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Is there Digital Momentumfor Procurement & Supply Chain in South Africa?

Letsema Consulting: Nex t-Gen Operations 2019 Market ResearchAuthors:Kamen Govender, Jeetesh Vanmare and Devon Katha


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CONTENTS

Executive Summary

Context

Findings

Key Recommendations and Conclusions

About Letsema

I

II

III

IV

V


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Executive Summary: Key FindingsAre Procurement and Supply Chain executives in South Africa driving their organisations to embrace technology and new ways of working, in line with a digital strategy, to realise business value and ultimately achieve global competitiveness?

Are we seeing “Digital Momentum” within Procurement and Supply Chain, in South Africa?

Our 2019 research study explored these questions. We interviewed 26 South African Procurement and Supply Chain executives that represented organisations spanning multiple industries and varying sizes. The results were also compared to our inaugural study in 2018, to draw comparisons over time. Our key findings centred around three key themes:

1Theme:

Six Archetypes of Travelers on the Digital Journey

2Shifts in Technology Understanding & Perceptions

3Momentum with Implementation Activity

34% are actively driving a digital agenda, with significant investments made and business value being realised. Large, multi-national companies made up 89% of this leading group.

31% are making steady progress with their digital agenda, balancing cost, risk, effort and internal skills. 8% are driving implementation aggressively, adopting a ‘learning by doing’ approach.

15% are significantly challenged with understanding and implementing new ways of working, while 12% understand the possibilities but face organisational constraints to move implementation forward.

More than 85% of leadership teams indicate good to high levels of understanding of technology solutions and trends, yet the understanding disconnect between leadership and their teams remains evident.

Building on from well understood cloud and Big Data / Analytics solutions, SA organisations are now deepening knowledge and experience in Artificial Intelligence, Machine Learning, Internet of Things (IoT) and Robotics Process Automation (RPA).

There is no standout consensus on which specific area of Procurement and Supply Chain will be most disrupted by digital, with Sourcing & Procurement, Inventory & Logistics and Planning each receiving approximately 30% of responses.

Driving Improved Process Efficiency leveraging digital is the standout benefit being pursued, with 81% of respondents rating this within their top 3 target areas. Achieving Improved Decision Making Through Visibility was ranked second (69%).

Almost 65% of SA companies have a digital strategy for Procurement & Supply Chain, with approximately half aligned to corporate strategies, representing a marked increase from 2018. Structured financial planning for digital investments also increased from 57% to 73%.

Strategic Alignment & Leadership, Legacy Data & Process, and People perceived as the primary barriers to digitisation. This is consistent with 2018 findings, however challenges with funding and strategic leadership alignment increased by more than 10%.


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Executive Summary: Recommendations

The rate of change in markets, customer expectations and supply chain technologies continues to accelerate, making it somewhat overwhelming for P&SC executives to plan effectively for the future. There are, however, three core, complementary components to successful digital adoption that are “safe-bets” to invest in Data,

Business Process and Culture.

C-suite executives are pivotal to drive the achievement of business priorities and strategic initiatives, and it is critical for P&SC teams to understand these at a practical level, when justifying investments in technology and new ways of working. Plan and act on what the business (not Procurement and Supply Chain) actually defines as “value”to make an impact and to prioritise investments.

Proof of Concepts (PoCs) are seen by many (especially leading companies) as the most promising way to show value incrementally, reduce and manage perceived risks, drive more support within the broader organisation for change, and to secure additional funding. Focus on

defining, leading and learning from PoCs.

P&SC success in a changing landscape hinges on the ability to navigate uncertainty with a complementary set of trusted partners, to accelerate learning and manage risks. Developing great partnerships needs focused attention to nurture trust, constructively challenge and

effectively co-construct solutions.

As re-skilling of the P&SC teams seems imminent, there is a strong need to assess what roles will be present in the future workforce and what associated skills will be required (or not required). Understand the blend of present and future skills through deep interrogation of roles and competencies, and build the corresponding

approach to talent sourcing.

As P&SC within organisations transition to the future workforce, the effectiveness of traditional talent management needs to be questioned, and in doing so new methods for re-skilling explored. With significant talent shortages already prevalent in P&SC in South Africa, organisations need to focus efforts on building skills and re-training with the future in mind, one where

technology does the ‘heavy lifting’.

Through our findings, we have encountered various learnings which we have further explored and provided for consideration.

Invest Disproportionally

in Defining the P&SC Talent

Strategy

Shift Paradigms to Build the Next-Gen Workforce

Clearly Link the Case for Change

to Specific C-Suite Priorities

Champion the Value of Proof of Concepts (PoC)

Start or Continue Implementing

the “No Regret” Moves

Be Deliberate about

Structuring the IT and Supplier

Ecosystems

Strategy Operations Talent


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Executive Summary: Conclusion

Our findings indicated an overall positive shift to digital adoption in Procurement and Supply Chain in South Africa, from 2018 to 2019.

Leading organisations are increasingly turning their focus to understand and implement new and emerging technologies such as Robotics Process Automation (RPA), Internet of Things (IoT), Artificial Intelligence (AI) and Machine Learning (ML). Many of these leading organisations had embarked on their respective digital journeys as early as five years ago, having invested in mature foundational technologies such as Cloud solutions and Advanced Analytics, and are now realising the benefits of early investments. These emerging technologies are seen as key drivers of strategic decision making, operational efficiencies, compliance and financial performance. The leaders of technology adoption set the pace for digitisation and provide opportunity for key learnings to those slightly behind in their digital journey.

