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Methodology

This research aims to investigate the CSFs for procurement 4.0 to succeed, the solutions to be used, and the expectations of the organizations regarding procurement 4.0.

TABLE 4.1

Generations of Industry and Procurement

Generation

Industry n.O

Procurement n.O

1

Steam Engine

Industrial production and transportation

No distinct function from operations

2

Electricity Assembly line Division of labor

Procurement function was born Procurement at a regional or global level

3

Computer

Network

ERP

Integrated procurement E-procurement Container transportation

4

Cloud

Internet of Everything Convergence of industrial automation and ICT

Cognitive Procurement

Coordination of the organization’s ecosystem

Agile Procurement

Adapted from: Nicoletti (2020).

Initially, there was an extensive analysis of the available literature on procurement 4.0 modelling. The results were limited since there are very few researches on this subject. A model for Procurement 4.0 was designed with respect to the stages of Industry n.O (see Table 4.1) (Nicoletti, 2020). The question came up on which would be the CSFs. The following action was to conduct a focus group and interviews with two different groups. The scope of the focus group was to define the requirements and understand which characteristics of Procurement 4.0 would satisfy them. The first one was composed of 15 persons from different industries, potentially interested in procurement

  • 4.0. The second group comprised eight persons from various functions of the same service organizations already engaged in industry 4.0, but with a desire to extend it to other functions. There was no overlap between the two groups. The second group aimed to understand the potential uses of industry 4.0 in a service organization with respect to the industrial base of the components of the first group. Qualitative research was also conducted in the form of semistructured interviews, aiming at generalizing as much as possible the procurement 4.0 concept to different types of organizations. Qualitative research was especially suited to understanding the experiences of the participants, the environment in which the participants operate, and making discoveries. The interview questions were complemented by the analysis of a pilot study on procurement 4.0 by Perona (2019). The interviews were focused on procurement
  • 4.0 CSFs within the organizations in the first part and ask about the experiences and expectations of the participant to the groups regarding procurement 4.0 solutions in the second part. After the interviews, the recordings and the notes taken during the interviews were used to synthetize the hypothesis of the CSFs model. The transcripts summarized the opinions and predictions expressed by the participants of the two groups.

In the following pages, the results of one organization are presented, summarized, and analyzed.

Critical Success Factors for Procurement 4.0

Cybernetics

This section examines in detail the CSF for procurement 4.0. The CSF can be summarized with six words starting with “C” for mnemonic reasons: Cybernetics, Communication, Control, Collaboration, Connection, and Cognition. There are two other CSFs “Cs.” Coordination requires strong governance of procurement 4.0. At the same time, “Confidence” refers to mutual trust. It is the basis for the success of a procurement 4.0 initiative.

The following pages examine each of the eight “Cs” in the case of procurement 4.0.

The industry 4.0 revolution shifts an organization from a supply chain model to a value network (Nicoletti, 2017). The modes of marketing, operations, and other functions are not anymore linear (“chain”). There is now a network of organizations in the ecosystem which add value to the components of this ecosystem. It links automated machines and computer applications, customers, partners, and regulators. At the same time, procurement processes need to be lean and streamlined.

The “smart” operations centers (Shrouf, 2014) share real-time information among all stakeholders. They make the procurement processes optimized and transparent. Cybernetics is the science of communication and control theory. It is relative to the comparative study of automatic control systems (such as the nervous system and brain).[1] With the use of cybernetics, procurement 4.0 needs an automatic system to be sure that data are available at the right time and in the right place to support the procurement activities. At the same time, the system needs to be secure and, hence, protected and accessed only by authorized profiles.

The management of procurement 4.0 is based on an extensive network in which all parties involved in the procurement ecosystem (organization, customers, distributors, financial institutions, government entities, and partners) have access to what they need. This network is made possible by an internet platform that handles the relationships with all stakeholders in real time. The intravalue network or the movement of goods within the operations is automated and integrated. Information received from intranet and internet platforms, used by all stakeholders, is at the basis of the planning (Vis, I. F., 2006). The platforms connect from an information point of view all stakeholders. They can provide the information necessary to the movements of goods and the provision of services. In this way, there is a reduction in inventory costs. There is a real-time processing of the customer requirements and orders to partners. It is necessary to plan the dates of receipt of all the materials and components needed for the production, to provide the final products, possibly pulled by the customers, in proper quantity and quality, and on schedule. The organizations’s management and partners can track deliveries using GPS to know their exact position in real time. The complete automation has the main purpose to help operators in their activities and to provide an efficient, secure, and safer working environment for the workers.

