The duties of procurement managers are diverse, ranging from creating solicitations to collaborating with vendors. The importance of digital procurement is increasing rapidly. Along with cost savings, procurement managers are focusing on optimizing and automating processes. But there is the reality of automation in Procurement.
Digital procurement practices are a significant factor in achieving company excellence. It equips businesses to keep up with growing global competition and increasing customer expectations thanks to modern procurement technologies.
Digitization applies disruptive technologies that sharpen all procurement levels and make it more competitive. It helps bring predictability to Strategic Sourcing, automates Transactional Procurement (or P2P cycle), and enables proactive Supplier Risk Management.
This article will examine the top benefits and most typical challenges with procurement automation.
Benefits of Procurement Automation
1. Unparalleled Collaboration
Collaborating with the suppliers without any systems would mean wasting time searching through voicemails, printed documents, and email threads to locate the needed information. In 2022, this became history with procurement automation solutions.
A procurement automation system may help a company become more efficient by offering unparalleled collaboration. Instead of forcing suppliers to seek a means of getting in touch with the company employees, they may use a self-service portal. Direct purchase requests from employees are possible with varying levels of auto-approval. Management can review orders in real-time and spend time on exceptions raised by the system.
2. Cost Saving
According to a recent Deloitte CPO survey, Chief Procurement Officers (CPOs) mentioned that their main concerns are efficiency, costs, and digital transformation. For the first time in a decade, cost reduction is not the highest priority: almost 78% of the respondents said that “driving operational efficiency” is the top priority, while 76.4% stated that cost reduction is a close second.
Although other factors – such as supplier selection and management, quality management, and service management – make up a good procurement plan, cost management is still one of the most critical factors. Thankfully, procurement automation substantially lowers costs and improves operational efficiencies.
For example, automating invoice processing can help the firm save even more money by preventing late fines and receiving early payment incentives. As a specific case, the cost of manually processing one invoice might range from $12 to $40. With automation, the expense falls to about $3.50 for each invoice.
Unbelievably, cost-saving only represents the outset of procurement automation’s full potential.
3. Improved Vendor Relationships
Today vendors have options and like to work with companies that value relationships. Any company that wants to succeed must collaborate long-term with suppliers to offer its clients the most value.
Automation in supplier management makes meeting such expectations easier. For example, it ensures that the companies pay the suppliers on time, resolve conflicts in a time-bound manner or improve and accelerate new supplier onboarding. All such system-driven and time-bound actions foster a sense of trust.
The companies, on the other hand, may also compare suppliers to ensure they provide the best value. It helps the companies to identify the suppliers with high default rates and inconsistent performance. It helps establish a KPI framework on cost, quality, and on-time performance of the suppliers.
4. Real-time data and analytics
Reporting in real-time is made feasible via automation. Without interconnected systems, manual data transfer happens across systems using spreadsheets. Manual data can lead to delays and inconsistency. Many companies today constantly base their decisions on delayed and inconsistent data.
New-age data players are disrupting the procurement and supply chain in various ways, such as cost-saving initiatives, cycle time reduction, or supplier performance improvement. Multiple systems such as ERP, TMS, or VMI can be connected to procurement automation to provide real-time data insights. For example, inventory management can be more straightforward; a vendor’s performance can be assessed in minutes rather than days.
Duplication and errors occur when staff enters data manually from one system to another. Manually entered data can lead to an incorrect or insufficient understanding of the clients and their needs. Furthermore, a large portion of the data in the procurement process may be improper if it relies on human data entry.
Digital automation ensures that the data in the system is correct. A company must satisfy the clients’ expanding demands. In the end, the company can understand its costs and budgeting better. But it is also crucial that the company doesn’t get disoriented with the analytics initiatives. An overwhelming amount of data available in companies today can easily sway the company away from its original plan.
5. Supply Chain Transparency
Supply chain transparency refers to a company’s ability to convey fact-based information about its supply chain operations internally and externally. It lets the company know what is occurring at every level of its supply chain. A transparent supply chain presents an image of a company as honest and open about its processes and, thus, trustworthy. It fosters trust between suppliers, businesses, and customers.
Transparency in a supply chain is significantly increased by automating the procurement processes. It allows the company to get insights into the activities at every level of the supply chain, as well as on the suppliers’ side, including:
- Details of manufacturing each day at the suppliers’ end
- Reports of QC inspections
- Preventative and corrective measures
- Supplier audits
- In-transit details
Automation of procurement processes, along with a seamless integration of the other systems such as ERP, WMS, and TMS, will ensure enhanced supply chain visibility. While all such details are available in every business, manually getting a hold of it on a daily basis is nearly impossible.
Challenges of Procurement Automation
The pros of automation are heavier than the cons. But, businesses cannot ignore the challenges of automation entirely. The chances of success increase if a company keeps these challenges in mind and sets up the systems accordingly.
1. Risk management
Risk management is essential and significantly influences supply chain and procurement management. It involves identifying internal and external risks for the company and taking the required steps to reduce them. Some of the possible risks in procurement are related to on-time order fulfillment, pricing and quality, market risks, and the potential for fraud. Organizations should consider risk mitigation to reduce attacks and ensure security while designing a purchase management plan.
While the digitization of procurement can help flag the concern areas very effectively, the governance and resolution of such issues still require human intervention. Concerns such as internal and legal compliance can pose a threat to the entire company at times. Hence these should be managed with a different focus without relying on digitization.
2. System Integrations
System integrations are crucial for any successful deployment and running of automation solutions. The same applies to procurement automation. It is important that digitization not only automates the processes in procurement but also integrates it with other functions such as WMS, TMS, ERP, or APO seamlessly.
Such integration will help reduce and remove manual processes between the systems. Manual procedures cause inaccuracies, prejudice, and delays. The impact on procurement decisions’ analytics, planning, and execution is due to a lack of access to consolidated data.
Procurement managers can make smarter business decisions when data from all the functions is consolidated and analyzed by Procurement Automation. For example, if the supplier is offering a discount, is it better to buy in bulk, considering the other costs such as transportation or inventory-holding costs.
The answers to such complex but practical business questions can be discovered only when the systems are linked and communicating with each other. Any broken lane will hamper the performance of procurement automation and analytics.
3. Supplier Management
Effectively managing vendor relationships enables the firm to satisfy important quality and cost requirements. Chaos and unsuccessful procurement result from a lack of vendor evaluation, onboarding, monitoring, and a non-optimized system. While automation can improve supplier performance management, the KPIs should be clear and reviewed periodically.
To maintain a seamless end-to-end procurement process, procurement managers must overcome the challenges discussed above and go even further. As a result, procurement specialists are trying to address company problems with procurement automation and digitization.
Businesses must leverage the procurement process by utilizing cutting-edge strategies like digitization to prevent errors, remove friction and ensure seamless operations and collaboration with the suppliers. In today’s modern businesses, the CPO is as important as the CEO and CFO; hence, taking a complete rewiring approach to digitization in procurement is possible.
But the management should ensure that such digitization projects are in sync with other functions such as Planning, Manufacturing, and Logistics, as well as with the company’s suppliers. This will ensure an integration that will build a culture of trust throughout the company’s whole ecosystem, attracting partners and suppliers that share its values.
Stefan is a growth leader in the Romanian startup scene and currently holds the position of Head of Growth at Soleadify. He’s an experienced entrepreneur with two exits under his belt. His interests span all the way from big data applications to classic cars. You can find him on LinkedIn and Twitter.