At a macro-economic level, the South African environment introduces a variety of challenges to digital adoption in P&SC, including skills shortages and fear of job losses. Organisations must therefore be prepared to work with strategic partners and suppliers, and plan ahead to circumvent these barriers. A well defined strategy linked to an investment plan is crucial to success.

As Procurement and Supply Chains evolve in becoming smarter, more agile and more resilient by infusing technology and new ways of working, those companies falling behind in terms of understanding and implementation will need to accelerate their roll-out of digital technologies as they strive to remain industry-competitive.


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Methodology and Data Collection

Applying the same approach as our 2018 survey, interviews were conducted with experienced executives and senior management in the Supply Chain and Procurement functions of participating firms across a range of industries and sectors. Participants took part in the survey by answering a set of standardised and structured response questions, which were mostly quantitative in nature. A qualitative study, using semi-structured interviews as a means of data collection, was also performed.

While it was ensured that various industries were explored, specific industry dynamics were not considered in this survey. Data confidentiality and privacy requirements were treated with the utmost care, and all participants were asked to share their honest, ‘unvarnished’ opinions. All participants in the survey and their responses were evaluated from a South African operations perspective.

This exploratory study followed a deductive approach, with data from survey responses utilised in raw form with no extraction of statistical inferences. Forward-looking extrapolation of survey results data did not form part of this study. Analysis of data from survey participant responses allowed further exploration and triangulation of findings, in combination with considering the insights from discussions with respondents.

The survey seeks to explore the progression of South African Executives’ levels of understanding regarding emerging technologies. The survey further examines the strategies these Executives are using to implement emerging technologies, as well as assessing how these strategies and technologies are shaping the Procurement and Supply Chain landscape.

Level of understanding

Understanding entails the working knowledge of the emerging technology itself but also the required implementation processes and the possible associated benefits.

Awareness is the initial determining factor, whereby a deeper understanding is developed as a technology is dealt with or explored for a particular use case, thus understanding and implementation overlap.

Extent of implementation

The extent of implementation ranges from the firm running initial trials to several larger pilots in different stages of completion – as implementation progresses, a deeper understanding is developed.

A trial or a pilot can involve using predefined off-the-shelf solutions provided by technologies or shaping them towards a desired outcome. Once implementation is embarked upon, the iterative journey unfolds.

The process attempted to obtain information across two dimensions:


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Respondent DemographicsThe results of this report are based on the evaluation of 26 organisations. Compared to 2018, the 2019 respondents spanned a wider range of industries. Most organisations interviewed were large private sector companies with a turnover of ten billion Rands and above.

Communications, Media, Hi-tech

Consumer Goods & Retail

Hospitality & Gaming

Logistics (Shipping & Airfreight)

Manufacturing

Medical (Healthcare & Pharma)

Professional Services

Public Sector

Resources (Mining & Energy)

Timber & Manufacturing

8%

27%

4%

4%

8%

12%

4%

4%

27%

4%

Respondent Industries Respondent Annual Turnovers

>R10bn

R10bn-R5bn

R5bn-R2bn

R2bn-R0.5bn

<R0.5bn

Confidential/Not disclosed

54%

12%

12%

4%

12%

8%

Respondent Organisation Size

>1000

1000-500

500-200

200-50

<50

69%

15%

8%

4%

4%Figure 1: 2019 Survey Demographics


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Six Archetypes of Travelers on the Digital Journey


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Six Archetypes of Travellers on the Digital Journey Following from the 2018 survey approach, firms were ranked based on their level of understanding of emerging technology, and the degree to which they have implemented such solutions. The data shows that relative to the 2018 survey results, there is a broader spread of firms which have the required balance of growth, understanding and focus on implementation, versus firms which are delaying the execution of their digital strategy.

Figure 2: Respondents level of Understanding vs Degree of Implementation

Implementation

Und

erst

andi

ng

0 5 10 15 20

10

20


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Six Archetypes of Travellers on the Digital Journey Defining the Archetypes

Pioneers Experimenters Watchers

Early Pioneers Explorers Traditionalists

Progressing at pace with their digital journeys within

Procurement and Supply Chain, with maturity in rolling out

pilots and solutions at scale.

Progressing in their digital journeys, pragmatically balancing

growth of understanding of digital within P&SC with pace and scale

of change implementation.

Have a relatively high focus on understanding what digital

transformation within P&SC entails, while not having achieved commensurate implementation activity.

Have a level of understanding of the potential of technology, however the ability to translate

successes from pilots (PoCs) and / or relatively small investments into

large scale benefits appears limited.

Have focussed their efforts on implementation, without necessarily

feeling the need to have a deep level of understanding of digital transformation. Adopts a “learning by doing” philosophy.

Are challenged by both the understanding and implementation

dimensions, experiencing significant difficulty in embracing

the digital journey for P&SC.


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Six Archetypes of Travellers on the Digital Journey The survey results identified Six Archetypes of Travellers on the Digital Journey. A key insight from 2019 is the emergence of two new Archetypes : Early Pioneers and Explorers.

