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Big Data in Procurement 4.0: Critical Success Factors and Solutions
Department of Business Studies, Temple University, Rome, Italy
Department of Management and Law, Faculty of Economics, University of Rome Tor Vergata, 00133 Rome, Italy School of Management, Cranfield University,
Cranfield, Bedford MK430AL, UK Institute for Research on Innovation and Services for Development (IRISS), National Research Council (CNR), 80134 Naples, Italy
The concept of procurement 4.0 was born out of the idea of industry 4.0. The term industry 4.0 derives from the consideration that it represents the fourth industrial revolution after the first three ones, based on the steam engine, the electricity, and the computer. Immediately, it started to be considered a different concept with profound implications for organizations.
The term industry 4.0 has been published for the first time in 2011 when an association of representatives from industry, politics, and academia promoted the idea as an approach to improve the German manufacturing competitiveness (Schwab, 2017). Industry 4.0 is the merger of information and communication technologies with plant automation (Nicoletti, 2017). The topics of Production 4.0 and Logistics 4.0 have already been analyzed and discussed. The field of procurement 4.0 needs more investigation. The topic is barely ever mentioned but extremely important due to the increasing relevance of procurement in organizations. This chapter aims to provide to academics, including students, and practitioners an opportunity to understand how to implement, monitor, and benefit from the adoption of industry 4.0 in the procurement processes within organizations. In other terms, it provides a clearer insight into the potential benefits produced by the implementation of new solutions and define a structured plan of procurement 4.0 (Pellengahr et al., 2016).
The concept of industry 4.0 started in the manufacturing environment, but soon expanded to all types of organizations. In the new era of procurement management and in the new scenario of procurement 4.0, managers need to redesign the value added by procurement within the organization (Bienhaus and Haddud, 2018). Industry 4.0 also involves a considerable change in procurement (Luo, et al, 2017), labeled in this chapter as procurement 4.0.
In general, the transformation of the procurement processes can produce several benefits not only connected with the direct activities (such as selection, negotiations, contracting, and so on) but also to the support of the daily business and administrative activities and to help in decision-making. In particular, procurement 4.0 allows the procurement to concentrate on strategic data-driven decisions and activities (Kiron, 2017). Procurement 4.0 is a powerful approach to improve the integration of procurement with other functions and with external entities supporting organizational efficiency, effectiveness, profitability, and in developing new business models (Bienhaus and Haddud. 2018).
In the case of procurement, there are successive phases indicated with numbers (n.0).
Procurement 4.0 is the integration of information and communication technologies and automation in support of procurement to add additional value to the customer and the entire organization. It can also be considered a reorganization with the objective of implement a digitization to decrease uncertainties through improved transparency of information among procurement partners (Bag et al., 2020). The literature review considers a certain number of authors who have analyzed procurement 4.0. There is no business model able to describe the Critical Success Factors (CSFs) of procurement 4.0.
Organizations are often failing in building a correct roadmap for achieving the objectives that they set. As a result, the adoption of procurement 4.0 is still unclear and in its infancy (Pellengahr et al., 2016). The research presented in this chapter aims to push the organizations to move best way in the direction of procurement 4.0.
The world is undergoing a dramatic impact from the current outbreak of the pandemic; organizations did not escape from this situation (Williams et al., 2020). One of the functions most impacted has been procurement. Procurement was already undergoing some drastic changes in connection with the digital transformation. The pandemic has brought difficulty in procurement from many vendors and challenges in logistics (Kuziemski, and Misuraca, 2020). There is the need to work and organize remote working. At the same time, there is a drastic surge of online activity and e-commerce. In this scenario, procurement cannot stay still. It must become an engine of innovation and change. In this vision, it is necessary a radical re-thinking of procurement in all the organizations. In this respect, it is important the acceleration toward procurement 4.0, initially generated by the development of industry 4.0. Even if procurement 4.0 was born out of industry 4.0, it is essential to have a vision of procurement 4.0 as a transformation not only in the procurement function but also in the relationships with partners outside the organization. Procurement 4.0 includes the idea of a different business model, more agile, lean, interconnected, and flexible; it is essential to understand which are the CSFs. It is necessary to warn that the situation is in a rapid change and procurement 5.0 is not far away. The CSFs will be important to assure success to the transforming organizations.
Industry 4.0, as related to the procurement and supply chain areas, is a relevant research area attracting particular interest in academia and as well as practitioners
(Frederico et al., 2019). In this area, the literature is limited as of now. According to Bag et al. (2020), the combination of digitization and procurement is an area to be investigated.
Geissbauer et al. (2016) highlighted the actual state-of-the-art of the interaction of “procurement” and “digitization.” They outlined a future framework based on challenges and requirements. A systematic literature review by Frederico et al. (2019) aims to propose the term “Supply chain 4.0” and a novel conceptual framework capturing the essence of industry 4.0. This study aims to facilitate perspective of the development of a supply chain 4.0 strategy from infancy to a maturity level.
