Digital procurement – Advantages
Procurement is a very complex process that involves a lot of paperwork, negotiations, discussion of bids, among other tasks. Therefore, it is a very time-consuming process that might lead to inefficiencies. The good news is that the use of technology makes the process much easier and straightforward resulting in cost savings for any company.
A study carried out by McKinsey and Company says that 60% of the processes involved in the source to pay process are potentially automated using current technology. These processes go from order and invoice processing to vendor selection and performance management.
Below is a summary of some key advantages of digitalising the procurement process. But first, the main procurement problems are mentioned.
Common challenges in procurement
Supply risk. This is one of the biggest challenges facing procurement. The most common are quality, frauds, compliance, and delivery risks that might keep the procurement responsible very busy trying to identify a high-quality supplier for the company. Identifying the right supplier and keeping track of his performance is time-consuming and it is related to relevant aspects such as the quality of the products, stable supply, best price and lead time.
Errors with orders. This may be a very common mistake in any purchasing department that may conduct to major issues depending on how the supplier handles the situation or vice versa. Some common mistakes are, for instance, filling out the order wrongly, misreading the request, wrong product or incorrect specifications, mistaken price, etc.
Poor organization: Accessing important information could be a problem when there is a chaotic data management, making it harder to clearly identify the relevant information. Thus, the decision-making process takes longer and many resources are wasted to finally get the job properly done.
Uncontrolled spending: Uncontrolled spending can ultimately be very expensive for businesses. Resources can be used in an unappropriated way. This problem could arise from employees who are taking advantage of their position for personal purposes. This issue is not only associate with unjustified using capital but also with buying from the same supplier at a higher price under the same conditions than other suppliers.
Digitalisation adds value to procurement
Standardization. More standardize processes and well-defined workflows ensure mitigation of risks associated with supplier issues such as frauds, compliance, etc. Also, it can prevent maverick purchase which happens when a procurement professional buys products outside of the channels defined by the company.
Productivity. Procurement professionals could order directly through online ordering systems without wasting time in processing orders, additional paperwork, and communication with suppliers. According to McKinsey and Company, most organizations spend between 3 to 4 percent on transaction costs and inefficiencies of the process. Digitalisation improves efficiency, accelerate processes and reduce errors due to the automatization of the process. The increased efficiency allows procurement professionals to focus on strategic tasks such as spend analysis.
Transparency. The analog to digital transformation allows a better organization of processes, defining and structuring the information required in each of them. This change in the procurement process increases the visibility of transactions enabling transparency on orders processed and products purchased. Through a more visible spend in the company, it is easier to identify new saving opportunities, enforce contract compliance and ensure that everybody in the company is paying the lowest available price.
Reducing costs. The digitalisation of the procurement process eliminates paperwork, removes redundancies and shorter the communications chain. Also, costs can be reduced by the integration of analytics allowing the procurement professionals to find trends that could lead to optimizing their spending.
To sum up, digitalisation helps companies to improve accessibility, facilitates better information exchange, promotes standardization, increases transparency, freeing up more time, and ultimately generating growth while reducing costs. When a proper digitalisation plan is carried out, it allows professionals to have access to all the information in a digital form everywhere, ensuring a fast and more effective decision-making process while lowering the risk associated with the process. In a survey carried out by McKinsey and Company, procurement departments implementing digitalisation are expecting a 40 percent increase in annual savings, 30 to 50 percent less time spent on transactional sourcing, and a 50 percent reduction in value leakage.
Managers need to understand their business and identify key digital tools that allow them to capture competitive advantage and keep them apart from their competitors.