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What is the Real Value of Digital Procurement?

Posted by Richard Hardstaff on 07-Mar-2018 11:30:00

Productivity at Work - What is the Real Value of Digital Procurement?

How often have you rifled through your desk and torn apart your filing cabinet looking for that elusive piece of paper?

This can be a thorn in the side of any business person, but is especially prevalent in procurement, where the paper trail of POs, invoices and order forms can seem never-ending.

Perhaps this is one of the reasons more and more businesses are utilising the benefits of a digital procurement.

These cloud-based platforms are one of the major benefits of technology in business, bringing together every piece of information a procurement department processes.

The benefits are clear to see, but procurement seems slow to take on digitisation. According to The Hackett Group:

"84% of procurement organisations believe that digital transformation will fundamentally change the way their services are delivered over the next three to five years. Yet only 32% have developed a strategy for getting there."

This clarity may be a major advantage of digital procurement, but that is not the only thing on offer. Our blog explores how automation, prediction and supplier management can all be implemented using an online system.

First though...

What is a Digital Procurement?

Digital procurement is, simply, the application of digital technologies to your procurement strategy to improve efficiency and identify areas for improvement.

By hosting your procurement process online via a cloud-based system, you are better able to collate information using:

  • Physical data files, such as contracts, specifications, and bills of materials.
  • Unstructured databases that describe supplier spend.
  • Data relating to deliveries, demand, and material consumption.
  • Third-party data from suppliers, social media, commodity trends. and more.

By collecting this information all in one place, you are able to improve decision making and efficiency, while reducing risk.

How digitisation impacts your process varies depending on whether you are considering:

  • Strategic Sourcing (S2C)
  • Transactional Procurement (P2P)
  • Supplier Management (SM)

Let’s take a closer look at the benefits for each area in a little more detail.

Digital Procurement and S2C

Vital to S2C is the ability to source goods and services, choose suppliers, and identify the best value option.

This would traditionally have to be planned upfront, but digital procurement allows S2C professionals to manage their spend as and when they need to. This ability to make real-time decisions allows for improved accuracy.

Alongside this fine-tuning, digitisation helps you plan for the future by predicting demand using artificial intelligence (AI). This uses machine learning to run spend analysis reports before, during and after the point of sourcing.

In this way, you can identify demand and perform market and supplier performance analysis before you even begin the supplier sourcing process.

In short, AI provides much greater context to inform your spending, and with 49% of procurement professionals wanting a tighter grip on their costs, the value of investing in digital procurement is clear.

Alongside predicting future demand, digital procurement enables you to predict future sources of supply by knowing landed costs for commodities from alternative countries of origin.

Ultimately, for S2C procurement, digitisation allows for better prediction and leads to more transparent agreements.

Digital Procurement and P2P

Much of a procurement department’s time is spent coordinating orders to replace existing stock. These admin tasks reduce the time available to explore new ways to improve efficiency in your supply chain.

This is one of the reasons 45% of experts say the procurement process is inefficient and labour intensive. To combat this, digital procurement provides an automated system to manage these seemingly simple but time-consuming tasks.

Robotic Process Automation (RPA) uses your purchase and stock data to identify when repeat orders need to be made. It then makes them for you, so you needn’t lift a finger.

Not only can this digital procurement automate the ordering process, it can also automate supplier payments. When a delivery is processed, this triggers payments.

This automation limits the need for human input, freeing up your team to focus on tasks that require more attention.

Digital Procurement and SM

Supplier management requires perhaps the greatest human touch. Tasked with developing relationships and minimising risks, SM professionals need to know their suppliers inside-out.

Where suppliers are not following high ethical standards, there is a risk that their poor standards will negatively impact upon your business’s reputation. But, with hundreds of suppliers to monitor, how do you stay on top of everything?

Yet again, digital procurement provides the answer. You’ll be able to monitor potential supplier risks thanks to data collected from third-party sources.

Engaging with consumers and industry experts through methods such as crowdsourcing also yields valuable data for SM professionals. This can then be used to identify risks or develop new ideas.

This allows you to continually gather information about your suppliers, resulting in being able to develop management strategies that predict opportunities and risks. All this goes towards helping you optimise your procurement.

Digital technology is impacting every part of procurement. Thanks to the ability to source and store more in-depth data, you can make stronger, more effective decisions.

And, what is the result of all this?

Well, with better-optimised processes, you can start improving the efficiency of your supply chain and with better efficiency, you’re more likely to start seeing greater procurement savings.

Speaking of procurement savings, we’ve dedicated an entire eBook to the question of how cut costs while maintaining quality. Download The 4 Stages of Procurement Savings for free here.

Download our guide to procurement savings

Tags: Money | Cost Savings