As Sure As Tax, Rain, Death: Digitalisation Dragons? (Part II)

By Anne Staal posted 20 days ago

  


Mutated digital dragons?  (Check the British Library website for the 15th century originals!)

Tax evasion, delayed trains & untidy death seem to be parts of our daily lives. But what about the digitalisation dragons? Will they wipe away B2B sales and procurement as we know it, our will we see a more nuanced picture? The first Part on this topic so far has attracted 3600+ readers at our PSF website. It concluded that this wave of digitalisation is different from the advance of enterprise systems in the eighties, but it was inconclusive whether digitalisation differs from existing e-commerce or e-procurement systems, and whether it differs from managing data in long or short supply lines. This Part II hopes to stir some discussion & bring some answers. (PLEASE ADD YOUR THOUGHTS & COMMENTS!)

So: What is different with this current digitalisation wave?

Several forms of digitalisation technologies are climbing the Gartner 2016 hype cycle (see also the example below) and it is thought that we will see large-scale adoptions within 5 - 10 years. Some technologies have disappeared from earlier (2015 or 2014) Gartner hype cycles, others are on the increase and are developed by the usual Silicon Valley companies or high-tech start-ups, and are trialed with large multinational frontrunner clients. The combinations of technologies in the VUCA world can have disruptive effects for business relations. I will briefly discuss two examples.

1.     Digitalisation example: 3D printing and the role of procurement


Silicon Valley companies and front runners take the lead in development and adoption. It may take the full  5 – 10 years and more before the impact has hit and has started to transform SMEs. After, all the adoption  of enterprise systems, e-commerce or e-procurement systems also took longer than expected. Adoption  rates may vary with the specific application, the SME business model or maturity.

Take the adoption of 3D printing technologies or additive manufacturing as engineers prefer to call them. (The picture at the right is from a Dutch company building a bridge over one of the famous Amsterdam canals).

The below Gartner curve shows the various 3D printing applications. Some may develop slower and some  will develop quicker. For remote locations with long or thin supply lines (drilling platforms, naval fleets,  isolated rural areas) 3D printing may offer opportunities for local manufacturing within the coming years. It  will then also disrupt or at least change those current supply chains and current off-shore manufacturing.


The role of B2B sales & procurement for spare parts will change. Suppliers will offer CAD designs protected by intellectual property. Predictive maintenance programmes supported by internet sensors (IoT) and advanced data analysis will then signal the company and the supplier when a replacement piece must be printed and installed. (See the recent Caterpillar example).

According to Forbes (2017) and others, 3D printing is now changing the supply part industry. In line with thinking of Clay Christensen (2017), threatened companies (“the disruptees”) will then specialise and move upwards in the market, offering a higher quality or moving into niche markets. Advanced and automated pricing schedules, standard IP & service agreements could make operational sales and procurement activities obsolete. How the adoption of this technology will progress will need some research, see for example the PhD scholarship at Copenhagen Business School.

2. Digitalisation example: big data & analytics and the role of procurement

According to Glas & Kleemann (2016, p. 60) digitalisation will see a further integration and automation of buying and selling supply chains. At the same time they argue that other data-driven business models are also feasible.

To use an analogy from logistics. We usually distinguish between several types of logistics service providers (1PL – 6 PL) depending on the scope of and responsibilities. One common type is a 4PL contractor (4th party logistics) that integrates and manages the clients’ supply chain data to move e.g. consumer products from China to Europe. The distribution centres, warehouses and transport facilities need not be owned by 4PL contractors, but they can hire capacity in these assets. The last four decades have seen a shift from in-house logistics to 1 PL (the shipper is either the manufacturer or the retailer), 2PL (transport companies), via 3rd party logistics providers (3PL) to these 4th generation service providers and even 5PL. The latter type of service provider uses detailed planning information systems. The more information technology and artificial intelligence, the higher the PL number. There is talk about 6PL, 7PL, 8PL. Currently these business models coexist or will be developed soon.

Like 4PL or 5PL logistics contractors, increased digitalisation will enable companies to manage product, production, or distribution data without having the risk of owning corresponding assets. One such example is the Dutch startup Optiply that offers forecasting and supply management services for web-shops. In future, similar data-rich companies could dynamically select partners in supply chains for designing, manufacturing, and distributing goods or services. This would reverse the trend for long term partnerships into transactional relations based on price, minimal quality assurance and capacity. Procurement and B2B sales would not have a major role. (Why should I use an expensive procurement or sales professionals when self-learning algorithms can do the job for me?)

