The Five Drivers for the Future of Procurement Services: Cloud Platforms, Ecosystems, Sourcing Talent, ‘Amazonification’, and Blockchain

This report outlines the way forward for procurement services and is based on the HfS Research Procurement As-a-Service 2017 research process. The Procurement As-a-Service Blueprint looks at services offered to the market across the procurement value chain (see Exhibit 1), spanning upstream and downstream procurement. This Point of View looks at five driving forces in the transformation of procurement:

1. Cloud-based platforms
2. Partnership ecosystems
3. Sourcing and category management talent
4. ‘Amazonification’ driven by Triple-A Trifecta of automation, artificial intelligence (AI), and analytics
5. Blockchain or distributed ledger technologies (DLT)

Driver #1: Cloud-based platforms are the core of the future of procurement

Technology platforms have taken center stage in procurement. Procurement has been a pre-eminent area for modern, cloud-based platforms and networks like SAP Ariba, Tradeshift, SMART by GEP, and Coupa. Bringing many suppliers onto a platform is critical to the value of such a network. SAP Ariba, Tradeshift, GEP, and Coupa have been building significant networks of suppliers, e-procurement capabilities, and procure-to-pay solutions leveraging API ecosystems and external apps to integrate suppliers and services.

Service providers have recognized this and forged partnerships with procurement technology vendors, providing expertise and methodologies in implementation and application management and leveraging these third-party platforms in their services. Procurement platforms are offered as cloud solutions and services bundling these platforms, processes, and people are on the rise.

Service providers have a clear understanding that the deployment of platforms in their services is a critical component of the future of procurement services, as is technology management for clients’ own procurement technology. This translates into investments in technology partnerships and technology management capabilities.

Driver #2: Partnership ecosystems add value to services and engagements

Partnerships have become an incredibly important aspect of procurement services. They fuel innovation and collaboration and are the fabric of what HfS calls “Brokers of Capability”; the coordinating and facilitating across internal and external entities to achieve identified business outcomes. It has been a fruitful year for partnerships; in particular, these new or expanded partnerships with aforementioned platform players are omnipresent:

Wipro announced a strategic partnership with Tradeshift as well as an investment by Wipro Ventures. Capgemini sold its procurement platform IBX to Tradeshift, allowing it to focus on services and at the same time forging a closer bond with Tradeshift. Infosys also formed a partnership with Tradeshift. IBM and SAP Ariba announced a major strategic partnership that will see IBM adopting SAP Ariba as its procurement platform that underpins its BPaaS service delivery. As part of the partnership, SAP Ariba and IBM are setting up Cognitive Procurement Centers of Excellence to further their mastery of cognitive procurement.

Driver #3: Category management and strategic sourcing talent

HfS has outlined services in the Procurement As-a-Service Value Chain, covering category management, strategic sourcing, supplier management, contract management, technology management, and transactional procurement (see Exhibit 1). Two areas, category management and strategic sourcing, are heavily contingent on people; on their experience, expertise, and skills. Success and value in these upstream procurement areas are linked to deep knowledge of a category (market), the suppliers in markets, and negotiation and relationship management skills. Many of the acquisitions in the procurement market have the goal of acquiring category management and sourcing capabilities and talent. WNS’ acquisition of category management and strategic sourcing pure-play Denali is a prime example, with earlier examples being Accenture acquiring Procurian and Infosys buying Portland.

Exhibit 1: Procurement As-a-Service Value Chain

Source: HfS Research, 2017

Driver #4: Triple-A Trifecta (automation, AI, and analytics) drives the ‘Amazonification’ of procurement

New technologies are an intricate part of the ‘Amazonification’ of Procurement – the move to simple, seamless, digital buying experiences. Amazon has created a de-facto standard for purchasing experiences: simple, easy, and accommodating to the user. Further, its behavioral algorithm-based recommendations and simple evaluating criteria reshaped “requisitioning.” Amazon Business is setting a new norm for external marketplaces. Procurement functions and service providers are challenged to follow suit and harness the power of digital procurement experience, changed buying behaviour, and consumer expectations. Many efforts to create Amazon-like experiences by providers are underpinned by new technologies such as robotic automation, smart analytics, and artificial intelligence, which align with HfS’ Triple A Trifecta (Exhibit 2).

Exhibit 2: The HfS “Triple A Trifecta”: Automation, Analytics, and AI

Source: HfS Research, 2017

Some examples of applications of these technologies in procurement processes and how they support the Amazonification of procurement:

• Speed and voice interfaces: Cognitive buying assistants, using front-end technology that allows stakeholders to interact with procurement in natural language—text, speech, and images—and directing them to what they need within 90 seconds.
• Consumer experience: Intuitive catalogs (including punch-outs), comprehensive search capabilities, shopping carts, and all the convenient consumer shopping features buyers are familiar with, delivered on one platform.
• Artificial intelligence advisors: Cognitive computing applications, such as a procurement market intelligence advisor, perform primary and secondary market research on suppliers and categories and prepare a holistic report.
• Guiding the buyer every step of the journey: Implementing chatbots to ensure that at any stage of the process the user can receive help quickly and be direct to the most optimal outcome.

Driver #5: Enter blockchain

Beyond the Triple-A Trifecta, blockchain starts to make its mark on procurement. Service providers identify blockchain as a game changing technology for procurement and for its potential to become the fabric of global business-to-business (B2B) transactions. The implications of blockchain to procurement, supply chain, and supplier management are very significant. It is early days for blockchain in procurement, but intriguing benefits and use cases are currently explored by service providers and their clients:

• The rapid transaction time and low processing cost (transaction fees) of blockchain can add incremental productivity to downstream P2P activities.
• “Smart contract” functionality can bundle contractual elements directly into payments such as volume discounts, payment terms discounts, and service level agreements.
• The nature of the RFx can change, allowing suppliers to upload private information and answers onto a blockchain and reveal those by sharing a public key with the buyer, thereby streamlining, standardizing, and automating the inefficient RFx process.
• Elimination of two-way and three-way checks in invoice payments and audits.
• Real-time settlement.
• Transforming purchase order (PO) management and supplier risk management.
• Single source of truth for POs, goods receipts, and invoices, creating greater trust and visibility.
• Supplier can access the PO from blockchain, use it as sales order, and take steps to initiate delivery.

HfS will explore the Amazonification of procurement and the applications of blockchain to procurement in ensuing reports.

Bottom Line: Platforms, partnerships, sourcing talent, and emerging technologies have changed procurement services dramatically over the last three years. HfS expects this change to be further amplified as these forces start to jell together more and subsequent interdependencies create new value.