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Sustainable Procurement

(Session 10: Technology & Innovation)

Krishan K. Batra
President & CEO
ISM-INDIA
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Introducing the Presenter...
Krishan K. Batra has diverse experience of 4 decades in the field of Technology &
SCM. He enjoys engaging people in sustainable transformation and inspiring
business excellence. In his last assignment with UN organization as Chairperson of
the supply chain, he was instrumental in re-engineering business processes and
implementing ERP worldwide.

He started his career with TATA Group after completing M.Tech from IIT Delhi. Later
he completed MBA from Syracuse University in USA. Krishan has worked in
Switzerland, Denmark and USA in different capacity. He is the founder of UNSPSC
which is global standard for coding goods and services. He has worked with many
organizations to optimize supply chain and build their professional capacity.

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Learning Objectives
❖ Role of Technology
❖ Success Factors
❖ What, Why & How of E-Procurement
❖ Use of Digital Tools/Technologies
❖ Usage of Blockchain, Data Analytics, IOT, AI, 3D
Printing, to facilitate sustainable Procurement

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New Digital Frontier…
❖ Sustainable Procurement has become an increasingly
important topic in recent years (Impact of Climate Change).
❖ Governments, businesses, and individuals alike seek ways to
reduce their environmental impact.
❖ Technology has the potential to revolutionize the Procurement
function, making it more efficient, cost-effective, and
environmentally friendly.
“Technology can be used to reduce waste, improve efficiency, and increase
transparency, thereby contributing to a more sustainable supply chain.”
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Role of Technology
1. Supply Chain Transparency: Technology allows businesses to
track their supply chain from start to finish.
2. Compliance Monitoring: Technology can help businesses
monitor compliance with environmental, social, and economic
standards.
3. Environmental Impact Measurement: Technology can help
businesses measure their environmental impact throughout
their supply chain.
4. Collaboration: Technology can facilitate collaboration
between businesses and suppliers
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Role of Technology in Sustainable Procurement

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Other Applications
❖ Business Information Modeling (BIM): BIM is a powerful
tool to optimize the supply chain.
❖ Data Analytics: Data analytics can be used to identify
areas where waste can be reduced and efficiency can be
improved. For example, by analyzing data on energy
consumption and emissions, companies can identify
areas where energy consumption can be reduced and
carbon emissions can be minimized.

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Other Applications
❖ Circular Economy: Technology can be used to facilitate a
circular economy, where waste is minimized and
resources are reused. For example, some companies are
using 3D printing technology to create spare parts,
which can extend the life of products and reduce waste.
❖ Smart Transportation: Technology can be used to
optimize transportation and reduce emissions. For
example, by using real-time data to optimize the route &
Electric Vehicles
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Success Factors

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New Initiatives by India
❖ Indian Carbon Credit Trading Scheme
❖ Green Credit Program
❖ Regulations for ESG Rating Providers
❖ Business Responsibility & Sustainability Report (For value
Chain)

❑ Need to embrace new technologies for this


transformative change.
❑ Harnessing power of data and analytics,
collaboration, Integrate AI, BLOCKCHAIN, DIGITAL
TWINS, Modernize Supply Networks & Energy system
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Evolution of Industry

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The Relentless Rise of Digital
In evolution of Procurement, Digital is the next wave.

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Procurement 4.0 Technologies

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A Typical Manual Procurement Process
?
2.Check price,
1. Specify 3. Create 4. Requisition
availability,
requirements requisition approval
other factors

8. Complete 6. Evaluate 5. Obtain


7. Select
purchase order offers from offers from
supplier
(P.O.) suppliers ? suppliers

10. Send P.O. 11. Check 12. Receive


9. Approve P.O.
to vendor order status shipment

17. Process 16. Send 15. Approve 14. Process 13. Review
returns payment payment exceptions invoice
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E-PROCUREMENT
❖ E-procurement is a platform that automates and
rationalizes the procedures from demand to payments
using web technology.
❖ Applications of E-procurement technologies, namely E-
tendering, E-sourcing, E-informing, E-ordering, and E-
reverse auctioning.
❖ “Ensuring that the items and services we acquire are as
sustainable as feasible, with the least environmental
effect and the greatest beneficial social outcomes.”

