Let’s face it- manual purchasing processes won’t do your business good.

As you grow and scale, you’re more susceptible to the risks of:

• maverick spending
• lack of visibility in your procurement processes
• compliance issues
• errors in data entry
• higher costs on your procurement operations

If this is the case, it’s time for your company to step up and leverage the power of digital procurement. In this blog, we’re going to look at digital procurement closely.

We’ll show you how digital procurement can make things easier for your business. With a technology solution, you’ll be able to control your costs and streamline the operations of your business.

Ready to begin your company’s digital transformation? Let’s dive in!

 

What Is Digital Procurement?

Digital procurement refers to applying technology to optimize and automate your procurement process. Digital procurement aims to make your procurement processes faster, more efficient, and less prone to errors.

As a business, you must leverage tools and software to manage your purchasing lifecycle. This covers identifying and sourcing goods and services, negotiating smart contracts, settling payments, and using reporting dashboards to gain actionable insights.

Think of using a digital procurement strategy to forever say goodbye to endless paperwork, manual tasks, manual data entry, and scattered spreadsheets.

Using software for your digital procurement strategy makes it easier to access all processes in one central tool. As a result, it becomes easier for your business to streamline workflows and increase visibility in every procurement stage.

Here’s a breakdown of all key elements of a digital procurement:

• E-procurement platforms are online platforms that act like a central hub for all your procurement activities. The purpose of these is to facilitate communication between buyers and suppliers. Aside from that, their role is to automate tasks to make things like order processing and approvals easier and faster.
• Cloud-Based Solutions: Digital procurement solutions are cloud-based and easily accessible from anywhere. The flexibility of cloud-based solutions allows your procurement departments to collaborate more easily and even share data across departments.
• Mobile Apps: Digital platforms usually offer mobile apps to ensure users can manage tasks. This is very helpful for procurement teams to manage workflows while on the move.
• Data Analytics: E-procurement systems can collect and analyze data. This provides valuable spending patterns and supplier performance information, which can help boost supply chain management.

A Deeper Dive On Digital Procurement

Digitization is a common theme across many industries. As per Gartner

“Digitalization is the use of digital technologies to change a business model and provide new revenue and value-producing opportunities; it is the process of moving to a digital business.”

Digital procurement, hence, could be viewed as a process to use digital technologies and digital tools to enhance the procurement function.

Digital technology is a broad term encompassing tools and technologies available to procurement experts to enhance the value delivered by the procurement function and the digital procurement strategy in general.

What does that mean?

Robotic automation, Artificial intelligence, machine learning, source-to-pay technologies, and smart sensors are some of the tools in the arsenal that can be used to drive better value for procurement operations.

But just slapping technology on a process doesn’t deliver the desired results. It starts with identifying the business processes and digital products where technology can be used to enhance the user experience, improve productivity, or improve the overall function/department.

How Does Digital Procurement Work?

A digital procurement process can be broken down into several steps, considering every procurement stage.

It’s important to note that this may look different from one company to another. But here’s a general overview of how a digital procurement usually works:

Identification And Demand Management

In this step, your company identifies what it needs. This goes through both users and departments within your company.

In this stage, your employees can browse through internal or external catalogs of suppliers and items that have already been pre-approved.

Your system will automatically verify if there’s enough budget available for the requested item.

Sourcing And Supplier Relationship Management

In this stage comes collaboration with suppliers. Ideally, your digital procurement platform will automatically send purchase requests for quotes to pre-qualified suppliers.

Your suppliers can submit bids or even engage in online negotiations.

The interesting part about using an automated system to source and select suppliers is how it can build supplier relationships and collaborate more with suppliers.

Ordering And Contract Management

E-procurement systems will automatically generate a purchase order for approval. Contracts are also created and managed electronically.

This makes it simpler to go through the procurement process and even improve record-keeping.

Through your system, real-time insights and valuable insights on order status, delivery schedules, and invoices are also readily made available.

