Digital transformation is something futurists—market scenario analysts and forecasters—have been discussing for quite some time. It is undeniable that the pandemic accelerated the need to implement digital transformation across companies. According to a study conducted in the United States, adopting digital technologies generates savings of up to 70% in procurement departments.
In this context, technology has generally become almost every company's core business. In other words, the core from now on is technology. And this is directly linked to digital transformation.
Considering this perspective, business relationships have shifted accordingly, demanding adaptation. According to Alexandro Barsi, CEO at Verety, the most impactful technological change affecting the buyer-company relationship was the pivot of clients turning into competitors. Moreover, given the surge in demand, this competition has evolved into partnerships to effectively compete with big tech companies.
“Today, technology has become paramount. I would say it is vital to driving and boosting business growth,” remarked the CEO.
Substantial shifts have taken place: software development services, previously constrained by linear dynamics with a rigid beginning, middle, and end, have evolved into increasingly open-ended projects powered by Agile methodology and other modern practices.
In the context of procurement process analysis, Rodrigo Andrade—Innovation and Artificial Intelligence Lead at FNC IT SOLUTIONS—highlights the shift in relationships beyond technology, drawing a counterpoint to it and conceptualizing digital transformation.
“Change is taking place in every market. Procuring services is a trend. For example, today it is increasingly common for people to lease a car rather than buy one. The exact same thing is happening in the technology sector. Anyone who has been in procurement for some time knows that purchasing physical infrastructure used to be far more common. In other words, buying servers, storage, everything a data center entails—HVAC, UPS systems, etc. Today, both for corporate environments and individual consumers, buying cloud storage and services is an increasingly prevailing reality.”
The impact of technology and digital transformation on daily life continues on a rising wave, as pointed out by Fábio Furlan, Senior IT and Digital Strategy Consultant at Level Group.
The growth of social networks and digital media, mobility, and the adoption of new technologies alongside digital transformation have dramatically transformed relationships across the board, including within procurement processes. Read on to dive deeper into this topic.
Adapting the procurement professional to new technologies and digital transformation
To deliver higher value in contracting, negotiate effectively, and maximize efficiency, professionals must stay attuned to diverse skills. Therefore, staying updated is the primary recommendation to avoid falling behind. Procurement professionals must align with all shifts likely to trigger new demands.
Beyond mastering diverse skill sets and staying up to date, it is essential to strengthen the relationship between the requesting department and the procurement team. Take a resource allocation project, for instance: if the business is purely about allocation on paper, but the buyer arrives to sign a contract and is faced with a rigid, unfamiliar scope, it disrupts the entire negotiation.
Mining information and facilitating the transition process adds genuine value to the procurement professional. These professionals will not be replaced by artificial intelligence; rather, roles are poised to reverse. In other words, artificial intelligence will increasingly handle operational tasks, while procurement professionals take on more strategic, high-value roles centered on negotiation and interpersonal relationships. Information management plays a critical role in TCO. Explore this relationship further below.
Innovation takes center stage
Moving from an on-premises hardware model to Cloud infrastructure is often challenging due to the human factor. Some still believe that “carrying a physical server under your arm wherever you want” is safer than the Cloud. In reality, it is neither safer nor more cost-effective.
The operating and infrastructure costs of remaining on-premises are significantly higher over the long term. Consequently, this model is steadily converging toward the Cloud. Furthermore, the gains in security, speed, data storage capacity, mobility, and other areas are unrivaled.
During the pandemic, when every company was forced to pivot, those already operating in the Cloud were light-years ahead of organizations that had to scramble to adapt. Therefore, this is a strategic model to negotiate across organizations, and TCO demonstrates solid medium-term returns.
The advantages offered by the cloud go far beyond a simple contracting model. To fully realize them, it is essential to map out every factor on a spreadsheet. All costs and variables must be taken into account when making decisions. As such, maintaining a reliable database containing all procurement elements and running thorough calculations is critical to delivering an accurate TCO. In other words, when building a TCO analysis, mapping out all data points is imperative.
TCO and Other Analyses
Taking into account all contractual changes and shifts from product purchasing to service contracting models, conducting a robust TCO analysis for data-driven, fact-based negotiations starts with one key step: embrace digital transformation. Everything is interconnected.
Just as suppliers are no longer mere order-takers or professionals solely focused on cost-saving reductions, procurement professionals are increasingly becoming strategic leaders. Moreover, the breadth of information and knowledge a buyer must command is growing progressively more complex, in-depth, and closely tied to organizational performance.
The primary consideration for procurement professionals when conducting a TCO analysis is understanding what they are benchmarking. Fabio Furlan emphasizes that buyers are currently faced with fundamentally divergent models.
“You had an acquisition model ‘A’ focused on purchasing, and you are frequently moving toward an acquisition model ‘B’ centered on service contracting—or often toward an outsourcing model, which is hybrid. Therefore, you must be capable of understanding, within your business, which variables are shifting and must be factored into your TCO analysis when transitioning from one operating reality to another,” illustrated the IT strategy consultant.
Another practical example is the retail purchasing of laptops and mobile phones for employees. This approach requires managing equipment damage and breakdowns—a highly probable scenario. When it happens, managing the internal support infrastructure required to assist internal stakeholders consumes valuable time.
To solve this, one viable path is transitioning to a managed service model, as observed in the mobile telecommunications sector. However, diligence is required: variables must always be weighed. Previously, there was an equipment acquisition cost; now, there is a management service contract. Often, the challenge lies in accurately identifying variables, securing reliable data, and applying industry best practices.
Finally, when facing the impact of technological advances and digital transformation on vendor relationships, procurement teams encounter several roadblocks.
Market and consumer behavioral shifts, alongside the accelerating pace of technological breakthroughs and internal corporate dynamics within enterprise tech environments, are just a few of these challenges.
To learn more about TCO, procurement adaptability to emerging technologies, or where to begin your digital transformation journey, get in touch with our specialists.