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E-PROCUREMENT
❖ Emerging technologies such as electronic
procurement have rapidly become common practice
in recent years.
❖ With the advent of internet technologies and open
innovations, the traditional procurement system is
transformed into an electronic procurement system.
❖ Technology adoption is influenced by multiple
factors, including the adopter, technology, and
ecosystem in which they function
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E-SOURCING
❖ E-sourcing is generally described as the process of
identifying and selecting suppliers according to a
procurement’s specific criteria.
❖ The use of technology has resulted in increased
efficiency, operations, and sustainability in
procurement processes.
❖ Hence it influences Sustainable Procurement
significantly

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E-Ordering
❖ E-ordering is one illustration, but E-procurement is more
commonly thought of as an end-to-end approach.
❖ It eliminates the need for paperwork and tedious manual
procedures, resulting in improved procurement
processes.
❖ Adoption of E-procurement technology and its influence
on sustainable procurement and study’s research object
on medium and large ISO 14001-certified manufacturers

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Key Advantages of e-Procurement System

❖ Greater transparency, efficiency, and effectiveness in public spending by enabling more


open, innovative and accountable public procurement systems;

❖ Allows better coordination with suppliers, quicker transaction time, and improved
process efficiency;

❖ Simplification and/or elimination of repetitive and redundant tasks resulting in cost and
time savings throughout the procurement cycle

❖ Encourages standardisation and consistency in public procurement process, which, in


turn, speed up the process;

❖ Reduction in transaction costs by simplifying documentation, allowing suppliers to self-


declare certification, removing such financial hurdles as fees and bid securities, or using
bid securing declarations.
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Tweaking e-Procurement System for Implementing SP

Allow procurers to choose relevant sustainability criteria and contract terms from
drop-down list;
Allow to track the use of SP criteria and to verify that suppliers have
provided the required information to demonstrate their compliance.;
Store and retrieve data on vendors complying ‘Supplier Code of Conduct’
Facilitate systematic data entry, collation, tracking, and reporting on SP
progress against indicators;
Enable e-procurement system to apply life cycle costing for procurement
of greener products, works and services
Reduce the reporting burden on procurers and improve data consistency and
quality.
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Which E-Procurement Tools are Suited to Each Category of Purchases?

M
Impact/ Bottleneck Critical
supply
opportunity/
risk rating Routine Leverage
L

N
80% of items = 20% of value 20% of items = 80% of value

Expenditure
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E-Catalogues

H Bottleneck Critical
E-catalogues are generally not E-catalogues are generally not
suitable for procurement of suitable for procurement of
non-standard items. non-standard items.

M
Impact/
supply
opportunity/ Routine Leverage
risk rating Likely to be a major source of May be possible to locate
L routine purchases such as these goods in an e-catalogue
ORM and other items that are but the fixed price nature of
common and widely available. catalogues removes the
Suitable for distributed use by opportunity for leverage.
many buyers in the company. Conclusion: don’t use
catalogues for leverage items.
N
80% of items = 20% of value 20% of items = 80% of value

Expenditure
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Horizontal Exchanges

H Bottleneck Critical
Not applicable; non-standard Not applicable; non-standard
items would not generally be items would not generally be
found in a horizontal found in a horizontal
exchange. exchange.
M
Impact/
supply
opportunity/ Routine Leverage
risk rating Excellent source for purchase Use horizontal exchange if the
L of ORM requirements. item is standard across many
industries.

N
80% of items = 20% of value 20% of items = 80% of value

Expenditure
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Vertical Marketplaces
H Bottleneck Critical

A well-populated, public vertical A well-populated, public vertical


exchange is a good place to find non- exchange is a good place to find
standard items. Use RFP within the non-standard items. Use RFP
exchange to source the item. If within the exchange to source
M creating a private exchange you will the item. If creating a private
Impact/ need to consider ways to reduce risks. exchange, consider ways to
supply reduce risks.
opportunity/ Routine Leverage
risk rating
Only applies if there are vertical Use a vertical exchange if the
L marketplaces for your industry; item is standard within your
however, if there are, they may industry but not across other
prove useful sources for routine industries. This applies equally
items that are specific to your to public and private vertical
industry. exchanges.
N
80% of items = 20% of value 20% of items = 80% of value

Expenditure

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E-Auctions

H Bottleneck Critical
Not usually applicable for Not usually applicable for
sourcing non-standard items. sourcing non-standard items.

M
Impact/
supply
opportunity/ Routine Leverage
risk rating May be used if purchase items May be used if the item is
L are commodity-like but there commodity-like but there are
are price differences between price differences between
suppliers; auctions help to suppliers.
drive out such price
discrepancies.

