How to Get Your Supply Base Ready for Digitization

Tobias Kosmol / Felix Reimann / Lutz Kaufmann - June 29, 2022

Tips for practitioners

As with most areas of business today, the way companies—both buyers and suppliers—interact within supply chains is transforming. From the implementation of complex systems, such as artificial intelligence and big-data analytics, to the use of more accessible technology (e.g., cloud computing), the shift can be felt across the globe. Specifically, trends in digital procurement, i.e., the use of digitalsolutions for purchasing goods and services, have comfortably entered the discourse among procurement professionals. Many companies have already been able to employ these advanced technologies, saving themselves financial resources and improving their efficiency over time. But despite an overall shift toward digitization, many managers and division leaders are still unsure how to start their journey toward digital procurement: What are the organizational prerequisites that must be fulfilled ahead of time? A novel approach to this topic has made it possible to focus less on the various types of technologies—and more on the steps necessary to prepare the company and its supply base for the future.

Differing degrees of readiness constitute a main cause of fragmentation and bottlenecking

To understand how digital procurement is progressing in today’s corporate world, we adopted a “supply chain practice view” (SCPV) and examined how a company’s interorganizational practices affect the overall supply network. For our research, we define “digital procurement readiness” as the degree to which a company is able to incorporate new digital technology into its procurement flow. By comparing the results of the study to the most recent evidence on the subject, we have determined that the differing degrees of readiness constituted a main cause of fragmentation and bottlenecking within a supply chain.

What is needed to implement your digital procurement strategy

The results of a series of case studies have shown that companies in Europe are “ready” to varying degrees. Some have already embraced change, possess the necessary financial resources, and have taken steps both internally and externally to commit to a digital procurement strategy. Success could be seen in companies that, for example, hired a dedicated chief digital officer whose sole responsibility is to guide the transition. Other companies, by comparison, are struggling to implement their plans for digital procurement. Despite having medium-to-high degrees of organizational readiness and showing a commitment to digitalizing the workflow, these companies may still lack synchronization of their efforts with their suppliers and are consequently limited in their quest to make their ideas reality. Furthermore, buying firms have experienced tense business negotiations with certain suppliers in their respective supply base.

Where business was difficult, and ultimately unsuccessful, there was a relatively low degree of readiness on the part of the suppliers, further complicated by, e.g., general disinterest, confusion, or a lack of offered support. Even if the buying firm is already prepared, a lack of readiness on the supplier side will impede the implementation of digital procurement technology—and that can lead to severe bottlenecks in the chain.

What does a successful relationship between the buying firm and its suppliers look like?

It should be stated that managers of the buying firm are not necessarily responsible for the digital readiness of an external supplier. That being said, it would behoove one to be proactive and keep abreast of the situation. Those at the helm should consider implementing incentive programs or offer trainings or technical support to help improve the digital readiness of their key partners among their suppliers. By doing so, managers can ensure that both their own company and their supply network evolve at the same speed.

Similarly, the suppliers must also be willing to adapt when opportunity calls—or when problems arise. Otherwise, they could be compromising the integrity of a once collaborative relationship. For example, in an unfortunate turn of events, one supplier caused unnecessary congestion due to its somewhat antiquated IT infrastructure, which also made implementation of a more robust EDI inventory system an impossibility. By comparison, a successful case saw one supplier more willing to take a chance on improving both their relationship with the buyers and their infrastructure on their own premises.

In this cautionary tale, the companies analyzed offer today’s procurement managers an initial guide on how to scrutinize both their own and their supply base’s preparedness. And the moral of the story is clear: Both parties in a buyer-supplier relationship must be truly ready for change on all fronts to make efficient use of the technology selected. In the end, that deepened level of collaboration is beneficial to both parties, evincing that business can be made more secure when everyone is on the page.

Literature reference and methodology

To provide empirical evidence on how inter-organizational practices affect the buyer-supplier interface, a series of case studies were performed. The research team analyzed the data of two Western European buying firms with key suppliers both at home in Europe and abroad in China. By analyzing interviews with all parties for patterns, the research team was able to uncover the factors that led to either a successful or an unsuccessful implementation of new technology in buying firms and their suppliers.

• Kosmol, T./Reimann, F./Kaufmann, L. (2019): You’ll never walk alone: Why we need a supply chain practice view on digital procurement, in: Journal of Purchasing & Supply Management, 25(4), 1–17. https://doi.org/10.1016/j.pursup.2019.100553