Every day we’re bombarded with buzzwords like digital economy, blockchain, artificial intelligence, machine learning, robotic automation, innovation, and at times we wonder what all of that has to do with us and our job as public procurement officers.
But the reality is we’ve been experiencing the digital transformation for a long time. Our phone is our agenda, music player, TV, notebook, wallet, all our information is somewhere on the cloud, we shop online, and a lot of products we buy are being made by robots. This digital transformation has impacted many sectors and industries, and public procurement is no exception. A while ago, we used to talk about the transformation of public procurement from an administrative function to a more strategic one.
Today, most of the discussions are focused on the potential of the digital revolution to transform procurement into a completely knowledge-based function. Digitalization and the use of new technologies can dramatically change the way procurement works.
Welcome to Procurement 4.0
Public procurement started its journey toward digital transformation with the introduction of electronic government platforms (e-GP). In the early stages of digitalization, Procurement 2.0 shifted from the conventional price-based and siloed procurement, to the recording of data and transactions using e-GP and digital process management. A further step into the digitalization process was taken with Procurement 3.0 when e-GP systems started operating and interacting with information outside their own data ecosystem and business decisions were guided by intelligent capabilities and content management, rather than transactions only.
The next step toward the digital frontier is Procurement 4.0: a revolution driven by increasing digitalization and the use of technologies like artificial intelligence (AI), cognition and robotic process automation that will transform organizations and the procurement function itself. It will create value by leveraging big data analytics for better decision-making, fostering innovation, and data integration to improve user experience and supplier performance.
But the journey is different for everyone. The transformation process is gradual and public procurement systems around the world are at different stages in their digitalization process. While some countries, for example Chile, are already using technologies such as AI and blockchain, some smaller states are still in the process of implementing transactional platforms or even on the verge of designing their very first e-GP systems. Being last is not always a disadvantage. As they continue their path toward digital transformation, countries at early stages of implementation can now take an exponential jump and build on other countries’ experiences to take advantage of new technologies. In the case of Jamaica, with IDB support, the public sector is processing contracts within three months, down from up to two years.
The digital transformation of procurement has also affected the public sector at all levels of government. Many countries, such as Colombia, Ecuador and Peru are moving toward greater administrative decentralization, with local authorities leading the way to invent and implement better policies. The adoption of disruptive technologies in procurement could help local governments to catalyze growth and bolster their modernization process. Subnational governments should aim to design a comprehensive strategy to implement:
- Data usage
- Digital processes and tools, and
- A new institutional capacity to leverage the digital revolution.
Large or small, national or local, the future of public procurement entails a profound transformation of the procurement function. As it becomes intensively digitalized and automated, procurement officers will continue to shift away from routine and administrative tasks. As this process evolves, they will need to adapt and focus on strategic thinking and developing technical skills. This is a great opportunity to consolidate the strategic role of procurement.
Blockchain, ally against corruption
The dynamic, complex, and disruptive context in which Procurement 4.0 operates will demand new ways of monitoring processes. Blockchain is emerging as a great ally to fight corruption and to guarantee integrity and transparency in public procurement transactions. When data can move freely and transparently, processing can also be done. Applications such as smart contracts, capable of executing code on a distributed network, allows streamlining of the procurement processes.
Artificial intelligence, monitoring tool
AI is another important monitoring tool specially when looking for anomalies in data sets. Procurement AI technologies can look for cost/price discrepancies, unusual order quantities or frequencies, and a whole host of other patterns that will help contracting entities detect potential fraud or errors and predict purchasing patterns. The development of procurement observatories based on AI is becoming more common. Moreover, technologies such as drones, tablets, and smart cameras are being used to remotely monitor the status of works and improve project supervision.
Data management, key component
Data Management is also a key component of Procurement 4.0., machine learning techniques along with statistical algorithms facilitate the aggregation, processing, and analysis of large volumes of data from heterogenous sources. The resulting analyses can be useful to understand current and future relationships and trends. Predictive analytics can be harnessed to optimize spending and to identify cost trends, risks and opportunities.
The path toward the digital frontier is full of challenges and opportunities. Governments and individuals must be prepared to navigate the digital transformation of procurement, reshaping their business models and creating a forward-looking, creative, and innovative mind-set. Our personal journey as procurement officials has also evolved along with the digital transformation from a clerical role to a strategic one, and now we are offered the chance to be disruptors. In the future, public procurement will become intensively digitalized and automated and will demand a new generation of procurement officers characterized by analytical and creative thinking. We must adapt to thrive in this increasingly complex and dynamic era.
Global Public Procurement Conference livestream
On September 18th and 19th, the procurement community from around the world is getting together at the IDB Headquarters in Washington to participate in the first Global Public Procurement Conference to discuss these new trends, to share experiences, and to work together in facing the challenges of the expanding global digital revolution. You are welcome to attend the event via livestream.
Tuesday, September 18th, 9:00h to 17:30h EST (Washington, DC time)
Wednesday, September 19th, 9:00h a 11:30h EST (Washington, DC time)
Join us on our journey to the digital frontier!