In the first installment in this series, CPO Rising highlighted how the Internet of Things (IoT) will impact procurement operations and improve the way its people, processes, and technologies operate and drive value throughout the enterprise. As a refresher, IoT has come to mean the interconnection of everyday items that can sense, store, and transmit data (i.e., “smart devices”) about their environment, use, and users to the manufacturer, retailer, or the users, themselves.

At the moment, this technological evolution is being felt within the consumer packaged goods (CPG), manufacturing, technology, and utility companies more than other industries. For Chief Procurement Officers and other supply management leaders, it will underscore the importance of collaborating with and influencing key internal and external stakeholders throughout the source-to-settle process. With 2015 here, now is the time to understand how.

Innovation and Automation Drive Enterprise Collaboration

At the heart of IoT are innovative technologies that have allowed everyday items, like household appliances or mobile devices, to become smaller, smarter, more complex, less expensive, and ubiquitous. As mentioned in the first article of this series, smart thermostats can now be wirelessly controlled and even learn an inhabitants’ preferences; and utility meters can be read remotely due to the newest meters being fitted with wireless transmitters.

Clearly, the Internet of Things and the technological innovations it embodies will enable greater commercial and enterprise automation and improve many people’s lives. But at the end of the day, enterprises that bring these disruptive technologies to the market will have to ask themselves one fundamental question: build or buy? However they answer, it is going to necessitate greater internal and external collaboration with several key stakeholders throughout the product value chain.

  • Greater collaboration with product teams: Whether an enterprise decides to build or buy the widgets (or their components) that it will offer to its markets, procurement teams will have to work more closely with product development teams to understand their in-house capabilities, resource needs, and then source the right mix of goods and services to build the widget. Some things that procurement and product teams will have to consider: will total product development and assembly occur in-house, or will it be partial? Will it be assembly, only? Does the enterprise have the complex components, IT resources, raw materials, and talent to build, or should it buy? Greater collaboration with product teams will be needed to answer these questions and develop clear, tight product specifications before moving forward.
  • Greater collaboration with HR: Given that procurement’s role has been converging with HR over the past few years, it will likely have to collaborate with HR to ensure that the organization has the right mix of talent to support a business plan for IoT – particularly if they build. Procurement, product development, and HR will need to determine if they currently field the right mix of talent is to implement their business plan and start research and development. All three teams will then have to consider leveraging full-time employees (FTEs), contingent workers (independent contractors, temporary hires and freelancers), or outsourced labor to fill their talent needs, particularly if the enterprise is new to the smart product game and lacks the bench strength to develop the product from soup to nuts.
  • Greater collaboration with suppliers: Whether an enterprise decides to build or buy its smart products, it will have to collaborate more closely with its suppliers to ensure that its supplier base can provide it with the components that are driving the Internet of Things forward. For example, as components and sub-components become more complex and more integral to the product (such as microprocessors, sensors, and transmitters), it becomes more critical for procurement teams to understand their suppliers’ capabilities, monitor their performance, and mitigate any and all supply risks. As these components and sub-components become more commoditized, the risk of counterfeit components seeping into the supply chain could increase; or there could be supply disruptions and shortages due to natural disasters in a given region. With the Internet of Things, the supply risks are familiar, but perhaps exacerbated by the importance placed on another critical part of sub-component manufactured and sourced from a third-party. Greater supplier collaboration cannot completely eliminate this risk, but it can certainly reduce it.

Final Thoughts

The Internet of Things has been a buzzword for a couple of years now, but only within the past year have enterprises and end users started to understand the business implications of greater product innovation. For enterprise procurement teams, it will automate more processes, collect reams of business intelligence data, and place more value upon workers who possess data management and analysis skills. Procurement professionals who can fuse all of this data and information and then synergize with internal and external stakeholders to produce actionable intelligence will realize the innovative and collaborative potential glowing within the future procurement organization. For many procurement organizations, the future’s already here.


What will the Internet of Things Mean for Procurement? Part I

Technologies that Make P2P Automation Possible

Is Procurement Due for a Black Swan Event?

Are You Ready for 2014?

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