Procurement 4.0 – Full Integration

Is full connectivity able to mitigate all supply related risks? BMW is moving toward Procurement 4.0, which are the challenges and opportunities ahead?

In the last decade, the necessity for a more integrated logistics, planning and procurement operations was fostered by a “war” between companies around the globe to achieve lower costs and better services and products. Supply Chain has been evolving to catch up with the new industry trend and Procurement is a fundamental piece of the puzzle, as it is the interface with internal clients and external actors, e.g.: suppliers.

As summarized in academic literature, “The introduction of Procurement 4.0 means developing new value propositions, meeting new business needs, and integrating data across functions and value chains. It will call for using this data proactively and intelligently, while introducing digital processes and tools” [1].

Although BMW has been at the forefront of new Supply Chain trends and risk-avoiding mechanisms, the company experienced a car-production stoppage on May 2017. This was due to a delay in its steering gear supply. Bosch, a direct supplier for BMW, couldn’t deliver the parts required for the production of the 3-Series model, due to a delay in its own vendor. [2] The high reliability of the vendors and the risk assessments performed by BMW weren’t enough to detect and mitigate all the risks when it has 13,000 suppliers in 70 countries. Is there anything more that BMW could have done?

The firm focuses its actions on trying to manage and minimize risks plus lever on resource efficiency with suppliers as they are providing 75% of the value creation. [3] The supplier network and its logistics are carefully selected and risk assessments are run to avoid any delay or stoppage in the production. Delays can not only raise costs, but can also threaten supply in certain markets by triggering a “domino” effect of losing market share. “We manage and minimize risk, by identifying and analyzing potential sustainability risks throughout the supply chain in a risk management process” [4] is stated on BMW’s official webpage.

In the book Procurement 4.0, the former Head of Indirect Purchasing at BMW talked about how the company is doing Procurement. “For us at BMW a collaborative network approach together with our suppliers is already a key element of our procurement strategy. Our belief is that we can only be successful if we manage to set up a professional partnership with our suppliers”. [5] He makes an emphasis in the win/win relationship that the company has with its suppliers that it is not focused on cost.

However, BMW has rapidly started implementing Procurement 4.0 in order to integrate better procurement and production, as more agile and lean processes are essential to deliver customized cars. “It is working on the reorganization of the production processes, connecting all workflows in the procurement sector. The idea is that, though digitalization, the global value network becomes transparent” [6]. When the supply chain becomes fully transparent, the system is more flexible, predictable and responsive because the players can make decisions consciously.

“BMW recognized that this new approach will depend on secure data interfaces and standards that allow the original equipment manufacturer (OEM), its first-tier vendors and the materials and equipment in the procurement to communicate digitally via cloud networks”. [7]

In addition to working on the challenges stated by the company, I consider essential to start working with 2nd tier vendors, especially in an industry in which cost structure and lead time are so relevant. Regarding Bosch, having tracked this company would not have fully avoided the shortage. Standardized processes, similar working culture, service level agreements and the integration of systems with its vendors could have been helpful in mitigating risks of supply and quality.

Implementing Supply Chain 4.0, according to which all stakeholders can have fully visibility of the needs, is becoming essential. Companies are investing on technology and connectivity to oversee not only their own processes and but also those of their vendors. However, this may not be enough.

Despite these efforts, there is a long way to acquire the capabilities to take full advantage of Procurement 4.0. BMW is on track and will face some challenges as its supplier network adapts to this new way of connectivity. Besides, IT functions and cloud platform services will have to assure a secure space to share information and run the required software in different corners of the world. As all these investments are done by companies, I wonder if the mentioned connectivity with the 1st tier or even 2nd tier suppliers will be the final solution. Is this enough to mitigate all supply related risks? And at an organizational level, what are the capabilities that the new Procurement and Supply Chain teams need to perform this twirling integration between companies?

 

(751)

 


[1] Startegy& – Procurement 4.0: Are you ready for the digital revolution? by Reinhard Geissbauer, Robert Weissbarth, Jürgen Wetzstein Published: May 4, 2016. https://www.strategyand.pwc.com/reports/procurement-4-digital-revolution, accessed on November 2017.