PIONEERS

EXPERIMENTERS

WATCHERS

EARLY PIONEERS

EXPLORERS

TRADITIONALISTS

2018 2019

19%

15%

31%

8%

12%

15%

22%

43%

13%

22%

% of Survey Participants


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Six Archetypes of Travellers on the Digital Journey The aggregated findings of each traveller allows for comparisons across the Archetypes, with further evaluation of each provided later in this report.

No

Understanding

Limited Basic with gaps Basic with a few specialists within

the company

Good level of understanding, trends

being followed

None None currently but we are considering one

Present but it is stand-alone

Present and incorporated into

divisional strategies

Present and aligned with the

corporate strategy

Not on the radar Currently in the planning stages

Isolated pilot implementations

occurring

Several pilots in flight, no implementation

at scale

Full pilots implemented with a few implemented

at scale

None None but there are plans in place

to develop

Yes but at a high level only

Yes, at a detailed level Yes, built into company budgets with clear accountabilities

Leadership Understanding

Digital Strategy

State of Implementation

Investment Plans

PioneersExperimentersWatchers Early PioneersExplorersTraditionalists


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Pioneering Companies are Advancing their Digital Implementation

In our 2018 study, we highlighted the importance of the Pioneers, a group of companies which exhibited a good understanding and high rate of implementation of digital technology in Procurement and Supply Chain. This group in particular over the past year have leveraged their knowledge in the digital technology space to further their agenda on implementation. While their proportion dropped slightly from 22% to 19%, this year presented the emergence of a new group termed Early Pioneers, which also represents excellence in this space.

Early Pioneers which accounted for 15% of our respondents exhibited an equivalent level of digital understanding to Pioneers, however lag in terms of implementation. Early Pioneers consisted of a fairly even distribution of large and small companies, both local and multinational,while large, multi-national companies made up 89% of the Pioneer group.

The Pioneers typically had digital strategies for P&SC aligned to their corporate strategies driven by clear accountable personnel and allocated funding with full pilots in implementation.

Digital is certainly real for

34%of our respondents


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Still in pole position… The Pioneers

Executives from Pioneer companies confirmed that digital strategy is in line with their corporate strategy, and that full project pilots regarding enabling technologies, have been implemented over the last year. In 2018 many of our Pioneers were focused on Cloud, Advanced Analytics and RPA technologies, this year their focus has expanded to include Internet of Things, Artificial Intelligence and Machine Learning.

Almost all companies within this Archetype have a count of over a thousand employees, and an annual turnover exceeding R10bn. A majority of Pioneer respondents advised that investment plans were built into the budget. It was evident that leadership had a clear understanding of the emerging technologies and encouraged experimentation with these technologies.

As per our findings in 2018, a well-defined digital strategy can assist in orientating tasks and aligning functions and business units to meet the digital agenda, ensuring corporate alignment. This still remains a key differentiating factor of the Pioneers.

Key themes which are associated with Pioneers are good leadership support, strategic alignment, financial planning and a conducive operating model to move implementation forward. Pioneers are at the cutting edge of their respective industries, using emerging technologies to address serious issues as part of their Procurement function and in their Supply Chain. This years’ Pioneers know that technology is more than understanding the theory and landscape: it is also about implementation.

Well defined digital strategy

100%Full pilots implemented at scale


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The Pioneers

High levels of understanding, digital strategy is aligned to corporate strategy, full pilots implemented at scale. Almost all Pioneers have a structured financial plan for their digital investments.


Digital Strategy


Investment Plans

No Understanding

Limited Basic with gaps Basic with a few specialists within the company

Good level of understanding, trends being followed



Present and incorporated into divisional strategies

Present and aligned with the corporate strategy


Isolated pilot implementations occurring

Several pilots in flight, no implementation at scale

Full pilots implemented with a few implemented at scale

None None but there are plans in place to develop

Yes but at a high level only Yes, at a detailed level Yes, built into company budgets with clear

accountabilities

%%20192018

60%

20%

40% 60%

40%

20% 80%

80%

20% 80%

100%

100%

100%


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Not far off the pace… The Early Pioneers

The Early Pioneers have a clear understanding of emerging technologies, however the pace at which these companies are implementing technologies at scale, within Procurement and Supply Chain, is slower than expected. When Early Pioneers are compared to Pioneers, there is clear distinction between the existence of a digital strategy and the firms' ability to implement change at scale. It was also noted that Early Pioneer investment plans are not as comprehensive as the Pioneers and impacts directly on these firms ability to implement new technology solutions.

In our interviews, the Early Pioneers stressed the need for emerging technology investment planning, coupled with the acquisition of the right skills in the marketplace to implement emerging technologies. Early Pioneers are implementing project pilots related to Big Data and Cloud Platforms, but not at scale yet.

Almost all companies within this archetypes have a staff count below one thousand employees. There was a wide range in annual turnover, firm industry and a mix of global and South African-based companies for Early Pioneers.

75%Maturing digital strategy

Pilots in flight


17

The Early Pioneers

Good level of understanding, however most firms have investment plans at a high level only. Digital strategy is aligned to corporate strategy.


Digital Strategy


Investment Plans

No Understanding













accountabilities

25% 25%

75%25%

50%

%%20192018

75%25%

75%25%


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Making headway… The Experimenters

31% of the firms surveyed, make up the Experimenters. From 2018 to 2019 the Experimenters have fragmented into three groupings, with two new archetypes, Explorers and Early Pioneers, being created. This has partially accounted for the decrease number of respondents within this archetype (43% in 2018).

