Procurement 4.0: How industrial customers transform procurement processes to capitalize on digital servitization

Abstract

The rapid development of digital technologies can revolutionize industrial companies’ operations through the procurement and application of digital solutions following a logic of digital servitization. However, industrial customers must refine their internal processes to exploit the potential of digital servitization. In this transition, the procurement organization is pivotal in orchestrating relationships between its internal functions and suppliers ecosystems. Yet, traditional procurement processes are poorly suited to the evaluation and procurement of digital servitization offerings, hampering value co-creation between suppliers and customers. The purpose of this study is to investigate how procurement process models can be adapted to address the opportunities and challenges of digital servitization for industrial customers. The investigation is based on a case-study design, drawing on data collected through in-depth interviews with informants from eleven leading customers and eight global suppliers. Based on the data analysis following the Gioia methodology, we describe key challenges with the traditional approach and identify novel procurement practices to capture value from digitalization. The study’s key contribution is to propose a process model for Procurement 4.0, highlighting four phases: 1) mapping digital opportunities, 2) selecting digitalization partners, 3) co-developing digital solution contracts, and 4) promoting continuous digital innovation. Furthermore, we define three overarching principles for procurement 4.0: a) nurture digital ecosystem generativity, b) orchestrate cross-functional integration, and c) leverage supplier capabilities through agile co-creation.