Bill Kohnen July 2014 1

B2B Purchasing Transformation

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Big Data

Cloud

XaaS

Mobile

Open

IoT & M2M

TRADITIONAL B2B PURCHASING

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CORPORATE PURCHASING

From 1887 to recently …………

• Purchasing as a B2B function is in an unprecedented period of transformation after a century of only improvement with efficency.

• 6 technology drivers of the transformative change

B2B Purchasing

Big Data

Cloud

XaaS Mobile

Open

IoT M2M

Purchasing Has Not changed in 100 Years• The Handling of Railway Supplies—Their Purchase and Disposition, written by Marshall M. Kirkman

in 1887 “Need control and planning”

• 1915 founding of The National Association of Purchasing Agents. (Now ISM)“Effort to build professional credibility”

Harvard University offered a course in purchasing as early as 1917“Operational necessity with efficency focus”

• World War II Brought Temporary Focus on Purchasing and Supply Chain“Credibilty through necessity and law”

• Historical Evolution of the Purchasing Function" By H.E. Fearon, Winter 1968, Journal of Purchasing “Purchasing Evolving from clerical focus”

• 1983 Harvard Article Purchasing Must Become Supply Management “many purchasing managers’ skills and outlooks were formed 20 years ago in an era of relative stability, and they haven’t changed”

• 2013 Inside Supply Management Editorial “need for procurement to remain visible and valuable”

Purchasing Ready for Change NowAs Other Conditions Transforming

• Not keeping up• Inflexible• Expensive

• Drivers” normal in personal life

• Expectation of technology turnover “new phone every 2 years

• New paradigms mean that traditional backgrounds and roles are less relevant

• Greater Velocity• Aversion to

Infrastructure Cost• Flexibility

• Big Data• Cloud• XaaS• Mobile• Open• IoT/M2M

Digital Drivers Business

Current Process

and Tools

People Skills

Big Data• Volume , Variety and Velocity of Data so great there is a massive

divide in what actually is available and what is being analyzed – 90 % of Data created in last 2 years – 80% of what people look at was created in last 4 to 6 weeks

• Purchasing and Supply Chain has plenty of data but not the ability to use it all

• Strategic Sourcing set standards for basic dashboards and analysis of Purchasing Data

• Focused departments can grind out the standard analytics using Excel Pivot tables but difficult to scale and maintain consistent

• Initially Big Data Analytics tools very expensive but disruption from the

Cloud

Bottom Line: Cloud dramatically reduces cost of what were Enterprise solution with updates and flexibility that allows almost any function to take place remotely.

This untethering and resulting mobility with access to even better tools will result in Purchasing moving away from the office and to where supply chains live with a personal base of operations anywhere they want.

It also means the talent pool for Purchasing professionals is global.

CLOUD

“X”aaS – Anything Can Be a Service• Infrastructure

• Capital equipment transformed of variable output agreements

• Even raw material inputs focus shifts from just physical delivery of a “widget” to full lifecycle support for– collaborative design, market development, optimized

operations, product support and ultimately disposal/recycling

• The skill sets of even Professional Buyers and the tools they use will need to evolve

“X”aaS - Anything Can Be a Service• Consider simply buying “widgets” vs. buying the input lifecycle• Negotiations and agreements take much different route as a

result.

– Today most B2B commerce occurs very close to point off operational need with little forewarning and a compressed period of time 6 to 12 montsh to recoup investment and make a profit. Even though the total product cycle may be been 3 to 5 years.

– Imagine that with confidence backed by big data analysis and other enablers you engage a supplier at the start of a 3 year product cycle and negotiate a service agreement across the entire cycle. Not just amortizing the old model cost over a longer time but truly using collaboration and technology to reduce cost .

Smart Phones and Tablets are the Main Source of Interface with the Digital World

Business Quick to embrace for B2C but momentum gaining for B2B

Next Generation Purchasing Tools optimized for mobile and offer best in class features as APs

MOBILE

Open• Disaggregation of proprietary solutions and creating open

standards for the basic features for hardware, software and services.

• Unwillingness to pay for any form of supplier deigned “vanity”

• Reduced cost and optimized performance

Prediction: Given there is not much real differentiation in core purchasing process and techniques by 2020 there will be open AP based purchasing operating systemsin use by most companies.

This common standard will drive unprecedented efficiencies

Markets intent on cutting costs will see some of the largest growth in M2M applications.

• Energy, • Automotive, • Healthcare, • Retail, • Manufacturing,• Semiconductors

Internet of Things (IoT) and Machine to Machine (M2M)

SalespersonBuyer

Purchasing Machine to Machine Interface

Not likely anthropomorphic Buyers and Sellers

However the Internet of Things will result in 50 Billion Connected Devices soon which will enable efficiency way beyond common present linear notion of supply chains

Bill Kohnen July 2014

Conclusion• After nearly 100 years of stability business to business purchasing will transform.

• The enablers and conditions exist now for this change which will ultimately be part of value creation for new and existing companies.

• The transformation will result in the need for new skill sets and purchasing organization models.

• Not only will the pool of purchasing professionals become global but there will be people with backgrounds in Computer Science, Engineering, and Science that are needed and might be more attracted to purchasing and supply chain.

• Ultimately this will create massive opportunities for those that can lead the transformation for their organizations.