Experimenters are making steady progress with their digital agenda, balancing cost, risk, effort and internal skills. Their understanding of emerging technologies is much lower since last year. It was further established that only 50% of Experimenters have a digital strategy in line with their corporate strategy, but these are stand alone. 75% of Experimenters have investment plans, but at a high level only.

A key characteristic of Experimenters is that they understand emerging technologies on the digital journey but are not deploying the technologies beyond the pilot stage. 50% of Experimenters have advised that they have projects in the planning phase, while 25% did not have any projects on their radar.

Some of these firms have begun to formalise their digital efforts, and have taken steps toward developing company-wide digital technology implementation strategies.

50%Projects in planning phase

Have a digital strategy


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The Experimenters

Experimenters leadership understanding of emerging technologies is lower compared to 2018, with investment plans at a high level only. A high percentage of Experimenters have a digital strategy but it is stand alone.


Digital Strategy


Investment Plans

No Understanding













accountabilities

%%20192018

33%

30%

20%

75%

10%

12,5%

12,5% 75% 12,5%

11% 56%

40%

25% 25% 50%

10% 20%

20%30%

25% 50% 25%

30%20%

12,5%

10%50% 10%


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Forging ahead… The Explorers

Data analysis revealed that certain companies are aggressively focused on implementation without a deep understanding of these technologies and there was no clearly defined digital strategy in place at these firms. These companies formed part of a new Archetype called Explorers.

8% of firms interviewed are implementing emerging technologies, without a digital strategy. 50% of Explorers have advised that they have full projects in place, with some already at scale. They have also managed to complete investment plans for the deployment of emerging technologies.

Explorers are driving implementation aggressively, adopting a ‘learning by doing’ approach. Examples of enabling technologies implemented by Explorers includes using Cloud Platforms and the implementation of Advanced Analytics solutions.

Explorers are applying agile approaches to emerging technology implementation working with their IT delivery teams.

A key characteristic of Explorers is that they are exploring emerging technologies but are not yet fully committed, with certain pilots being completed in isolation, independent from their global corporate structures (In selected cases).

No digital strategy, but

100%Investment plans

50%Full pilots implemented at scale


21

The Explorers

Explorers digital strategy is not aligned to corporate strategy, however they continue to implement few pilots at scale. They have investment plans even though they have a limited or basic understanding of these technologies.


Digital Strategy


Investment Plans

No Understanding













accountabilities

50%

100%

50%50%

50%

100%

%%20192018


22

Still in a holding position… The Watchers

12% of the firms surveyed, make up the Watchers. As with the 2018 survey, The Watchers’ defining characteristic is a focus on understanding while not having sufficient implementation activity in place to be characterised as Early Pioneers.

Watchers have improved on their level of understanding of emerging technologies since 2018. In 2019, there are declines in the Watchers level of understanding and level of implementation with regard to both digital strategy alignment to corporate strategy and investment planning.

The state of implementation has regressed from 2018, with more Watchers having implementation in the planning phase. The Watchers ability to implement change appears to be constrained by systems, culture and budgeting practices.

The Watchers are slightly conservative and risk-averse. It appears that leadership has been cautious in their approach and still need convincing before investing in new technologies.

of the firms surveyed 12%

67%Projects in planning phase and have no investment plans


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The Watchers

Watchers have improved their level of understanding of emerging technologies since 2018, however their state of implementation and investment planning has regressed from 2018.

No Understanding













accountabilities


Digital Strategy


Investment Plans

%%20192018

100%

100%

33%

33%

67%

67%

33%

67%

67%

33%

33%

67%

67%

33%


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At the starting blocks… The Traditionalists

As recognised in the 2018 survey, there are still 15% of companies which fit the Traditionalists Archetype. Although the Traditionalists percentage among respondents has decreased from 22% to 15% , these companies still display a delay in the formation and / or roll out of a digital strategy, lack of investment plans and digital strategies for P&SC.

Their understanding of emerging technologies has remained stagnant from 2018. It was further established that 75% of Traditionalists do not have a digital strategy is in line with their corporate strategy. 75% of Traditionalists have no investment plans.

There is little implementation with 50% of the respondents confirming that emerging technology projects are not on their radar.

Individuals understand the potential of digitalisation within Procurement and Supply Chain, however numerous factors seem to be hindering the firms progression in terms of their digital transformation journey.

These factors include securing emerging technology investments and funding. There is also a perception that leadership have little or no interest to pursue a digital strategy.

Low state of implementation

75%No investment Plans


25

The Traditionalists

Digital strategy is still not aligned to corporate strategy. No evidence of implementation with half of the respondents confirming that projects are not on the radar. 75% of Traditionalists do not have any investment plans in place.


Digital Strategy


Investment Plans

No Understanding













accountabilities

25%

20%

75%

40%

25%

60%

60%

50%

40%

50%

40% 40%

40%40%

50% 25%

75% 25%

20%

%%20192018


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Technology Understanding and Adoption Shifts


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Leadership vs Team Understanding

South African leaders understand the importance and potential that technology presents to Procurement and Supply Chain(P&SC). Compared to last year there has been an increase from 83% to 87% in understanding of digital among interviewed executives. Leaders must stay abreast of these changes in order to drive their organisations to remain relevant and competitive.