Another example is calculating detailed cost-prices based on proprietary and public data. Big data repositories and data analytics will change the game. Companies can then use such data to assess supplier quotations. The above-mentioned examples on e-commerce & e-procurement have already increased competition and created price pressures. However, this new use of big data enables a transparency and price pressure that has far-reaching impacts on business-to-business markets with margins dropping to cost-plus levels. Companies have always collected and used cost price information but use of big data and advanced analytics will push this to a much higher level. One such example is the Dutch company What’s the Price. With such companies, the traditional roles of procurement and B2B sales will decrease. (Why do I have to negotiate when all data is at my fingertips?)

Need B2B sales or procurement professionals be fearful of their jobs?

Well, yes and no. The Oxford Martin study on endangered jobs (Frey & Osborne, 2013) thinks operational activities in sales and procurement, and purchasing managers will disappear due to the fact that technology can tackle complexity with smart algorithms and big data. According to this study, specialised purchasing agents and sales peoplecan be fairly confident that their jobs will remain to exist. (Frey & Osborne make a compelling comparison with UK technology developments from the Middle Ages. They state that it is not the technology as such, but market and political powers that determine the adoption rates). Their thinking is somewhat in line with the KPMG (2016) 2 x 2 matrix from Part I: procurement may disappear (become less important), or at least its role will change.

Slaying the dragons, or ...?

To come back to the digital dragons in the beginning of this blog, this leaves me with two questions (a) Are these digitalisation technologies for frontrunners – not for SMEs? (b) What then is a future role for B2B sales or procurement? I miss the qualities and time to fully answer these questions and have no crystal ball available. However, I will combine them as I see some similarities.

1.  For some companies & industries change will come like a blizzard, for others change may come like a drizzle after a sunny afternoon. The impressive growth of large organisations (cf. Chandler, 1977) since the 19th century has not wiped out SMEs. Instead small business owners continue to find nice markets and satisfy their B2B, B2G and B2C customers with new offerings where large organisations fail to find profits. In general, small businesses can be more customer-oriented, flexible, often more innovative, and more entrepreneurial. My ongoing PhD research also suggests that small businesses conduct some clever sales and procurement activities when they cooperate with innovative customers and suppliers.

2. That is not to say that SMEs or startups do not go bankrupt. They do. The mortality rate of start-ups is high according to a recent UK study (Coad et al, 2016). Dutch data suggest 50% of startups die within the first five years. Mature SMEs may last longer, but can also die of cashflow problems. Startups and SMEs need adequate management of suppliers or customers. 

3. Technology adoption rates in SMEs (see Part I) vary and several logistic business models coexist. Likewise, the forthcoming digitalisation adoption rates will vary with companies and industries. Frontrunner SMEs may quickly adopt digitalisation technologies and improve profits with new business models. Others will take their time, and find feasible business models, or disappear.

4.  Again as a parallel: The adoption of sustainability business models can increase profits. However not adopting sustainability but pursuing other types of business models can also yield profits, at least in bad economic times as a New Zealand study demonstrates. (Collins et al., 2010). Some will try digitalisation technologies and fail; others will not try digitalisation and (also) fail.

5. Investments in digitalisation can be substantial and need B2B sales and procurement activities. There could be a lack of skills to handle all opportunities.

6. I do not fear the Oxford Martin doom scenario. Getting back to the four KPMG scenarios (Part I), in many instances the role of procurement will change but will not disappear. Possibly the four KPMG archetypes will co-exist depending on circumstances. This is especially the case where procurement decisions need subjective & human input or where procurement touches on strategic aspects. Procurement & sales are needed in entrepreneurship and innovations. The same holds for managing risks or circular supply chains. The procurement or supply chain reports in Part I discuss 2030 and later. We will learn & adapt and for a long time have challenging jobs.

7. But now is the time to discard the phrases “B2B sales” and “procurement”. Both have been around for a century and developed negative connotations: transactional, pushy, rigid, or cost-saving.

8. Now is the time to introduce new phrases such as partner & supply management, alliances, supply partners, value partners or the likes. Professionals, CEOs and SME owners will recognise the value of these activities. A bottle of Villa Maria Pinot Noir 2014 for the best suggestion!

9. And finally. When it comes down to doing business and defining good business models, there is a lot at stake for individual companies and for entire industries. This needs support via rigid and applied multi-disciplinary research in procurement, sales and entrepreneurship. And of course tertiary education that prepares sales & procurement professionals for this challenging and interesting future.

Suggestions & comments are welcome.
Enjoy the week.

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