Does your business have what it takes to compete in a global economy that’s increasingly dependent upon advanced digital technologies? If you haven’t yet made digital transformation part of your overall business process management plan, you might find yourself playing catch-up with—or worse yet, a distant second to—your competition.
Digital procurement is one of the most effective and profitable places to begin your digital transformation journey. Implementing a digital procurement platform can have a powerful and immediate impact on your company’s financial health and competitive agility—provided it’s done strategically. Taking the time to familiarize yourself with digital procurement, why it matters, and what to look for in a digital procurement platform can help your company begin the journey to true digital transformation, and secure your ability to compete, innovate, and grow today and in the years to come.
Digital Procurement Platforms: The Basics
Before you can evaluate and implement a digital procurement platform, it’s important to have a firm understanding of digital procurement itself. In the broadest sense, digital procurement is the strategic implementation of transformative (sometimes referred to as disruptive) technologies to shift procurement away from a traditionally reactive cost-savings model and toward a proactive model focused on generating savings, innovation, and value through systemic procurement transformation.
Now, if that sounds like a mouthful, you can think of digital procurement as simply using digital tools such as artificial intelligence, advanced data analytics, and process automation to streamline and optimize procurement—and compete more effectively in the modern global economy, too.
Procurement organizations are built on managing spend, supply chains, and supplier risk and relationships. Digital procurement (sometimes called electronic procurement or, more often, eProcurement) is used to transform these three functions in key ways in order to maximize their effectiveness and introduce new benefits, such as innovation and improved strategic planning and decision making through analysis of procurement data. Digital procurement solutions centralize and streamline your entire software environment, and connect to your existing enterprise resource planning (ERP), accounting, marketing, and other software to both improve data quality and provide a more intuitive user experience for your team.
A range of established and emerging digital technologies are leveraged to support this data-driven model for procurement:
- Established Technologies are already in widespread use and considered standard components of digital transformation in general and procurement transformation in particular.
- Contract management
- Guided buying/electronic catalogs
- Supplier information management
- Category management
- Supplier relationship management
- Supplier performance management
- Electronic bidding (eAuctions)
- Evolving Technologies are not yet universal but leveraged by best-in-class procurement organizations with moderate additional investment to further enhance performance, savings, and value generation.
- Cognitive computing via advanced artificial intelligence and machine learning
- Advanced predictive data analytics
- Advanced data visualization (basic virtual reality)
- 3D printing for modeling/prototyping
- Intelligent content extraction
- Software and hardware robotics
- Emerging Technologies have strong potential for future value creation and procurement innovation.
- Internet of Things technologies (e.g., sensors, cyber tracking, wearables)
- Advanced virtual reality and spatial analytics
Digital procurement platforms—often in the form of a comprehensive software suite such as PurchaseControl—allow chief procurement officers (CPOs) and other procurement professionals to optimize their operating models with a blend of these technologies.
“Procurement organizations are built on managing spend, supply chains, and supplier risk and relationships. Digital procurement (sometimes called electronic procurement or, more often, eProcurement) is used to transform these three functions in key ways in order to maximize their effectiveness and introduce new benefits.”
How Digital Technologies Help Optimize Procurement
When building an effective procurement strategy that supports your organization’s overall goals, profitability, and competitive strength, outdated paradigms and manual workflows simply won’t do. The new generation of procurement tools helps you meet and overcome the most common procurement challenges more effectively than ever before.
Let’s take a closer look at how digital procurement affects each of the three primary procurement functions:
Strategic Sourcing: Also called source-to-contract, strategic sourcing in the age of digital transformation relies on comprehensive transparency into—and full control over—spend data and behavior, including not just pricing and terms from suppliers, but supplier performance and compliance data. Added to the mix are data feeds from social media, market trends, and global news media that provide context for strategic planning, source identification and development, and supply chain optimization.
When optimized through digital procurement, strategic sourcing ensures your supply chain supports a healthy and streamlined value chain, as it:
- Is proactive, secure, and focused on protecting both supply chain resilience and business continuity.
- Can be managed in real time, improving decision making, budgeting, and both short- and long-term spending plans.
- Uses advanced analytics to predict both demand and future sourcing opportunities to seize discounts, cut costs, and mitigate disruptions.
- Uses intelligent contract management to notify the procurement team of opportunities to revisit and adjust existing agreements, or make new ones, to take advantage of changes in market conditions, supplier status, etc.
Procure-to-Pay (P2P): The backbone of your procurement process, P2P touches all your transactions, from the purchase order on through to the final invoice. eProcurement streamlines every step of the P2P lifecycle, improves user experience, and eliminates costly human error while improving productivity and reducing risk exposure.
With digital procurement technology, P2P is:
- Much faster and more accurate through process automation.
- Reduces the need for human intervention in high-volume, repetitive tasks, as well as the potential for human error.
- More secure and accurate through automatic three-way matching, support for electronic invoicing (eInvoicing), and automatic payments based on criteria set by your team.
- More proactive, with support for automatic re-orders based on demand and spend analysis.
- More cost-effective; eliminating the need for paper documents (and storage) cuts costs considerably, along with your environmental footprint. In addition, cloud-based applications and data storage reduce the need for local IT resources. Finally, eliminating human error and freeing staff from tedious, repetitive tasks allows you to use their skills more strategically to generate value rather than chasing late, missing, or duplicate payments.
