In the previous article in our ‘Moving From Purchasing Thinking to Procurement Thinking’ series, we revealed the most common indicators that a business is ready to level-up its purchasing and embrace procurement thinking. We also discussed the actual cost of manually processing purchase orders, which, for some medium-sized manufacturers, can add up to almost $1M in just a handful of years.
In our latest article, we examine the benefits and challenges of taking the leap and digitalising and automating procurement.
Procurement is more than just another operational process. Organisations that fail to recognise this are missing out on its potential to drive growth and sharpen a business’s competitive edge. Digitalisation and automation are crucial to this strategic approach, allowing organisations to streamline systems and optimise operations.
What Does it Mean to Digitalise and Automate Procurement?
When considering a function as a strategic process, we must also consider how it can be optimised to achieve our goals. Digital transformation and automation of the procurement function are two key ways to do just that.
The digitalisation of procurement involves leveraging technology to streamline the procurement process. This can include using cloud-based procurement platforms, e-procurement tools, electronic catalogues, and online purchasing systems. By digitalising procurement processes, organisations can reduce manual work, enhance data accuracy, and achieve greater visibility into the procurement process.
Automation, on the other hand, involves using software and tools to eliminate manual tasks and automate workflows. This can include automating the approval process, contract management, and invoice processing. Automation can help organisations to reduce errors, increase efficiency, and save time and resources.
Combining digitalisation and automation allows procurement optimisation for maximum efficiency and accuracy. Procurement can be transformed from a time-consuming, manual process into a strategic function that drives business growth, enhances customer satisfaction, and adds value.
What are the Key Benefits of Digitalising and Automating Procurement?
Visualise a world where your requisitioning and purchasing functions are seamlessly integrated, without a labour cost overhead. With complete automation, errors are all but gone, costs are down, and your team is empowered to dedicate their time and bandwidth to strategic, growth-driving initiatives.
You can rid your organisation of the inconvenience of manual procedures and unlock precious time and resources with innovative technology. It’s possible to bid farewell to tedious paperwork and embrace streamlined efficiency that enables you to achieve more with less.
Time-saving is not the only benefit of this procurement strategy either. Digitalising and automating procurement processes offer several advantages that can transform your organisation’s procurement function, enabling it to operate more efficiently and strategically.
- First, a digital workplace provides a one-stop shop for collaboration, enabling procurement teams to work seamlessly with other departments, such as finance, marketing, and human resources. A centralised system allows all departments to build custom solutions, share information, and collaborate.
- Automating procurement processes also allows for effortless integrations with other platforms, such as accounting software, eliminating the need for manual data entry and cross-checking. With API integrations, data is automatically checked and updated in real time, reducing errors and improving the accuracy of procurement data.
- Data-driven decision-making is made possible with digitalised and automated procurement practices. Managers can access actionable insights on interactive dashboards, enabling them to improve performance and make better-informed decisions. This data can also be used to perform more detailed analyses of procurement practices, consumption models, and supplier transactions.
- By embracing digital solutions company-wide, executives can monitor all ongoing processes, projects, and cases in any department. This engages executives and affords them more intimate involvement and insight into day-to-day operations, fostering stronger strategy engagement and support, and strengthening relationships through mutual respect.
- Finally, the digitalisation of procurement processes enables the dematerialisation of all source-to-pay activities and processes, reducing the need for tedious paperwork and freeing up valuable time and resources. This approach can also generate new data, which can be used to perform more in-depth assessments of procurement practices, consumption models, and supplier transactions.
What are the Obstacles to Digitalising and Automating Procurement?
Despite the potential benefits of digitalising and automating procurement, many organisations face significant obstacles to fully realising these advantages. According to a survey, only 2 per cent of organisations have completely automated their procurement process, while 54 per cent have begun digitalising it.
A critical challenge is integration. Integrating different systems and processes can be complex and time-consuming. This is especially true when working with legacy systems that may not be designed to work with modern software, leading to inefficient and error-prone processes.