Delivery And Invoice Management

In this stage, during delivery, your digital procurement software receives confirmation through automatic integration with your logistics system.

Invoices are received electronically, matched with POs, and automatically approved or flagged in case of errors.

Data Analytics And Reporting

Through digital procurement software, your procurement officers and leaders get real-time insights on spending patterns, category trends, positive cash flow, and supplier performances through reports and dashboards.

These centralized reports make it easier to boost the procurement efficiency within your company.

What Are The Types Of Procurement Strategies?

Do you know that there are different types of procurement strategies your business can use to boost your operational efficiency?

Let’s briefly discuss the strategies your procurement professionals can use to improve the procurement efficiency and effectiveness in your company:

Unifying The Supply Chain

This procurement strategy aims to create an efficient flow of goods and services from your suppliers to your customers. It covers steps such as optimizing processes, improving communication, and fostering collaboration between all parties involved in the transaction.

Strategies you can use to unify your supply chain:

• Implement standardized data and communication protocols across the supply chain.
• Invest in supply chain visibility tools to track and monitor inventory levels, order status, and potential digital disruption.
• Build strong relationships with your suppliers through collaboration and joint planning initiatives.

Risk Management

The goal is to help your procurement professionals handle potential category risks that might disrupt your operations. Even without manual procurement processes, your company might be at risk because of market volatility or unexpected natural disasters.

Strategies you can use to handle risk management:

• Conduct thorough supplier risk assessments before entering into contracts.
• Diversify your supplier base to avoid dependence on any single source.
• Develop contingency plans to address potential disruptions and ensure business continuity.

Worldwide Sourcing

Worldwide sourcing aims to source goods and services from cost-effective and reliable suppliers worldwide. This effective procurement strategy involves tapping into new markets so you can leverage global competition to your advantage.

Strategies you can use for worldwide sourcing:

• Conduct thorough research to identify qualified suppliers in new markets.
• Understand and comply with international trade regulations and customs requirements.
• Build strong relationships with local partners and advisors to mitigate category risks and navigate cultural differences.

Procurement Training

The goal of procurement training is to equip your procurement team with the skills and knowledge they need to manage your procurement activities effectively.

To fully move forward with this transformation in procurement, it’s important to have training on negotiation techniques, contract management, and even risk assessment.

Strategies you can use for procurement training:

• Develop and implement a comprehensive training program for your procurement team.
• Invest in ongoing training and development opportunities to keep your team up-to-date on best practices.
• Encourage knowledge sharing and collaboration within your procurement team.

Eco-Friendly Purchasing

The goal of eco-friendly purchasing is to source and use products and services that cause minimal environmental impact and damage. In short, this is a strategy where your company looks at alternate sources for your needs.

This includes factors like recycled content, energy efficiency, energy sources, and sustainable practices.

Strategies you can us for eco-friendly purchasing

• Develop and implement a green procurement policy outlining your environmental priorities so you only source products from alternate sources.
• Partner with suppliers that demonstrate strong sustainability practices.
• Look for environmentally certified products and services and alternate sources.

What Are Some Key Use Cases For Digital Procurement?

Let’s look at some use cases from a procurement perspective:

McKinsey provides a simple framework for a procurement team. Using e-procurement platforms can benefit from two perspectives.

A.) Identifying And Creating Value

These use cases focus on providing the procurement team with tools and technologies to identify areas where procurement can add value and deliver that value faster.

Some of the use cases under this category are:

Savings Opportunity Identification

Category managers typically rely on data from ERP systems to understand spending patterns and identify any saving opportunities. The challenge is that this data is generally incomplete and needs a lot of data cleansing and classification before a category manager can make sense of that.

This exercise is commonly known as spend analysis. However, the success of spend analysis depends upon the skills of the category manager. Skilled category managers can easily identify saving opportunities.