While digitization is a key driver of industry 4.0; an article by Bienhaus and Haddud (2018) underlines the differences in the organization approaches to deal with this topic. It helps to get a clearer picture of the opportunities and challenges relative to the digital transformation. The findings of this paper indicate that digitization of procurement process can support daily business and administrative activities. Procurement will also start supporting complex decision-making processes. In this way, procurement will become more focused on strategic decisions and activities. It will become a crucial interface to support organizational efficiency, effectiveness, profitability, and the definition of new business models, products, and services.
Other authors state that industry 4.0 can also be called “smart manufacturing” and “the next industrial revolution” (Geissbauer et al., 2016). A combination of new technologies - from big data analytics (Russom, 2011) to 3D printing (Mohr, and Khan, 2015) - is revolutionizing organizations’ decisional, operational, and administrative processes. It supports the creation of innovative products and services. In diverse industries, organizations need to consider the way digital innovation can disrupt organizations’ work today and the entire value proposition of procurement to their vendors, customers, and process partners.
The on-going discussions about the digital revolution and disruptive competitive advantages led to the creation of the industry 4.0 approach. The term and its actual impact on businesses are still unclear. A paper addresses this gap and explores more specifically the consequences and potentials of industry 4.0 for the procurement, supply, and distribution management functions (Gas and Kleeman, 2016). These authors used combined literature-based deductions and results from a qualitative study to explore this trend. The findings show that solutions underlying industry 4.0 legitimize the next level of maturity in procurement. Empirical findings support these conceptual considerations.
Henke and Schulte (2015) state that the partners’ relationships and the production solutions interface layer position procurement as a critical factor for the development of industry 4.0. They propose several business opportunities in their studies.
Batran et al. (2017) reviewed the state of the art in the literature specifically on procurement 4.0. The authors show that the dynamic, interconnected value networks are critical factors of sustainable business success. Strategic procurement officers, in their new role as value network coordinators, should manage and guide this transformation. It is necessary to develop a tool for procurement with which it is possible to check the current value of the partners at any time. In this way, the organization is able to evaluate the partners. Similarly, procurement must have a tool that simplifies the management of a complex business while ensuring best-price security. The books on “Procurement 4.0” start exactly at these points (Kerkhoff et al., 2017;
Nicoletti, 2020). They present an integrated solution that is under development in certain markets.
Procurement costs are the central lever for increasing the economic viability of organizations (Kliinder et al., 2019). Procurement costs can be material costs and commodity costs. Material costs are more important across all industries. They are getting cheaper over time. This paper, based on the procurement process, derives five central cost elements and combines them with corresponding technologies to establish a procurement 4.0-framework. The empirical examination of the correlation between digitization efforts and procurement costs shows significant results. It emphasizes the importance of distinguishing between material costs and commodity costs. The results show the expected negative correlation, which confirms the hypothesis of cost reduction through digitization. The results are without doubts supporting the use of the procurement 4.0 framework.
The development of procurement 4.0 systems is not necessarily a simple job. Bienhaus and Haddud (2018) provided a list of barriers that are curbing the development of procurement 4.0 systems. They suggested that focus on procedures, capacity, and capability can eliminate these impediments. The literature reveals the importance of the procurement function for organizations, and especially for manufacturers, organizations need to focus more on digital and open programs to deploy procurement 4.0.
Wang et al. (2016) noted that the amount of data produced and communicated over the Internet is significantly increasing, especially in organizations applying industry
4.0. Organizations can benefit from the analysis of this massive influx of data. These authors underlined the importance of big data business analytics. They reviewed and classified the literature on the application of Big Data and Business Analytics (BDBA) on logistics and supply chain management, based on the nature of analytics (descriptive, predictive, and prescriptive) and the focus on strategy and operations. The objective was to define the use of big data analytics for providing unique insights into, inter alia, market trends, customer sourcing patterns, and maintenance cycles. BDBA can also help in lowering costs and enabling more targeted business decisions. These authors proposed a maturity framework of what they defined as supply chain analytics (SCA), based on four capability levels, that is, functional, process-based, collaborative, agile SCA, and sustainable.
In conclusion, the currently available literature evidences the strategic importance of the procurement function in the organizations. Manavalan and Jayakrishna (2019) suggest investigating more empirical and practice-oriented research to extend the knowledge base in the future. There is limited specific literature on procurement 4.0 (Bag et al., 2020). Organizations are currently lacking a concrete roadmap as to how the targets that they set are achievable. As a result, the implementation of procurement 4.0 needs to be better defined and especially guided. More definitions of theoretical framew'orks and empirical research are required to provide a basis to extend the knowledge base and get success. This chapter has this objective.