N
80% of items = 20% of value 20% of items = 80% of value

Expenditure
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E-Sourcing or ‘RFX’ Solutions (RFP/RFQ/RFI)

H Bottleneck Critical
RFPs / RFQs are a potential RFX can be an excellent
source of bottleneck items; source for critical items: the
however, your low level of global search nature of RFX
expenditure on the item may solutions combined with your
result in few responses. relatively high spend increases
M the chance of finding suppliers
Impact/ and reduces your risk for the
item.
supply
opportunity/ Routine Leverage
risk rating Not applicable as RFP / RFQ / Not applicable as RFP / RFQ /
L RFI would not normally be RFI would not normally be
required for procurement of required for procurement of
standard items. standard items.

N
80% of items = 20% of value 20% of items = 80% of value

Expenditure
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Selection Criteria
for E-Procurement Solutions
a) Cost e) Systems integration
• Level of cost f) System interoperability
• Costing model g) Scalability
b) Availability h) Security
c) Functionality i) Ease of use
• Purchase item availability j) Vendor considerations
• Procurement process • Vendors’ customer base
• Catalogue functionality • Local / global presence
• E-marketplace features • Reputation
• Auction functionality • Financial strength
• E-sourcing functionality • Quality of team
d) Value added business services • Service level and customer support

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Action Point 5.4-1

Your e-procurement selection


criteria

Which selection criteria are most important to


your company and your e-procurement needs?

What specific requirements would you need


under each criterion?

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Market Evaluation and Shortlisting
Depending on your requirements, you may need to…

Evaluate Vendors… and/or …Evaluate E-Marketplaces

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Obtaining Offers & Selecting Vendors
In the case of vendor selection you should go through
a formal selection process
P
RF
a. Issue a formal Request for Proposals

b. Evaluate vendor responses

c. Negotiate with preferred vendors and


make final selection

t
t rac
d. Prepare vendor agreement Con

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a. Issue RFP to Shorlisted Vendors

P
Make sure you
include all selection
criteria by which RF
you intend to
evaluate your
choice

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b. Evaluate Vendor Responses

❑ Give each evaluation criterion


a weighting according to its
importance
Proposal
❑ Score each proposal under each
evaluation criterion

❑ Calculate weighted scores and


add totals to identify highest-
scoring proposal

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c. Negotiate and Select Preferred Vendor

As well as negotiating terms


and conditions, remember the
‘soft side’ of the relationship.
The vendor must have a good
fit with your company’s people
and philosophy

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d. Prepare the Vendor Agreement
Go for short Identify team
contracts with of vendor Emergency
Agree terms renewal option employees contact
for a pilot arrangements
programme

Set
Vendor measurement
management requirements
procedures t rac
t
Con

Agree service
Legal levels
protection

Agree problem
Contract Agree payment, solving
termination deliverables and approach
timing
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Performance Measurement
E-Procurement E-Procurement
Implementation KPIs Performance KPIs

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Impact on the Purchasing Department
Impact on the Impact on the
department as a whole e-procurement specialist

• E-procurement analysis • Front office


and instigation
• E-procurement roll-out • Middle office
• Transfer of administrative
tasks workload • Back office

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Limitations of Traditional Procurement Processes

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How E-Procurement Differs from Manual
Procurement Obtaining
offers from
suppliers
Checking Creating a
availability requisition
and price

Obtaining
Finding approval
suppliers and
products
Generating
and managing
Systems the order
integration Billing and
payment
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Advantages of E-Procurement
12
9 3
6

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Electronic Catalogues:
One-to-Many, Buyer-Managed
Suppliers Buyer

Communication
via Internet

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Auctions
❑Reverse Auctions are the dominant
form of auction in e-procurement …
Examples:
English Reverse Auction Japanese Reverse Auction

▪ Buyer opens with a price ▪ Buyer/auctioneer sets an


for the goods required and opening price
seeks lower bids ▪ Sellers declare their
willingness to supply at that
▪ Sellers place successively price
lower bids ▪ Auctioneer sets
successively lower prices
▪ Winner is the supplier who ▪ Each round, bidders declare
bids the lowest price whether they are still in
▪ Winner is last (and lowest)
remaining bidder
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Advantages and Limitations of Auctions
Limitations Auctions can be advantageous when…
• Price is not the only factor in the • When the purchase item is
suitability of a purchase commodity-like and price is the
• Focus on price overlooks the key concern
concept of added value • When there are many qualified
suppliers
• When speed is important

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E-Sourcing or ‘RFX’ E-Procurement
RFQ
(Request for Quotations)
A detailed request
for suppliers to quote RFP
for a particular product (Request for Proposals)
or service requirement. Similar to RFQ.
Buyer may ask suppliers
for details of how they
would meet the buyer’s
needs.

