some may perceive cloud solutions to be risky, as the physical location of the IT system moves out of the company’s IT firewalls. However, this is just perceived risk. 1. Maddox, Teena. “Toolkit: Calculate Datacenter Server Power Usage,” ZDNet, 8 April 2013. Retrieved from zdnet.com/article/toolkit-calculate-datacenter-server-power-usage2. Van der Eng, Marinka. “Cloud Computing Cost