This is a use case for artificial intelligence to automate the cost savings opportunities and continuously monitor the data to identify new opportunities or suggest any deviation in the Spend trend compared to the previous year’s spend.

Enhancing Expertise

Ccategory managers need a lot of data points to make purchasing decisions. For example, what market factors impact the demand for a particular widget?

The other factors could be the need for capacity trends across different categories (market consolidation, capacity expansion by existing players, new entrants, etc.)

Procurement technology can play a strategic role in enhancing the expertise of category managers by automatically gathering this data from different sources and consolidating this in a category dashboard.

Improving Productivity

The Chief Procurement Officer spends a lot of time with stakeholders to run RFP, including a lot of back and forth.

Digitizing the RFP process can help speed up the process efficiency and increase productivity for the stakeholders and sourcing teams when doing purchase requisitions.

Imagine an e-sourcing tool that can not only present a side-by-side comparison of responses but also compare answers from different vendors and identify key differentiation for vendors.

Or a tool that allows stakeholders to define their decision criteria and suggest supplier rankings based on those criteria.

B) Delivering Value

Delivering value use cases focuses on realizing the value, quantified as a better customer experience, improved savings, and better stakeholder engagement for procurement.

Mckinsey divides the use cases into Procure to Pay, Supplier performance, and procurement performance. I would divide the value delivery use cases into the following two buckets.

Delivering A Better Customer Experience

In today’s economy, where consumers can hire a ride with the click of a button, employees also expect a similar experience from their enterprise systems and key technologies.

E-procurement platforms can play a key role in automating the entire procure-to-pay process and providing useful information to the employees to make the entire purchasing process simple.

Some argue that the current generation Procure to Pay systems are on par with the digital solutions available to consumers (Amazon.com is a point for comparison).

That is partially true; the current generation of systems has come a long way, but a lot still needs to be done to bring them in line with consumer technology and other digital platforms.

Things like guided buying are common use cases where AI can help improve the experience for your stakeholders.

On the other hand, you do not want to present them with 20 different product options like Amazon.com does because you are trying to consolidate spend.

Adding Value Through Insights

Digital procurement can help enhance procurement value by better presenting the insights to the stakeholders. Any industry leader would agree to this!

You could look at technologies and any digital procurement platform that can automatically gather data about suppliers, not just performance data but other critical information like financial results, performance data, and geopolitical trends.

This can help present a comprehensive supply chain summary to your stakeholders and help identify any supply chain risk.

Also, the role of procurement plays a critical value in presenting the procurement scorecard to your stakeholders. The more they know about procurement value-add, the better the engagement.

Aligning Digital Procurement With Procurement Transformation

 

So, what is the role of Digital procurement in your transformation journey and Business Continuity?

It all goes back to your key objectives in your procurement transformation journey.

If you haven’t done that already, I would encourage you to define that first. We have covered that in detail here .. Objectives of procurement transformation

It is important to align objectives with technology because the use case for technology could differ based on your objectives.

Now, let’s look at a few examples where aligning transformation with technology makes sense.

Suppose you have established “Enhancing Customer Experience” as a key objective for your procurement transformation. This objective could be the key to procurement transformation.

Now, what do you mean by enhancing customer experience and customer satisfaction?

• Does it mean modernizing the user interface of your purchasing system?
• Does it mean simplifying the entire process of purchasing?
• Does it mean providing better visibility into Spend?
• Does it mean automating your manual purchasing process?

Assume that your objective is a combination of all the points mentioned above.

In that case, you are looking at digital tools ets that can simplify your purchasing process and other related processes like invoice processing.

So, the technology you are looking for is either purchase order management or a complete procure-to-pay system.

Let’s take another case – Let’s say the goal of procurement transformation is to build an agile supply chain that can meet your customers’ growing and often changing needs.

Your objectives can be further refined as

• Better evaluation of suppliers – 360-degree evaluation to identify suppliers who meet your requirements.
• Enhanced supplier risk management function – increased visibility into financial, performance, and other related supplier performance metrics and important key performance indicators relevant to suppliers.
• Continuous tracking of geopolitical trends.

