Procurement 4.0

Fraunhofer Procurement 4.0 Check

You want to determine where your procurement department is situated in terms of Industry 4.0 and which fields of activity are on their way to procurement 4.0?
The Fraunhofer Procurement 4.0 Check serves as a starting point for the implementation of Industry 4.0 within your procurement department and supports you in finding answers to your questions.

Evaluating both qualitative and quantitative success factors of your procurement department, the essential fields of activity regarding Industry 4.0 are identified by means of a gap analysis.
Furthermore, you will receive an evaluation of the most relevant KPIs as well as a determination of your progress level on the way to procurement 4.0.
Therefore, the Fraunhofer Procurement 4.0 Check serves as a foundation for the development of an individual roadmap to the implementation of Industry 4.0 in your procurement department.

Fraunhofer Procurement 4.0 Check

The Situation:

  • The fourth industrial revolution does not only affect the production (Smart Manufacturing / Factory) and logistics (Logistics 4.0), but equally all other functional areas of a company, in particular the procurement.
  • The digitization imposes new requirements on the procurement in relation to changing tasks and processes. The tasks of purchasing will be greatly changed by the new technological possibilities and solutions such as Smart Contracts, predictive analytics software, new metrics as well as Big Data and the real-time availability of data, and new opportunities arise. The responsibilities of the buyer increasingly move towards monitoring, controlling and steering tasks. The operational processes can run almost autonomously.
  • The change of the procurement portfolio is another challenge. The purchased goods are changing towards digital and innovative products and new components, which require a new level of technical expertise. Furthermore, machines and tools for processing or finishing of the new components and modules need to be purchased. The procurement portfolio will change in the future more and more rapidly, driven by the development in the production towards small-batch production up to lot size 1. Therefore, the procurement must respond more quickly in the future.

Our Solution:

  • Industry 4.0 and the digitalisation of procurement processes towards procurement 4.0 requires solution approaches into two directions:
    1. Innovations in technology and 2. Process innovations
    • Procurement of technology and products that enables to meet the market- and customer needs for digital solutions as well as the requirements of an increasing digitalized service provision.
    • The adjustment of procurement processes, structures, and ultimately also the employees at the challenges and opportunities of the 4. industrial revolution
  • The procurement has particularly to deal with the purchasing of external expertise (Innovation Sourcing) in the future. The company’s own R&D departments focus more and more on their core competences and outsources parts of the R&D processes. This results in an increased complexity of technologies and the lack of expertise in some areas. Furthermore, it ensures the competitiveness on the market (access to new technologies) and works through the outsourcing as a growth driver for the company. In the meantime the market offers a high number of specialized tech companies, which ensures the ability to purchase every needed solution.

Your Benefit:

  • The procurement is able to position itself new within the company as well as in the supply chain and can also strengthen its position in the network. Based on the extended possibilities, offered through the new technologies and the changed processes, the procurement is able to fit its role as innovator and driver of increasing networking.
  • As a result of its natural position in the company and in the supply chain the procurement has interfaces to nearly all departments and external partners (especially to suppliers). The procurement should be able to early identify needs for action along the supply chain. New control capabilities through intelligent analysis software (Smart Analytics) and the connection of any data of all systems and stakeholders, enables faster decision making, based on an improved data basis, for the whole company as well as the supply chain.
  • The procurement ensures through Innovation Sourcing that the company is among the first ones on the market selling its new product with the latest technology and hereby secures an appropriate market share. Due to shorter product life cycles and the dynamic market conditions, the purchase of innovations is nowadays essential to ensure long-term corporate success.

Procurement can assume a leading role

Fraunhofer IML and BME present new pilot study on the digitalisation of procurement

The digital structural change of industry will not be successful without the participation of procurement. However, opinions on its role vary greatly, ranging from “active driver” to “mere supporter”. Therefore, procurement has to intervene more actively in the discussion on Industry 4.0. As an innovation scout as well as an expert on technology and management, its voice will be heard. These are the central findings of the study “Procurement 4.0 – The Digitalisation of Procurement”, conducted by the Fraunhofer Institute for Material Flow and Logistics and the Association Supply Chain Management, Procurement and Logistics (BME). From august 2015 through april 2016, 25 procurement managers and CPOs of renowned industrial companies, as well as representatives of two universities were interviewed.

Key findings of the survey:

A strong internal and external connectivity is crucial, if Industry 4.0 is to be developed successfully. While the connectivity within the own company affects all departments equally, the procurement department is required particularly regarding external connectedness. It is the exchange of know-how with other companies and organisations which only makes it possible to benefit from the advantages of digitalisation. Procurement is the driver of this external connectivity and, as such, bears the full responsibility. It assumes a decisive role in the implementation of Industry 4.0: It has to bring innovations and technologies into the company, so that it can successfully master the fourth industrial revolution.

Procurement has to be able to react in real-time. This is only possible, if all its processes have largely been digitised before.

Procurement has to manage an increasingly digitalised purchasing portfolio. Not only the procurement processes, but also the products that are to be procured are subject to the change of digitalisation.

Operative procurement processes can be digitised almost entirely. They do not need to be handled by an employee, as new technologies and e-solutions will take over this part. The strategic procurement department only controls and oversees these processes from then on. As a consequence, an operative purchasing agent is a discontinued model.

The challenges and expectations of the strategic procurement are increasing and with it the demand for an increased value contribution.

The occupational profile of a buying agent is changing fundamentally. His traditional role is a thing of the past. He becomes a digital interface manager, both inward and outward.

Technologies create many new opportunities for companies, but they do not replace personal relations. Particularly in the procurement department, personal contacts to suppliers and internal customers remain as an important foundation.

Procurement does not bear the overall responsibility for the implementation of Industry 4.0 – but it plays a crucial role in it.

The current study is a starting point for proceeding, more detailed examinations of the topic Procurement 4.0. For this purpose, BME and the Fraunhofer IML have founded a think tank as a provider of experiences and ideas. The assignment of this body of experts is to gather practical experience values and to determine the challenges to procurement which arise from the advancing digitalisation of economy.