Communication

Industry 4.0 emphasizes automation and Information and Communication Technology (ICT) smart or intelligent systems (Schmidt et al., 2015). This support is different from the operational work provided by e-procurement systems. The “smart” adjective in the procurement sector is more than the basis for the automation of end-to-end procurement processes. Procurement 4.0 solutions should automatically recognize the demand for a specific material or component, based on the customer requirements, the characteristics of the production processes, and the relevant historical data. These solutions can automatically generate a purchase order transmitted automatically to the partners. Another difference between procurement 4.0 and e-procurement is in-depth automation. Procurement 4.0 is a system without the requirement of human interventions, interruption of processing (STP - Straight Through Processing) (Khanna, 2010), and fully transparent and secure.

Huang and Handfield (2015) made two crucial considerations: ERP systems can enable real-time information sharing and integration of business functions. The same set of functionalities can prove useful to organizations in the implementation of procurement 4.0 systems.

CONTROLLERSHIP

The procurement 4.0 model implies a significant transformation in the way procurement works. It requires a substantial rethinking of the organization and competencies necessary across the full product or service cycle. Procurement 4.0 accelerates communication in a more tightly interconnected ecosystem. In the past, it was enough to be aware of some potential low-cost markets for procurement, for instance, Asia and Eastern Europe. Procurement 4.0 requires the control and organization of procurement with an integrated and global approach. For example, having the procurement organization nucleus located in the central office location was efficient and effective in the past. More procurement professionals should be close (physically or virtually) to competitive procurement markets for each category to control them properly.

Collaboration

Procurement 4.0 revolutionizes procurement because its professionals no longer need to waste time in repetitive price inquiries and negotiations. They optimally collaborate with the other functions along with the value network. The optimal value, measured not only by price but also by quality, delivery, reputation, and so on, of the supply can be ensured throughout the product lifecycle. Procurement 4.0 solutions benefit not only procurement but also other functions, such as sales or controlling. The sales department receives a transparent basis, for example, to enforce legitimate price increases, and the controlling function can regularly compare the current supply prices with the optimal prices.

The paradigm in terms of a greater “productive collaboration” in procurement

4.0 is different with respect to an e-procurement approach (Schuh et al., 2014). The productivity benefits resulting from e-procurement initiatives derive especially from a reduction in transaction and process costs (Essig, 2006). E-procurement allows the organization turning paper documents into digital documents processed by ICT applications. In this way, there is a change from a labor-intensive activity in the automated workflows and sustainable ICT processes. E-procurement supports critical activities like the process of managing relationships with partners (Essig, 2006). In procurement 4.0, these relationships are integrated and automated. The driving factors of procurement 4.0 collaborative productivity are improvements in terms of procurement, production, and engineering (Essig, 2006). Industry 4.0 enables the development of processes of production substantially shorter w'ith respect to the past. The organization can activate new' product-service functions and improve procurement (Schuh et al., 2014). E-procurement focuses on process efficiency. The objectives of procurement 4.0 are increased productivity, responsiveness, and performance to meet the rigorous requirements of customers and contribute to assuring their satisfaction and possibly delight (Kagermann, 2014).

Connection

The handling operations contribute to the efficiency of the material/product flow in their movement along with the value network (Sreenivas, and Srinivas, 2006). It is critical to ensure full interoperability and flexibility. By optimizing the external transport and internal handling processes, it is possible to act on the structure of the procurement costs. Automatic operations, robots, and similar autonomous control solutions can solve some of the problems in the movements and transportation intra- and especially interorganizations in the value network (Tsorakis, 2018).

To implement the automation of internal logistics, the organization must act in the different activities of the transportation processes. It is essential to implement an automatic path between work stations and warehouses. The organization needs to consider the legal and safety aspects, besides the technical aspects. Even partial automation of these pathways can impact on procurement or attributed to procurement costs. This automation can decrease the costs of operators and increases the overall safety of the workplace.

Some companies are evaluating and testing the use of drones in procurement. For example, DHL is planning to use drones as emergency delivery means (Sreenivas, and Srinivas, 2008).