In that case, you are looking at a technology and digital toolset to help you measure, track, and analyze supplier performance. You also need AI(Artificial intelligence) tools that can aggregate multiple data points to drive informed decisions or alert you on potential supply chain disruptions.

No matter the objectives, clearly define your outcomes and then align them with the technology toolset.

Remember strategy drives technology application, not another way around.

Another side benefit of this alignment exercise is that it allows you to prioritize what objectives to work on first. Of course, you are not investing all at once in an end-to-end technology package.

What Are The Benefits Of Digital Procurement Transformation?

There could be many benefits of digital procurement, but it is very specific to the business case you have decided to pursue. Again, your technology and digital tools could differ based on your objectives.

For example, the above model from Deloitte presents multiple areas where technology toolsets can drive results for procurement organizations.

Let’s take one example of Procure to Pay automation and see the potential benefits of digital procurement.

Enhanced Customer Experience

Suppose you have been following the evolution of Procure to Pay tools. In that case, you must have noticed that the focus of the technology vendors has shifted to making their user interface more intuitive and providing a consumer app-like experience.

There are many reasons which are driving this change.

Employees are demanding a better experience in their purchasing process. The new generation of employees not only wants to move away from paper but also needs a simple process for purchasing.

Procurement organizations also realize that if they have an easy-to-use solution backed by a simple process, they need less headcount for helpdesk support.

With that in mind, let’s look at some areas where digital procurement can help.

i) A set of artificial intelligence digital tools to study buyer behavior and then suggest purchase frequency or, in some cases, automatically place the order on the user’s behalf. This is very common for Direct Spend but the same can be done for Indirect spending.

ii) Approvals can be simplified drastically; imagine if the system knows that you always buy a product every month and your manager always approves the purchase. Do you need a manager to approve the purchase every time?

iii) Guiding the user with the right source: This could also include connecting with preferred partners to get the bids, etc. Imagine a system that does everything without involving the strategic sourcing of your procurement team. I am sure you can see the obvious benefit of more spending under management with the same set of resources.

These approaches increase the organization’s productivity and provide a very simple and better experience for your end users. The better the purchasing experience, the better the engagement with procurement.

Predictive Spend Analytics – Impact On Cash Flow

Another area where digital procurement can play a pivotal role is advanced analytics and, specifically, the impact of purchasing on cash flow.

Companies generally rely on a mix of purchase order data and invoice aging reports to understand their working capital requirements. The challenge with that approach is that not all spending is on purchase orders.

Another common problem with this approach is that sometimes vendors directly send their invoices to the stakeholders instead of sending them to A/P. This could lead to last-minute invoices and unpredictability of the cash flow.

To overcome this problem, you can use the digital tools available in your digital procurement toolsets to get better visibility into your positive cash flow needs. Some of the potential benefits are:

1. Ability to project the working capital requirements based on past data: Imagine if the system could look at the history of purchases and your positive cash flow and then project how much cash you need every month. In this case, it will look at the past data and identify the abovementioned anomalies. So, you are not purely relying on accruals but on the actual payment history.
2. Advanced analytics: Another potential area for advanced analytics could be to map all the market data with your demand and then project costs to increase or decrease based on the changes in the market conditions.

A common use is about commodities; if you buy a widget that uses copper as the main ingredient, then it makes sense to closely track the commodity price and the impact of that on the price of the widget.

However, an advanced use case would be to factor in other conditions like geopolitical changes, changes in demand and supply, etc.

Tackle Maverick Spend

Maverick spending is a challenge for most procurement organizations; the larger the spending, the bigger the issue.

The obvious solution to tackle maverick spending is to ensure that systems are in place to guide your employees to the preferred vendors. The challenge is that this approach has been tried, and most organizations have still failed to get the maverick spending under control.