Another challenge is ensuring data quality. Accurate and consistent data is integral for procurement processes to work effectively, and errors or inconsistencies can lead to significant problems.
Limited support from executives and a lack of understanding of technology can also hinder progress in digitalising and automating procurement. Without executive buy-in, securing the necessary funding and resources to implement new systems and processes can be difficult. Similarly, if the procurement team lacks an understanding of the technology, it may not be able to utilise its potential fully.
The capability and availability of analytics resources are another challenge. With digitalised procurement processes, data is generated at a faster pace than ever before. However, without sufficient resources to analyse and make sense of this data, it can quickly become overwhelming and lead to missed opportunities for optimisation.
Finally, employee resistance to change can be a significant obstacle. Procurement processes are often deeply ingrained in an organisation’s culture, and introducing new technology and methods can be met with resistance. Overcoming this requires clear communication, training, and a willingness to adapt to new ways of working.
Procurement Processes that can be Fully Automated
To build a compelling case for digitalisation and automation and overcome the obstacles and challenges that may arise during the transition, you must first understand which procurement processes can be fully automated, and be aware of the specific automation advantages for each process. This includes the following:
- Sourcing. Automating sourcing and the supply chain process can reduce the time and resources needed to identify, evaluate, and select suppliers. Automated sourcing can use algorithms to search for potential suppliers based on predefined criteria and can even suggest new suppliers based on performance.
- Requisitioning. Automating requisitioning can help streamline the entire procurement process, from initial request to purchase order. Automated requisitioning can capture and track purchase requests, determine if items are available in inventory, and route the request to the appropriate personnel for approval.
- Payment processing. Automating payment processing reduces manual errors, streamlines payment approvals, and provides real-time payment status. Automated payment processing can also ensure compliance with regulatory bodies and reduce the risk of fraud.
- Purchase planning. Automated purchase planning improves accuracy in forecasting and reduces the time and effort required to create a purchase plan. The software analyses historical data, demand forecasts, inventory levels, and supplier performance to create a comprehensive purchase plan.
- Contract management. Through automation, businesses ensure compliance with contract terms and conditions, automate the renewal process, and track contract performance. Automated contract management can reduce the risk of forgotten contract renewal dates or missed payments.
- Order management. Automating the process of receiving, processing, and fulfilling customer orders, and the activities involved, such as order tracking, invoicing and billing, and order communication with a customer can significantly reduce the time and resources needed to manage orders manually.
- Inventory management. Managing the goods or products a business holds in stock involves tracking inventory levels, monitoring stock movements, and ordering new inventory when needed. Automating these activities can optimise inventory levels, improve order fulfilment, and reduce the risk of stockouts or overstocking.
- Supplier relationship management (SRM). Automating activities like supplier performance tracking against predefined KPIs, supplier communication, purchase ordering based on predefined rules, and even supplier selection can help streamline the SRM process, reduce manual effort, and improve accuracy and efficiency.
While these processes and their activities are distinct and critical for the successful operation of a business, they are very much interlinked and closely related.
It doesn’t take much of a leap to see how a deficit or bottleneck in one area of the procurement process will impact other areas, and ultimately increase the cost of doing business. Consider order management and inventory management activities. Effective order management requires accurate and up-to-date inventory information, and inventory management relies on accurate order data to help forecast demand and plan for future inventory needs. Both processes are essential for ensuring that a business can operate efficiently and effectively, meet customer demand, and maximise profitability.
It’s also why more and more businesses are recognising the need for digitalisation and automation to overcome the challenges of manual procurement practices and achieve greater efficiency and cost savings. Combining digitalisation and automation allows procurement to become a strategic function that adds value, enhances customer satisfaction, and drives business growth.
In our next ‘Moving From Purchasing Thinking to Procurement Thinking’ article, we’ll take a closer look at the software solutions available to meet the demands of your business and how the right software implementation partner can make all the difference. In the meantime, check out all our articles in the series.