[2] Bloomberg – BMW to Seek Compensation From Bosch for Car-Production Stoppage. By Christoph Rauwald .Published: May 29, 2017, 8:34 AM EDT. https://www.bloomberg.com/news/articles/2017-05-29/bmw-to-seek-compensation-from-bosch-for-car-production-stoppage, accessed on November 2017.

[3] Agile Procurement – Volume II: Designing and Implementing a Digital Transformation. Authors: Nicoletti, Bernardo. Page: 212

[4] Official BMW site: https://www.bmwgroup.com/en/responsibility/supply-chain-management.html , accesses on November 2017.

[5] Procurement 4.0: A survival guide in a digital, disruptive world. Authors: Alexander BatranFranziska SperlRalf SchulzAgnes Erben (2017) – page. 111

[6] Agile Procurement – Volume II: Designing and Implementing a Digital Transformation. Authors: Nicoletti, Bernardo. Page: 212

[7] Agile Procurement – Volume II: Designing and Implementing a Digital Transformation. Authors: Nicoletti, Bernardo. Page: 212

Image: Website: Auto NDTV, https://auto.ndtv.com/bmw-cars/3-series, accessed on November 2017

Previous:

Rent the Runway: A Trendsetter Behind the Scenes Too

Next:

Unlocking access to medicine in developing countries through digitization

3 thoughts on “Procurement 4.0 – Full Integration

  1. Informational flow throughout the supply chain definitely deserves the spotlight on our TOM discussions – great choice of topic and great essay!

    In my opinion, sharing information is just the first step towards a “defect-free” procurement. Fortunately, the risk aversion towards sharing data is being surpassed, and giants such as BMW play an important role into making this the industry standard. Once all data is shared, there will be several other issues that will arise – one that particularly interests me is on how to manage the huge amount of data now available: as you said, BMW alone has 13,000 suppliers, each with their own suppliers. I feel that new types of jobs (or even companies) will appear, such as a “supply management organizer”. People or companies whose role is to guarantee a better understanding and alignment among the thousands of different players on a supply chain. As a company, this player would not only be specialized on this, but also guarantee neutrality and across-the-board optimization (rather than optimizing for only part of the supply chain). The question is: are the giants (BMW) ready to give up their data and autonomy for a greater good? After all, that is what they are asking from their suppliers.

  2. Outstanding essay! An efficient supply chain becomes even more important today – in a market of consolidated OEMs with fragmented supplier bases.
    I think you are absolutely right in saying that additional levers need to be pulled in order to somewhat build up a reliable supply chain for BMW. I would primarily see three additional levers:

    1) Centralization of intelligence: With many suppliers interact with, BMW needs to find a common communication channel to centralize the information streams. It could for instance leverage the SupplyOn channel that major global automotive suppliers (including Bosch) have established. That platform in its turn serves as a single source of truth to BMW.

    2) Closer interaction between steps of the value chain: BMW needs enable closer interaction between engineering and procurement in order to reduce procurement issues in the roots. For instance, engineering can eliminate the number of required critical parts in order to minimize procurement efforts and thus supply chain risks.

    3) Organizational changes: On the C-level, BMW needs to make the CPO a “true member” of the senior management team. The CPO should not only report to the CEO, but also participate in key management processes and be a member of relevant cross-functional committees. On the employees-level, BMW needs to clearly separate strategic and transactional roles (putting more emphasis on the strategic roles).

  3. Great essay Ailin! I agree with you that it is critical to start engaging 2nd tier suppliers within the value chain to further mitigate risk. I think a key way that organizations are addressing the issue is by having representatives at all companies within the supply chain. However, I believe that these representatives do not have enough power within the supplier organizations to actually have an impact on operations. I think it is critical that these representatives be empowered in order to successfully mitigate risk and produce more efficient supply chains. For example Boeing has partnered with regulators to have in house FAA representatives that are paid Boeing employees. This helps operational efficiencies and allows Boeing to manufacture a higher number of airplanes. I could envision a similar system where BMW has a set of company representatives at every supplier to manage risk.

Leave a comment