RFI
(Request for Information)
Buyer requests info to help
evaluate whether they
might want to undertake
a particular project or
buy a particular product

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Buy-Side Operators
in E-Procurement Transactions
Buy-side tools include:
• Reverse auctions
• Buyer catalogues
• RFQ / RFP / RFI
• Private exchanges

Many advantages for buyers:


• Reduced purchasing costs
• Reduced administrative costs
• Faster cycle time
• Reduced inventory costs
• Improved control over purchasing

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Digitization of Procurement

ERP is not a Solution to


address Procurement Pain
Areas. You require
assistance in making
effective purchasing
decisions, leverage spend
analytics and create
economies of scale.

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Digital Transformation Pyramid
Digitization refers to creating a digital representation of physical
objects or attributes. Digitalization refers to enabling or improving
processes by leveraging digital technologies and digitized
data. Digital Transformation is really business transformation
enabled by digitalization. Industry 4.0 is combination of Digital
Transformation and Digitalization.

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Digital Transformation
• It calls for designing new ways of doing things that
generate new sources of value. It is more related to
effectiveness. Additionally, it encompasses the
entire enterprise, not just a particular process or
function.

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Evolution of Procurement Chain

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Digital Transformation
Digitization makes it possible to :
➢ Collaborate (Share),
➢ Automate the Process, and
➢ Analyse (analytics) the information.
➢Must to implement Sustainable Procurement

In short, a digital model of the Procurement Chain


creates the ability to quickly and easily adapt to the
real world (flexibility).
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Procurement 4.0 Technologies

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Uses of Digital Technologies in Procurement
SN Digital Technology Potential Uses in Pubic Procurement
1. Blockchain • A trusted, secure, and transparent data backbone thus ensuring transparency
and reducing the scope for corruption
2. Big Data and • Support to decision-making—analysis and evaluation
Analytics
3. Artificial Intelligence • Automation of procurement process
• Analysis and evaluation—procurement data, government spending, etc.
4. Internet of Things • Access tracking,
• Forecasting, inventory and automated ordering
5. 3D Printing • Production of prototype
• Production of supplies
6. Robotics and drones • Delivery of materials and supplies
• Monitoring of project progress

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Blockchain and its Key Features
Blockchain is a shared, immutable ledger that facilitates the process of recording transactions and tracking
assets in a business network. An asset can be tangible (a house, car, cash, land) or intangible (intellectual
property, patents, copyrights, branding).
(Source : IBM)
Key Elements
❖ Distributed ledger technology
All network participants have access to the distributed ledger and its
immutable record of transactions.
❖ Immutable records
No participant can change or tamper with a transaction after it’s been
recorded to the shared ledger.
❖ Smart contracts
To speed transactions, a set of rules — called a smart contract— is
stored on the blockchain and executed automatically.
Source: IBM Leading excellence in procurement and supply
How Does Blockchain Technology Work?

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Internet of Things (IoT) and its Key Features

Internet of Things (IoT) describes a network of physical objects— “things”—that are embedded with sensors,
software, and other technologies to connect and exchange data with other devices and systems over the
internet.
(Source: Oracle)

Primary Purpose

❖To collect data from the real world and translate that data into
information, thus facilitating decisions by the users/systems

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How Internet of Things (IoT) Works?

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Use of Blockchain & IoT in Sustainable Procurement

Vendor sustainability • By making available credible and verifiable historical


performance performance and sustainability data related to vendor
Sustainability credentials of • Untampered record of the entire product history could be
products used to verify sustainability credentials of products
Products from sustainable • Ability to track the source of products could be used to
sources access loss of biodiversity and resource depletion
Waste management • Tracking information related to waste generation and disposal could be
used to minimize waste and safe disposal of hazardous waste
Scope 3 GHG • Tracking of GHG emission in a supply chain could be used to
correctly report and account for GHG emissions
emissions
• Data related to segregation, reuse, refurbishing, recycling, and
Circular Economy
manufacturing could be used to promote circular economy

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DATA ANALYTICS

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Digital Procurement

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Digital Transformation: No Longer
Optional!
It's all about making the business processes digitalized.
Digital transformation is the integration of digital technology into all
areas of a business, resulting in fundamental changes in how a
business operates and the value they deliver to their customers.

A study at MIT found that companies that have embraced digital


transformation are 26% more profitable than their peers!

In the new digital world procurement managers become


entrepreneurs. Ready for the brave new world?

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Impediments to Digital Transformation

An organization’s culture & not technology is


perceived as the chief barrier.