An increased understanding of digital is a positive because leadership sets the tone for the organisation and this influences the momentum and effectiveness of digitisation initiatives. Several of the survey participants, specifically those who are part of multinational organisations, reported increased strategic focus on digitisation within P&SC, from their global counterparts and functional leaders.

The survey results also show that leaders see its people’s understanding of digital as a key barrier to progress. The lack of understanding at team level is driven by both a lack of new skills and low interest (in certain cases) due to the negative perception of technology replacing jobs. This disconnect between leadership and management understanding is a significant blocker to effective implementation of digital initiatives. Although From 2018 to 2019

87%

leadership can give the go ahead, the successful implementation depends largely on the teams. Collaboration between leadership and the team is a key success factor to moving the digital agenda forward. This disconnect can be addressed through various change management initiatives such as effective communication of strategy, up-skilling and cross-skilling for newer emerging roles and awareness creation to obtain their buy in to the digital strategy.

One of the survey participants indicated that in other global markets of operation, the adoption of digital initiatives by the workforce was notably quicker and easier, primarily due to the ability to attract a youthful, tech-savvy workforce.

83%

Although there has been improvement, leadership still see people’s understanding of technology as one of the largest barriers to digitisation. This reveals a disconnect between leadership and team understanding. The alignment is important for effective implementation of digital initiatives.


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Shifting Understanding of Technology in the last 12 months With the survey respondents, we explored shifts in levels of understanding of various technologies over the past year to ascertain whether there is indeed a change in mind-set and priority.

AI / Machine Learning

Cloud Platforms (None)

IoT

Advanced Analytics / Big Data

Smart Contracts

3-D Printing

Robotics Process Automation

Blockchain

2018 2019Key

Year on Year Comparison

Decrease

Increase

Figure 3: Shifts in the level of Understanding of Technology

19% 31% 38% 12%

15% 35% 23% 27%

23% 54% 23% 0%

4% 15% 39% 42%

23% 19% 43% 15%

8% 11% 35% 46%

27% 31% 27% 15%

20% 28% 31% 21%

30% 35% 22% 13%

26% 35% 22% 17%

43% 26% 26% 4%

4% 22% 30% 43%

35% 22% 26% 17%

13% 9% 48% 30%

35% 22% 35% 9%

52% 22% 22% 4%

None Limited Basic Advanced None Limited Basic Advanced

TOTAL 20% 28% 31% 21%30% 24% 29% 17%


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The Emergence of Technology Clusters

Analytics/Big Data and Cloud Platforms

AI/Machine Learning, Internet of Things and Robotics Process Automation

Blockchain, 3D Printing and Smart Contracts

Low

High

Leve

l of A

dopt

ion

Figure 4: Clusters of Technology based on levels of Understanding or Adoption

A comparison of 2019's survey results to the survey results of 2018 revealed that understanding of Advanced Analytics/Big Data and Cloud Platforms have increased by 3% and 8% respectively. These technologies are considered as mature and adopted technologies because they were typically well understood and widely implemented among our respondents. In comparison to other emerging technologies, this rate of increase may seem small, however it must be stressed that these increases are off a high 2018 base, indicative that understanding of these platforms is beginning to plateau as a result of their maturity.

AI/Machine Learning, Internet of Things and Robotics Process Automation have shown higher increases in level of understanding, at 15%, 15% and 11% respectively over the last year. These technologies, when clustered together, form an emerging and promising technology grouping. The rapid increase in understanding of these technologies is indicative that new improved ways of working are being explored and projects are potentially in the planning stages for roll-out.

A third cluster called exploratory and opportunistic technologies emerged when combining responses from respondents concerning Blockchain, 3D Printing and Smart Contracts. Blockchain and Smart Contracts’ levels of understanding decreased by 7% and 2% respectively. These technologies are both less understood and not prevalent in the market in comparison to mature technologies. 3D Printing however increased slightly in level of understanding. Most respondents stressed that they had little or no plans to explore 3D Printing within their organisations. Organisations are expending less resources in exploring this cluster of technologies as their benefits were perceived to be low.

In our findings, a division among mature and emerging technologies became increasingly evident, with organisations turning their focus towards understanding the lesser known technologies noted in the 2018 study.

Mature and Adopted

Emerging and Promising

Exploratory and Opportunistic


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The Blurred Disruption across all Functional Areas

Figure 5. Functional areas most likely to be disrupted by digital

Our survey results show that there are disparate views on which supply chain functional areas will be disrupted by digitalisation, as shown in Figure 5. However, it was noted that Sourcing and Procurement is most prevalent followed closely by Planning, and Inventory & Logistics.

Disruption in Manufacturing was less prevalent, which could be attributed to the low percentage of respondents that are accountable for manufacturing.

The trend identified was the prerogative to first digitalise Sourcing and Procurement because this will drive the most tangible value. Digitalisation of Inventory & Logistics follow Planning digitisation can then ensue. Staging digitalisation in this manner will reduce resources spent as value gained from digitalising one function can be used to invest in functional areas. For example, applying Big Data, AI and RPA within Sourcing & Procurement could lead to major cost reduction and improved cash flows. Retained earnings can be re-invested in other areas. Improved planning will drive inventory optimisation and improve cash flows through working capital reduction.

Planning was regarded as the most complex area to digitise, mainly because of the significant internal operating silos to be addressed.

Overtime, it is essential to digitalise all supply chain functions as this will enhance operating efficiency and instil digital dexterity. Digital dexterity is beneficial as it allows for faster adaption of new technologies as they emerge. The value of the competitive edge associated with faster implementation of technology can not be overstated.

