How 3 Companies Digitized Their Procurement Processes

Companies have ambitious plans for rapidly digitizing the procurement function, especially through emerging technologies like AI. That was a finding of a study that we conducted with Digital Procurement World in October 2024, which included a survey of over 200 procurement executives around the world. However, in separate in-depth interviews we conducted with over two dozen procurement executives and a few of their colleagues in the supply chain and IT functions, we discovered obstacles that can get in the way of these ambitions. But we also found ways that three companies featured in this article are successfully employing to overcome them:

• BP has a procurement technology garage to quickly explore emerging technologies from multiple startups simultaneously and to develop a fact-based understanding of their ROI potential.

• Otto Group, an e-commerce and retail company based in Hamburg, Germany, whose businesses include Crate and Barrel and Bonprix, has a new-technology ventures team to engage with startups and emerging technologies to accelerate experimentation and co-develop applications.

• Walmart has a procurement technology center of excellence whose mission is to roll out proven technologies globally at scale and maximize their ROI.

The Need for New Approaches

One big obstacle we discovered is the traditional IT investment and adoption process. “Traditional contract negotiation processes managed by IT are not geared for startup environments,” Arno Baltruschat, head of Otto’s new-technology ventures team, told us.

Conventional approaches—often centered on large vendors and marked by lengthy negotiation and contracting cycles—are ill-suited for exploring promising digital innovations that startups are developing. Companies historically use rigid contract templates that are more than 50 pages long, and it often takes months to finalize them. That is overkill and much too slow when dealing with startups. The rigidity of these contracts, which typically involve a multi-year commitment to a technology based upon anticipated benefits and a predetermined rollout plan, limits the innovation potential of the relationships and ignores the need to experiment to explore the full potential of the new technologies.

Another challenge is scaling a successful pilot project that focused on a handful of use cases for a new technology to the broader global organization. Procurement functions often struggle to do this.

Now let’s look at BP’s, Otto’s, and Walmart’s remedies.

BP’s Procurement Technology Garage

This BP unit conducts rapid small-scale pilots to explore emerging technologies that might provide a solution for an existing procurement challenge. In doing so, the garage also develops a fact-based understanding of the technology’s ROI potential (or lack thereof).

After a pilot has been concluded, the garage team offers a recommendation to the chief procurement officer that can range from “do not recommend further evaluation” to “recommend full-scale adoption” (with the results of the pilot, the insights it generated, and the business case). When a pilot does not deliver promising results, it is seen as a learning experience, not a failure. Intermediate options include refining the pilot and collaborating with the technology provider to co-develop additional features.

The garage has been in existence since late 2023 and has conducted pilots in a variety of technology areas, from sustainable procurement to AI-supported contractor invoicing to procurement strategy development. Pilots typically last between three to six months. Three technologies have already been given the green light for either further development or full-scale adoption.

How the Garage Works

Before launching a pilot, the garage team identifies significant procurement challenges or opportunities, then seeks out potential technology solutions to address them. Nicholas Wright, head of BP’s garage, states: “Our ethos is problem first, solution search after. We are data-led in the selection of problems.”

For example, the team found that procurement managers were spending weeks, sometimes months, on the development of category strategies for their categories of spend. (A category strategy captures the organization’s approach for getting the best out of the supplier market given its business needs and supply market characteristics and provides the basis for tendering, contracting, and managing supplier relationships.) The garage team found that upon completion, strategies would often remain unused until it was time to update them. “The strategies were not realizing their full potential and were not ‘lived’ in the organization,” Wright said.

The garage team scanned the technology landscape and found a promising AI-enabled tool called Cirtuo that supports the development of category strategies and proposed to the procurement leaders that it be allowed to pilot this technology for a three-month period. They agreed and nominated categories and buyer teams from across the business for inclusion in the pilot. During the pilot, the buyer teams used the tool to develop new strategies for their categories.

The strategies created during the pilot were of significantly higher quality than those developed without the tool, featuring, on average, 10 times more insights. The strategies were also more multi-dimensional, addressing all areas of potential value creation—not only cost savings but also company priorities like sustainability. The AI features of the tool that support the collection and analysis of external supplier market data not only enriched strategies but also reduced development time by 50%, on average. Crucially, the time savings have allowed category managers to spend less time on research and strategy documentation and more on driving organizational engagement with the strategies, reducing the risk of them being shelved and unused. Based upon the evaluation report of the garage team, BP’s chief procurement officer gave the green light for scaling the tool across the global procurement organization.

Otto’s Ventures Client Unit

Otto’s unit, called OTTO DOCK 6, offers an approach for engaging with startups and emerging technologies to experiment and possibly even co-develop technology. Unlike traditional internal venture capital groups, this group does not invest financially in startups; instead it co-develops and pilots applications with startup solutions to pressing business challenges before handing the technology over to the business. Arno Baltruschat, co-leader of the unit, told us: “Startups can react fast to our needs and we can move faster to partner with startups because we don’t need the due diligence check and overhead required for a Series A investment by a venture capital firm.” In the last four years, the venture client unit established non-investment partnerships with 50 startups.