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Benefits of Digital Bandwagon
• Happier Users: Tossing out the pen and paper and replacing it
with a customizable dashboard.
• Removal Of Tedious Tasks: can automate many of the tedious
processes.
• Significant ROI: Digital transformation may be costly, but the
money saved outweigh initial spending.
• Better Decision Making: Visibility features give users actionable
insights into their procurement processes.
• Improved Agility: Can make changes in the system that will
immediately be distributed to all important areas.
• Cut Costs: Streamline your operations with a digital platform that
focuses on accuracy and error prevention.

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Future of Digital Procurement
The following objectives are an integral part of the journey towards digital
transformation:

Category Management: Firstly, it makes sense to work with suppliers that


are heavily invested in digitalization.

Supplier Relationship Management: Digitalization requires precise


management of suppliers to stay successful. Leveraging analytics and
business intelligence tools can be very helpful in identifying possible
suppliers.

Risk Management: “VUCA” is used to describe markets that are volatile,


uncertain, complex and ambiguous. Describe the commercial landscape
at certain points of the year & meticulously monitor value chain across all
tiers in order to maintain a competitive position

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Why Digital Technology?
❖ Enhanced speed, control and efficiency across all
source-to-pay activities
❖ Streamlined, lower-cost operations and superior
performance
❖ Reduction or elimination of routine tasks from work
streams
❖ Happier, more productive users
❖ Rapid speed to value and significant ROI
❖ Improved compliance and greater business agility
❖ Real-time visibility across the source-to-pay value chain

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Most Important Technologies

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Digital Transformation

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USE OF IOT

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Understanding RPA
IoT + AI + RPA = The Future of Digital Logistics. an example of one of the
best automation systems that the world: humans.
How do these fantastic automation machines called “humans” function?

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Understanding RPA
❖ The Internet of Things (IoT) is the eyes and ears of your supply
chain!

❖ In technical terms, its nothing but real-time data collection and


display.

❖ IoT technologies enable the collection of data in an automated


or partially automated manner.

❖ Solutions like barcodes and hand-held RFID are examples of


partial automation in data collection.

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Robotic Process Automation
• Helps in minimizing manual intervention by automating the entire
process
• Helps in processes where there is a need for human intelligence
to take decisions
• Helps in developing a strong audit trail for future
• Helps in reducing human efforts and enabling them to focus on
other strategic initiatives
• RPA is not a cognitive computing solution.

“One of the major concerns of an organization is that the


procurement team spends most of their time on administrative
tasks.”

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AI IN PROCUREMENT

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Understanding AI
When we say AI, we mean any algorithm exhibiting any behaviour that is
considered “smart”. This is obviously a very broad definition, so we will get
into more detail and take a look at some of its types.
Machine Learning: ML is an algorithm that detects patterns and uses them
for making predictions and decisions. It is the most commonly used (Spend
Classification…)
Natural Language Processing (NLP)
NLP is solely focused on the human language, or more concretely, on its
understanding, interpretation, and manipulation.
Big Data:
Advanced Analytics
Risk Analysis, Predictive Analysis
Leave the generic and trivial tasks to the AI algorithms.

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Overview of AI
❖ To put simply, an AI can learn from data and become better with
time.

❖ RPA will remain the same.

❖ You will probably rely on some Machine learning models. It uses


statistical analysis to “learn” from reams of data to make highly
accurate predictions

❖ Artificial intelligence allows software to learn and interpret information,


such as text through natural language processing, so that an
application can communicate with and act in place of the user.

❖ INTELLIGENCE IN NON-HUMAN ENTITY

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RPA vs. AI

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Prescriptive Analytics

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What Organizations Need Now

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Are You Ready For Your Future?

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Profile of Procurement Professional

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Key Competencies
❖ Sourcing ❖ S&OP
❖ Category Management ❖ Quality Management
❖ Negotiation ❖ Project Management
❖ Logistics
❖ Legal & Contractual ❖ Leadership
❖ SRM/SPM ❖ Risk Management
❖ Cost Management ❖ CSR & Ethics
❖ Financial Analysis ❖ Systems Capbility &
❖ Supply Strategy Technology
❖ Business Acumen

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Strategy-Ugly Duck of Transformation

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Change Requires Change Management

Change can be an uphill


battle. Woodrow Wilson
once said, “If you want
to make enemies, try to
change something”.
Without change, we
become stagnant.

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Let’s move on . . .

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THANK YOU!
For More Information visit
www.ism-india.org
or
contact me :
Krishan.batra@ism-india.org

Tel: +91 9971171220

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