There are disparate views on which supply chain functional areas will be most disrupted by digitalisation. Although, it would be beneficial to digitalise all the supply chain functions, it would be financially sound to first adapt digitalisation in areas where the most value can be derived.

35%

29%4%

6%

26%

Sourcing & Procurement Planning Other

Manufacturing Inventory & Logistics

Anticipated Areas of Most Disruption


31

Momentum with Implementation Activity


32

Perceived Benefits of Digitisation

Consistent with the 2018 survey results, participants still see improved process efficiency, improved decision making through visibility and decreased cost as the primary benefit of digitisation.

These primary benefits are evidence that participants continue to see efficiency and visibility as pivotal to running an effective supply chain and cost reduction. These are benefits that have an impact on the daily operations and the availability of well understood technologies such as Advanced Analytics, Big Data, Cloud Platforms, can assist organisations to fully realise these benefits at scale and speed.

Although additional revenue and reduced risk continue to be low compared to the top three benefits, these increased significantly from last year (43% and 47% respectively).

This could be driven by the fact that there is correlation between improving efficiency, creating visibility and driving additional revenue and reducing risk. As the day to day processes improve and become more efficient, companies expect that revenue will increase and operational risk will be mitigated as customer experience is improved and operations become more streamlined enabling better decision making.

In both 2018 and 2019, improved process efficiency and improved decision making through visibility remained key benefits from digitisation. Process efficiency was ranked first at 81% while improved decision making was ranked second at 69%.

There was also a significant increase in additional revenue and reduced risk as perceived benefits compared to last year. This is driven by participants realising the results of having efficient processes and high quality data for improved decision making.

Figure 6: Perceived benefits of Digitisation

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Additional revenue

Reduced risks

Improved compliance

Decrease in costs

Improved decision making through visibility

Improved process efficiency

Digitisation Benefits: 2018 vs 2019

23%

38%

35%

54%

69%

81%

13%

26%

39%

57%

78%

83%

20192018


33

Digital Strategy, Investment Plans and Implementation activity

In 2019, 65% of respondents have a digital strategy in place for Procurement and Supply Chain, an increase from the 61% in 2018. The strategies are either stand-alone, incorporated into divisional strategies or aligned with the corporate or enterprise strategy.

73% of respondents have structured processes and accountabilities to manage investments in the digital transformation of P&SC, an increase of 16% from 2018.

Digital strategy is the key driver behind implementation activity, South African companies are incorporating their digital strategy into their corporate strategy. In 2018, only 22% of surveyed firms had digital strategies aligned with corporate strategy this number has significantly increased to 35% in 2019.

There is a clear need for companies to have a structured financial plan i.e. an investment plan for digital which is detailed and built into company budgets with clear accountabilities.

57%

65%61%

73%

Have a Digital Strategy Have a Structured Financial Plan

Percentage of Respondents

Figure 7: Percentage of Respondents with a Digital Strategy and Financial Plan

20192018


34

Barriers to Digitisation

The barriers identified in 2019 are consistent with those identified in last year's survey. However these primary barriers appear to be more evenly distributed. The effective implementation of digital initiatives is dependant on combating these barriers, with leadership and strategic alignment having a direct impact on how the other barriers are addressed.

From the 26 respondents, people, legacy data and processes, strategic alignment and leadership and funding costs are the primary barriers identified. This is consistent with the 2018 findings.

People (skills, competencies, availability) continued to be seen as the largest barrier. A key component of this challenge is the difficulty to evoke interest and enthusiasm to combat the fear of change among employees. With the rapid pace of technological advancement, corporates in South Africa are faced with the task of ensuring that they bring their people along on this change journey.

Figure 8: Barriers to digitisation in order of prevalence

0%

20%

40%

60%

80%

100%

People Legacy data &processes

Strategic alignment& leadership

Funding / costs Technologymaturity

Security / privacy

Perceived Barriers to Digitisation: 2018 vs 2019

65%70% 65%61%

65%

52%58%

48%

27%

35%

19%22%

20192018


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Barriers to Digitisation continued…

The survey reveals that more than 70% of participants see improved process efficiency and improved decision making as key benefits of digitisation. Legacy data and processes is a barrier that limits unlocking these benefits. The data reveals that it is primarily the Experimenters and the Watcher groups that see this as a barrier. Given that these Archetypes are in their early stages of implementation and therefore early stages of change, this makes sense.

Leadership and strategic alignment as a barrier increased from 52% to 65% in 2019. This has a major impact on how the other identified barriers are resolved as this is where the direction and tone is set. Misalignment is caused mainly by immature strategic planning, lack of communication and poor governance. Results show that there has been progress in both leadership understanding (83% to 87%) and the presence of an aligned digital strategy. This progress is pivotal in addressing the issue of leadership and strategic misalignment.

When it comes to funding, management is faced with the challenge of presenting a business case for transformation that is precise and clear in its justification for funding showing quantifiable value add of digitisation. Considering the current economic state of South Africa, the need for funding should be convincingly quantified. There appears to be a challenge in justifying change imperatives to leadership approving funding. This is further evidenced by the increase in funding as a barrier compared to 2018 (48% vs 58%).