- More intuitive and user-friendly, with guided buying and integrated contract, supplier, and inventory management modules sharing data in real-time.
- More secure; automation and closed buying environments reduce the risk of both maverick spend and invoice fraud.
Supplier Risk & Relationship Management: Managing your supply chain is about more than sourcing raw materials or snagging timely discounts. The relationships you build with suppliers can help you take advantage of opportunities you might not otherwise have—and provide the insights you need for supplier risk management. Digital procurement makes it possible to form, track, and manage supplier relationships in a collaborative and strategic way, making it much easier to compete effectively through strategic sourcing and identify new opportunities to generate value, capture savings, or form mutually beneficial partnerships with your best suppliers.
Proactive procurement teams use digital technologies to:
- Simplify vendor evaluation, onboarding, and review through the use of vendor portals.
- Monitor supplier risk and performance through integration and analysis of third-party data sources.
- Leverage vendor data to build new partnerships, develop new products, or break into new markets.
Optimizing your procurement strategy and processes on these three fronts will provide a strong foundation for digital transformation throughout your business as a whole. Centralized data management, clear and actionable insights, and accurate reporting, budgeting, and forecasting are all essential to competitive advantage in a fast-paced global economy, and streamlining procurement is a powerful way to avoid playing catch-up and skip right to making the competition sweat.
Crafting Your Own Digital Procurement Roadmap
Depending on your goals, budget, and overall corporate culture, your plans for procurement transformation will likely be different in some or even many ways than other businesses. However, you can chart a path to long-term digital transformation success by drawing up a procurement transformation roadmap and following a few best practices.
1. Perform Needs Analysis
Understanding your current procurement capabilities and limitations is the first step to improving and overcoming them, respectively.
Start with needs analysis to identify the areas most in need of immediate digital transformation, and determine the resources you need—time, money, training, cultural and infrastructure transformation, etc.—to make those changes happen.
According to a 2019 survey by research firm Gartner, CPOs identified underutilization of analytics (72%), the inability to accurately gauge supplier performance (64%), and underutilization of automation technologies such as robotic process automation (52%) as the top three challenges their companies faced in digital procurement.
The same CPOs also noted difficulty in finding solutions for invisible risk, a lack of an overall procurement strategy for capturing innovation, and keeping up with rapidly-changing market intelligence to make smart decisions.
Some of the areas you might focus on include:
- Optimizing return on investment (ROI).
- Improved inventory management.
- Supply chain quality and resilience.
- Improving spend transparency and accuracy of spend analysis.
- Improving demand forecasting and agility to preserve business continuity and mitigate factors such as seasonality or supply chain disruptions.
- Cultural and educational changes necessary to ensure compliance, enthusiasm, and even evangelism for the new operating model.
2. Recontextualize Procurement as Essential to Value Creation and Innovation
Setting goals is the first step. Removing the roadblocks created by legacy practices and tools is the next.
Reactive procurement, shackled by paper and manual workflows and an edict from on high to chase low prices, is ill-suited to competing in today’s business environment. New technology allows procurement teams to begin generating value by spinning data—provided it’s clean, complete, and accessible to all stakeholders—into gold through:
- Process optimization
- Continuous improvement
- Strategic collaboration and supplier relationship management
- Opportunities to develop new products
- Innovations such as internal production of essential components via on-demand 3D printing or improved logistics using the Internet of Things to track orders, payments, and materials.
- Bringing together a diverse and formerly scattered software and data environment to provide fresh insights, e.g. combining spend, marketing, and customer data to connect customer demand to production and spend forecasts.
In addition, consider investing in new talent already well-versed in digital technologies to provide support, training, and expanded capabilities to your procurement team. Obtaining buy-in, implementing agile strategies across projects, incorporating data science into your internal controls and analyses (and extracting those invaluable insights in a timely manner), and navigating the ever-evolving technologies and trends of the digital marketplace is much easier with help from digital natives.
3. Design Your Digital Procurement Roadmap
Once you know where you’re going and what you need, it’s time to decide how you’re going to get there. No two companies will have the same approach; for instance, a more traditional company that’s still using paper-based processes and has a very conservative approach to digital transformation will have a very different map than a newer company already built in part on digital technologies and a team that’s comfortable working in the cloud.
Regardless of your specific needs, an agile approach to procurement transformation can provide the flexibility you need to make positive change and realize demonstrable value while still providing the breathing room to ensure your budget and company culture can keep up.
For example, you might start by automating your P2P process and implementing a corresponding set of internal controls for spend management, and then implement additional modules over time. Choosing a provider like PurchaseControl ensures you’ll have not just best-in-class software, but the support you need to help your team master their new procurement platform and the training and education necessary to help achieve total buy-in from the C-Suite down.
The Age of Digital Procurement Has Arrived
From paying the bills to collaborating strategically with your suppliers to keep your business thriving, procurement has an important role to play in the health and growth of your business. And by investing in new technology and ensuring you’ve got a strong digital procurement strategy, you can make sure procurement is helping you lead the pack in the race for a stronger value chain, bigger competitive advantage, and a truly agile and resilient business.
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