Even though your employees want to follow defined procurement policies and procedures, it is possible that they were not able to find the right supplier in the system. It could be that your preferred supplier could not provide the product in the desired lead time.

Now Imagine if the technology toolset can log the activities/ transactions where the end-user could not find what they were looking for.

Alternatively, you can analyze past transactions and identify all the transactions where a preferred vendor was available but not used by the business.

You then analyze if the maverick spending is an issue because of a few employees or if this is across the board. Because your approach is very different, it is critical to identify the root cause of maverick spend.

All this analysis can be done manually, but one, it takes a long time, and two, it is not a one-time activity, so you need to keep investing effort.

An alternate approach would be to use tools like machine learning to track such patterns automatically. Once you have identified the root cause, you can use the same tools to guide those users to your preferred vendors.

Think of this as Google Analytics for your spending.

How Can Procurement Technology Speed Up Procurement Transformation?

 

In the sections above, we covered multiple aspects of digital transformation and how it helps your procurement professionals and different areas of procurement.

But how does it help you in procurement transformation?

Your mileage could vary, but here are some common themes where the adoption of digital procurement toolsets could lead to the following benefits.

Increased Transformation Speed

As mentioned in the previous sections, the procurement tool sets applications specific to your transformation goals and objectives.

Let’s assume that your goal was to improve the purchasing experience for your end users.

In the absence of technology tools, this needs to be done manually. That includes simplifying the process and holding your stakeholders through the purchasing process.

Despite all those efforts, the approach is not scalable because you need more people to handle queries, etc. More queries lead to more headcount.

Compare that to a technology solution; you implement a purchasing order management solution and let it drive the users to the preferred suppliers. If you have already reviewed the purchasing process, then the tool can do the rest.

Your team can now focus on value-add activities like negotiating costs and building better catalogs for your end users.

Consistent Output

The obvious benefit of digital procurement is its ability to provide a consistent output for any given process.

Let’s take an example of controlling maverick spending; the typical challenge is guiding users to the preferred supplier.

In the backend, the purchasing team always analyzes the behavior leading to maverick spending, whether the availability of parts from preferred vendors or the users are unaware of preferred vendors.

If you look at both these use cases, these can be addressed via hand-holding your end users and continuous analysis of your spending data. However, you will most likely get inconsistent results because different people handle it. The other challenge with this approach is that it is not repeatable.

You would rarely have enough resources for continuous analysis of these use cases.

Alternatively, this can be easily automated by leveraging a standard purchase order system with additional capabilities to analyze purchasing trends and guide users to preferred suppliers accordingly.

And the process is always consistent and repeatable.

Overall Lower Cost

Digital procurement toolsets provide you with a mechanism for consistent, automated procurement processes and do it at a lower cost.

Procurement technology has come a long way to help boost your company’s digital transformation – from complicated procurement systems to modern, unified, easy-to-use end-to-end procurement systems.

In addition to that, many platform providers like Amazon Web Services (AWS) and Microsoft Azure have enabled solution providers to provide advanced artificial intelligence capabilities. That too is a fraction of the cost as compared to developing those technologies in-house.

This leads to an overall lower cost for the procurement ecosystem.

Whether you want to implement a standard procurement system or roll up your sleeves and develop your custom solution, all that can be done in the cloud and at a much lower cost.

There is no additional overhead of managing infrastructure or additional IT requirements, leading to lower overall costs.

What Are The Challenges Of Digital Procurement?

Despite the benefits of digital procurement, it also posts certain challenges that your company should be aware of.