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Recommendations

Clearly Link the Case for Change

to Specific C-Suite Priorities

Champion the Value of Proof of Concepts (PoC)

Principle: C-suite executives are pivotal to drive the achievement of business priorities and strategic initiatives, and it is critical for P&SC teams to understand these at a practical level, when justifying investments in technology and new ways of working. Plan and act on what the business (not Procurement and Supply Chain) actually defines as “value” to make an impact and to prioritise investments.

In Practice: Value-adding initiatives must be considered from an organisation-specific point of view. Examples of these include enhancing speed to market entry for QSR businesses, cost reduction and inventory optimisation for retailers, compliance to legislative requirements in mining and cement organisations, and quality assurance and traceability for pharmaceutical companies.

This must be done prior to assessing where and how to apply technology to achieve this value. This approach ensures that technology is deployed to achieve a desired outcome that is seen as valuable to the organisation, as opposed to being deployed for the sake of deployment where benefit may be questionable.

It is becoming increasingly challenging to secure funding for improvement or transformation opportunities. Volatile foreign exchange rates in addition to slow economic growth have resulted in large multi-nationals being more cautious and risk averse when investing in the South African market. Business units within organisations are increasingly competing amongst each other for access to funding. There is therefore a clear need to build prudent, robust business cases that each business can relate to.

Principle: Proof of Concepts (PoCs) are seen by many (especially leading companies) as the most promising way to show value incrementally, reduce and manage perceived risks, drive more support within the broader organisation for change, and to secure additional funding. Focus on defining, leading and learning from PoCs.

In Practice: Organisations need to invest in the development of POCs which clearly articulates the benefits of the proposed solution. A comprehensive functional design specification is required in the process to ensure the proposed technology is suitable for the organisation. A major pitfall regarding technology deployment is that organisations may deploy a solution without conducting a comprehensive assessment of suitability, or clearly understanding the required enablers (including data and resources). Although some organisations committed to relatively large investments at the start of their journeys, these cases were in the minority based on survey responses.



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Recommendations

Principle: The rate of change in markets, customer expectations and supply chain technologies continues to accelerate, making it somewhat overwhelming for Procurement and Supply Chain executives to plan effectively for the future. There are, however, three core, complementary components to successful digital adoption that are “safe-bets” to invest in : Data, Business Process and Culture.

In Practice: Data serves as a key driver and dependency to implementing several emerging technologies such as Artificial Intelligence and Machine Learning, and is the basis to achieving visibility across operations. Data-related infrastructure and solutions such as data warehouses are required with a primary focus on generating and storing consistent, credible data. Process alignment and discipline dictate the type of data produced, defines how to manage governance and the ecosystem, and drives the effort for ways of working. Culture determines the extent to which process discipline is achieved and the way business change is embraced.

Principle: P&SC success in a changing landscape hinges on the ability to navigate uncertainty with a complementary set of trusted partners, to accelerate learning and manage risks. Developing great partnerships needs focused attention to nurture trust, constructively challenge and effectively co-construct solutions.

In Practice: Leading organisations exhibit extensive partnering with technology solution providers, in relationships that transcended the transactional. Well established multi-national organisations such as Microsoft, Coupa, Amazon Web Services, Zycus and SAP featured most prominently with the Pioneer Archetype. Leveraging technology ecosystems, in addition, present opportunities for Enterprise and Supplier Development, which seek to promote skills development and economic growth.

The South African supplier base, which is an important part of this ecosystem, is relatively immature in comparison to first world countries in their adoption of technology. The leading companies (Pioneers) play an important role in the South African context in helping to uplift the maturity of the supplier base.

Start or Continue Implementing

the “No Regret” Moves

Be Deliberate about

Structuring the IT and Supplier

Ecosystems



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Recommendations

Principle: As re-skilling of Procurement and Supply Chain teams seems imminent, there is a strong need to assess what roles will be present in the future workforce and what associated skills will be required (or not required). Understand the blend of present and future skills through deep interrogation of roles and competencies, and build the corresponding approach to talent sourcing.

In Practice: Organisations need to understand which roles will change, become obsolete and are newly-created with technology infusion across P&SC. It is evident that these new roles provide opportunity for the workforce to execute more value-adding working in conjunction with technology. For example, the roles of Supply Chain Planners is expected to change significantly over the coming years with the advent of Artificial Intelligence and Machine Learning automating large components of this role.An organisation-wide skills gap analysis brings greater insight as to the current available talent and the evolution thereof. Organisations, in addition the defining the roles, need to take into consideration available talent pools and focus efforts on understanding how to source required skills. Since digital skills are transferable, the sources of talent may come from industries and geographies that traditionally were not explored.

Principle: As P&SC within organisations transition to the future workforce, the effectiveness of traditional talent management needs to be questioned, and in doing so new methods for re-skilling explored. With significant talent shortages already prevalent in P&SC in South Africa, organisations need to focus efforts on building skills and re-training with the future in mind, one where technology does the ‘heavy lifting’.

In Practice: The question of how best to re-skill for the future has been tacked extensively by various entities in South Africa, with no ‘silver bullet’ evident. The study shows that selected leading organisations are getting creative to address this, for example considering or implementing multi-function shared services centres, where a pool of digital skills and culture can be more effectively developed. In this setting the P&SC teams, for example, can learn more practically from Finance or HR colleagues about the use and benefits of Robotic Process Automation applied to transaction processing-type activities.