How the Venture Client Unit Works

The unit’s approach begins with a sizable, strategically important business problem, not with a promising startup or interesting technology. Once high-value problems are identified, the unit scouts startups and pilots and may co-develop an application of the technology in collaboration with the startup and business colleagues to use the technology in Otto operations. The contracts for these engagements are three- to six-page agreements that typically take no more than a few weeks to finalize.

Given that the aim of pilots is rapid learning and development, they are intentionally limited in scale, scope, and duration (two to three months). After a pilot has ended, the group evaluates results and may recommend a further rollout if substantial ROI hurdles are likely to be met. Currently, only about 40% of technologies are adopted. Successful projects with tech startups include automated product damage checks and ESG scoring of products.

AI-based automated negotiations became a recent focus of the venture client unit. In 2023, it began seeking tech startups to help more efficiently manage long-tail suppliers, the large number of companies with low-value agreements to provide non-strategic things. It selected Pactum, a startup specializing in AI-powered negotiations software. In early 2024, the unit partnered with Pactum and collaborated with leaders and buyers from Otto’s corporate procurement department and supply-chain-management function to test whether the AI chatbot could negotiate simple terms like payment days and discounts with suppliers.

Buyer involvement was essential to the success of the pilot, particularly in communicating with suppliers and selecting suitable participants. Buyers played a key role in identifying spend categories and suppliers that would ensure the pilot was minimally disruptive to core business operations. To reduce operational risk, they focused on less-strategic products and services. To limit financial exposure, they selected suppliers with annual spend levels between €100,000 and €250,000. In total, the pilot encompassed approximately €24 million in spending across all qualifying suppliers. Of the suppliers invited to participate, nearly 65% accepted. Among those who engaged in the pilot, 70% successfully closed agreements, generating incremental savings for Otto.

Based on the success of the first pilot, the team next invited larger suppliers, involving greater amounts of external spend. This first phase was successfully completed in just three months. By the end of 2024, Otto presented a strategic implementation plan to senior management that proposed expanding automated negotiations to more complex categories and to more intricate terms, including pricing and bonuses. This year, the project will transition from the venture client unit to an operational excellence center responsible for rolling out digital technologies throughout the procurement organization and further enhancing the technology for new applications.

Walmart’s Procurement Center of Excellence

A procurement center of excellence (CoE) provides expertise and resourcing to procurement teams to enable them to support the business better through the deployment of best practice processes and the accelerated rollout of proven technology solutions offering a high return on investment.

Founded in 2018, Walmart’s CoE initially focused on rolling out an e-auction technology, which allows multiple suppliers to bid against each other for a contract in real time. In 2021, the center also started supporting experimentation, piloting, and the subsequent global rollout of emerging technologies, including the Pactum AI chatbot for negotiations, also used by Otto, and Cirtuo’s technology, also used by BP.

How the CoE Works

It trains leaders, buyers, and suppliers across international markets, supporting them on the ground. Anton Sheberstov, director global procurement at Walmart, told us: “We quickly realized that it works better if you have support embedded in the local market. There were a range of experiences, misperceptions, and even prior disappointments with e-auction technology across the organization, so it was very important to make a compelling case that was specific and local.” The onsite staff was supported by a back-office team that helped set up e-auctions, train suppliers, and administer the e-auctions.

After local teams had gained sufficient knowledge and sufficient momentum for continued rollout had been achieved, local super users were installed as an alternative to onsite support staff. (Super users are highly experienced internal team members who provide frontline support during e-auction implementation and adoption.) Bayan Hariri, senior director of Walmart global procurement, told us: “There were now several experienced users and active ambassadors for e-auctions, and we turned them into local super users. In that way we maintained local presence.”

This increased efficiency has allowed the CoE to shift its focus to enhancing e-auction formats and templates and considering emerging technologies. Michael DeWitt, vice president global procurement at Walmart said: “Today we have sourced multiple billion dollars of spend across a very wide range of spend categories around the world using e-auctions. We consistently see procurement savings come in higher than in-person negotiations and have also started experimenting, piloting, and supporting the rollout of emerging technologies to further accelerate digitization in procurement.”

Which Is Right for You?

Deciding which of the three accelerator approaches is best for your company depends on the maturity of the technology in question. Garages are best for exploring emerging technologies to develop a fact-based understanding of their ROI potential. Venture client units are ideal for co-developing early-stage innovations. And CoEs excel at scaling proven technologies. As these examples demonstrate, accelerating procurement digitization requires not just new technologies but also new approaches to deploying them.

Copyright 2025 Harvard Business School Publishing Corporation. Distributed by The New York Times Syndicate.

Explore AAPL Membership benefits.