Cognition

Big Data Analytics is an excellent enabler for procurement 4.0 (Koch et al., 2014). The intelligent use of advanced technologies and algorithms allows the aggregation, extraction, processing, and analysis of large volumes of data from many diverse sources. Using Big Data Analytics, organizations can improve their knowledge of the partners, markets, and customers; forecast market trends; and take actions to improve the deficiencies of processes and partners (Gupta et al., 2018). Big Data Analytics allows managers to take better and more informed decisions. In a large number of cases, Big Data Analytics can automatically take operational decisions regarding procurement (Nicoletti, 2014).

Analysis of the data and their intelligent use is one of the CSFs for the organizations that want to exploit procurement 4.0. The Big Data Analytics methodologies and tools can support the organization and its partners in improving the design and performance of their components. The predictive analysis on where and when to expect the next faults allows the optimization of the maintenance and the availability of spare parts and maintenance materials (Lee et al., 2013).

It is the responsibility of the organization, ensuring that Big Data Analytics maximizes the procurement opportunities connected with procurement 4.0. Procurement should work with partners to allow both the organization and the partners to benefit from the improvements resulting from a more effective, efficient, and economic data-driven ecosystem.

Coordination

A previous section dealt with the CSF collaboration. Collaboration implies working together to accomplish an activity and solve severe problems. Coordination is the balanced adjustment or interaction of different people or things to achieve an objective.

Industry 4.0 implies that there must be close coordination, internal and in the ecosystem, on procurement processes, systems, and automation. Partners with the e-procurement systems have provided considerable support for the exchange of information with the customers and the other partners in the e-procurement applications (Kollmann, 2011). Innovative solutions in the procurement 4.0 initiative vastly increase the potential of such coordination. The critical change is the transition from an “exchange of information” to the “free flow of information” in the value network among the products, services, partners, and related organizations (Schlick et al., 2014). This exchange must be coordinated effectively (Van Weele, 2010). When there is a free flow of information, there must be a large degree of exchangeability of the data, a higher degree of automation in the exchange of information, and possibly also an integrated use of the data in the approach of Big Data Analytics (Lee et al., 2013) or, in the future, on the use of blockchain, as described later in this chapter.

Procurement 4.0 improvements on respect to e-procurement can be classified as (Glas and Kleemann, 2016):

  • • Functional and cross-organization integration;
  • • Reduction in procurement activities thanks to the use of ICT applications, automation, and their coordination.

A flexible and coordinated procurement approach based on the digitization and automation of processes and infrastructure can provide several benefits.

In procurement 4.0, both the depth of integration (especially among organizations) and the automation potential of the procurement processes are much more than those based on e-procurement. The latter is limited to facilitate the activities using digital applications based on information and documents. The automation process and a higher degree of integration characterize procurement 4.0. The base of procurement

4.0 is the digitization and advanced automation of the partners within the ecosystem. It is not limited to the use of new, improved but stand-alone ICT solutions.

Besides the extent of integration, relations with partners may also differ in procurement 4.0 (for example, around the procurement of new goods and services (Essig, 2006)). The impact of procurement 4.0 in the organizations is broad and pervasive.

All these components of the model substantially challenge and transform the workings of procurement. They require a critical and holistic re-engineering of the organization and competencies, both of which should change in a coordinated way (Geissbauer et al., 2016). Organizations need to create new professional profiles, for example, buyers of new categories of products, contract experts on intellectual property, or data scientists to analyze relevant data, their management, and their use. To find these talents is necessary to use new sources with the help of partners. There is a need for new partnership programs with universities and research centers. It is also useful to explore new channels such as social networks, social media, and similar. Large organizations should consider establishing relationships with academia to conduct educational and informational activities, explore new ideas, set up cross-functional training, and workshops, also for the partners. Only if all professionals who w'ork in the procurement ecosystem have digital competencies (also named e-competencies (Sternberg et ah, 2003)), an organization can fully benefit from the opportunities offered by the digitization (Sanz et ah, 2018).

Confidence

Confidence (or trust or intimacy) plays a vital role in the organization’s ecosystem. Within traditional buyer-partner relationships, trust is an influential factor based on the (personal) interactions between them. It is at the basis of procurement 4.0 thanks to the directly interconnected and automated procurement 4.0 ecosystem as well as external influencing factors (Keith et ah, 2016). In the value network ecosystems, trust must be maintained mutually among all the stakeholders more than only between two parties. Trust is a challenge for organizations with respect to their traditional behavior. It requires a change in the organizational culture (Harshak et ah, 2013) and the solutions used.

  • [1] https://www.merriam-webster.com/dictionary/cybernetics. Accessed 11 February 2020.
 
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