A niche set of technology solutions are appearing in the market, that can assist P&SC executives in this regard. As an example, a solution that currently is being utilised in the financial services sector leverages AI and Machine Learning to help define, customise and manage learning curricular for new and existing roles, to drive specific competencies that impact business performance.

Invest Disproportionally

in Defining the P & SC Talent

Strategy

Shift Paradigms to build the Next-Gen Workforce



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Conclusion

Selected P&SC organisations operating in SA over the past year have exhibited a paradigm shift in both their understanding and implementation of emerging technologies. It has been more evolutionary rather than revolutionary. We have seen this evolving behaviour through the emergence of the two new groups in our 2019 survey, namely Early Pioneers and Explorers. Our findings have indicated a positive gain in digital momentum among South African Procurement and Supply entities, the question we had sought to answer.

It is evident that numerous firms slow to implement technologies are doing so for a number of reasons, including lack of buy-in from a leadership level, and funding constraints among other reasons. Apart from these reasons, one must question the possibility that these organisations may actively opt to delay their digital agenda as a strategic move until such time that technology matures and the resulting cost of acquisition declines. While this type of strategy predominantly occurs among smaller firms, the approach serves beneficial in terms of financial investment where funds are limited. While larger organisations typically have access to adequate funding, their roll-out of technology plays a larger role in their participating economic sectors as they compete for market share. This strong sense of competitiveness drives their urgency for compelling and comprehensive digital strategies, an aspect critical for successful digitisation. Organisations leading digital adoption are now seeing the benefits after having embarked on this journey typically 3 to 5 years ago.

The focus on emerging technologies has also undergone change over the last year with fast-movers of digital adoption turning their focus to IoT, AI and ML. These technologies, building off from mature technologies such as cloud solutions and advanced analytics, are expected to be key drivers of improvement in strategic decision making, operational efficiencies, compliance related issues, and overall financial performance.

While the area most likely to be disrupted by digital is not entirely clear, it can be concluded, through the mix of views, that end-to-end Procurement and Supply Chain functions will ultimately undergo radical change in the future.

The South African macro-economic climate introduces a range of challenges including skills shortages, fear of job losses and an inclination for organisations to retain earnings as opposed to major capital investments. Lack of understanding of these factors further delays the shift to digital. It is evident that the introduction of digital will require and introduce a whole new workforce related to roles previously non-existent. Applying a comprehensive approach to understanding and quantifying benefits to digital adoption introduces a new angle to justify the business case. With multi-nationals separating from other groups as they continuously accelerate their digital path, this serves as a key opportunity for home-grown organisations to learn from these organisations.

While some organisations choose to simply watch as others actively pursue their digital agenda, one key message resonates clear throughout all of our findings: The digital revolution is here in South Africa for Procurement and Supply Chain, it is inevitable and presents a wide range of risks as well as positive possibilities.


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About Letsema


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Introducing Letsema

Letsema, founded in 1996, is a black-owned management consulting firm at the heart of a diversified investment group.

The word “Letsema” is of Sotho origin, meaning people coming together to work for a common purpose. This sense of collective effort towards a shared vision is our underlying philosophy.

We believe business can be a catalyst for positive social change.

Quick Fac tsDiversified long term investment portfolio

100+ clients, >500 projects, 9 countries

60+ professional consultants

600+ dedicated staff in the group

2000+ employees in associate companies

100% black South African-owned, Level 1 B-BBEE

INVESTMENTSCONSULTING FOUNDATION

Corporate Strategy

Supply Chain and Operations

Financial Services

Customer Strategy

Next-Gen Operations

Cirebelle

Normandien Farms

ServWorx

Leadership

Education

Art & Culture

Vulnerable Groups

Economic Development

Digital

Transnova


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Consult ing Letsema Consulting has developed a deep well of trusted experience with leaders and organisations across different industries in the private and public sector. The Letsema Consulting family is diverse because we believe diversity drives optimal partnerships, innovative thinking and real impact. Our practice expertise includes marketing, supply chain, next gen operations, strategy and financial services.

Foundation Letsema strives to utilise its skills and capabilities to bring to life its philosophy of business as a catalyst for social change through the activities of the Letsema Foundation and the broader Letsema family. These activities are focused on developing future leaders who will be at the forefront of driving social change.

Investments Letsema Investments works with partners who share Letsema’s values, are excellent at what they do, create jobs, and have an outsized impact on the economy and partner for the long term.

Our BusinessWith long-term thinking and a broad base of skills, intellect and IP, we aim to contribute meaningfully to the betterment of society. Each leg of our business – Consulting, Investments and Foundation – reinforces the other, setting them apart and making them stronger.


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Kamen GovenderLetsema Consulting : Partner

CELL: +27 (0)83 458 5995

WORK: +27 11 233 0000

MAIL: [email protected]

The Future of Procurement and Supply Chain: Next-Gen Operations

The Next-Gen Operations practice supports South African businesses in their transitions to new ways of working in Procurement and Supply Chain. Driven by the 4th industrial revolution, the application of emerging technologies such as smart contracts, cloud platforms, blockchain, IoT and advanced analytics, are explored to drive business value in Procurement and Supply Chain. To keep or move businesses to being globally competitive, we equip clients with the tools and insights necessary to shift towards an organisation that operates with processes of the future. This is done by demystifying digital for clients and understanding the art of the possible. Letsema aims to unlock pragmatic pathways to leverage the business value of emerging technologies, all within the South African narrative.


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