Here are some of the challenges you need to consider:

• Change management: Not all your employees will easily shift from traditional manual processes to digital systems. You might feel resistance during this transition at first. Implementing training is important so your procurement team can smoothly transition into using digital tools.
• Data quality and integration: Migrating your data into your new system can be problematic and hassle and might cause potential errors. That’s why you need to integrate your platform with existing financial, ERP, and systems that will help you make the transition smooth.
• Cost: Using a digital procurement tool will require your team to invest in software licenses, hardware updates, and maintenance costs. Your company needs to be ready for these additional costs.
• Cybersecurity and risk management: Digital systems hold sensitive financial and supplier information. Your business must set up a robust security measure to prevent these things from happening.
• Measuring your success and ROI: At first, it may be challenging to quantify the ROI of your digital procurement activities. You need to be consistent in analyzing your data as you adapt to digital strategies.

How Do You Select A Digital Procurement Tool For Your Business?

Are you wondering how to select the right digital procurement tool for your business?

No doubt, it requires careful consideration and planning. But by following these steps, you’ll be on your way to choosing the right tool that can meet your business needs:

Identify Your Needs

Firstly, figure out what’s not working well in your current way of buying things. What troubles or problems are slowing things down?

Then, set clear goals for using a digital tool in your buying process.

What do you want to achieve, like spending less money, doing things more efficiently, or managing suppliers better? Identify the specific features you really need, such as tools for online buying, managing orders, and looking at data.

Scout The Market

Next, look into the different digital tools available.

Find out who the top companies are and see what they offer. Compare these tools based on the features you’ve prioritized and check what other people say about their experiences in reviews and case studies.

Think about how easy the tool is to use and if it can be adjusted to fit your specific way of doing things. Make sure it can grow with your business as it gets bigger.

Consider how much the tool will cost, including the fees you pay regularly, setup costs, and any other expenses. See if it’s worth the money by estimating how much you might save and do better with the tool.

Try to get a good deal by talking with the companies about the prices and payment options.

Look for a company that’s ready to help you if something goes wrong. Make sure they give good training so your team can use the tool well. Check if they promise to keep the tool updated and working well.

Don’t Forget To Test

Before using the tool for everything, please test it out on a smaller scale.

See how it works and ask the people using it for their thoughts.

Use what you learn to improve the tool and get your team comfortable before using it everywhere.

FAQs

What Are The Steps To Develop A Procurement Strategy?

There are 5 key steps to help you develop a procurement strategy in your company:

• Analyze your current state: First, check where your money is going. Identify areas for cost reduction and evaluate your current processes.
• Define your goals and objectives: What do you want to improve in your procurement process? Do you want to cut costs? Do you want to improve processing times? Are there any administrative burdens you want to fix?
• Craft your strategy: In this stage, you must choose your sourcing methods and develop your supplier management plan. In addition, make sure to identify your technology needs. Will you implement a digital procurement platform to help you automate your processes and gain insights?
• Implement and execute: In this stage, ensure all your stakeholders know the plan you have set for your procurement process. Your team members should also be aware of the role they are playing in the execution of your digital procurement strategy.

What Are The Three Main Types Of Procurement?

• Direct Procurement: This involves goods or services directly used to produce your final product or service. For example, a furniture manufacturer buys wood and screws.
• Indirect Procurement: This procurement covers goods or services that support your operations but are not directly used in your final product or service. Examples include office supplies, cleaning services, or IT equipment.
• Services Procurement: This refers to acquiring: professional services needed for your business operations, such as legal services, accounting services, or marketing services.

The Bottomline

 

Digital procurement could be considered a new buzzword, which seems to be a panacea for all procurement challenges.

Procurement technology is not new. However, the availability of newer digital procurement tools can improve the overall procurement processes and help you accelerate your procurement transformation journey.

The key to success is clearly understanding and mapping available technologies to your procurement transformation objectives so you can successfully mitigate category risks.

If you start looking at available solutions like blockchain, machine learning, and AI – all of this could be overwhelming. So we suggest you start by assessing your transformation objectives, then consult with technology providers to see what toolsets can help accelerate your procurement transformation.

We would love to get your feedback on your procurement transformation journey and what role digital procurement is playing in that. Feel free to leave your thoughts in the comments section.