Applying Digital Procurement to Today’s Business Challenges
Procurement is a significant business function, having operational and commercial impacts on multiple departments. Although procurement process excellence and strategic sourcing initiatives can drive 7-14% savings, procurement’s focus is moving away from cost savings towards value-added initiatives like supply risk management.
Today, the average company spends between 35-65% of its revenue on purchases from third parties. In the past, companies focused on 60-70% of in-house value addition. With the advent of globalization, less than 20% of the value is created in-house. The rest is delivered through external sources.
Businesses are facing a number of challenges as they adjust to a Post-COVID reality, and digital procurement provides opportunities to help address them:
|
Business Challenge |
Digital Procurement Opportunities |
|
Compete in an increasingly global market and realize profitable growth strategies |
Create supplier partnership agreements, service contracts to support new products, or services introductions in new emerging markets |
|
Ongoing cost reduction and profit margin pressure |
Strengthen eProcurement capabilities to realize bottom-line saving targets via process efficiencies |
|
Manage the spend and availability of goods and services as well as varying prices and deficiency of raw materials |
● Explore emerging supply markets, identify alternative sources of supply or find substitute products and services by leveraging RF(x)/Auctions capabilities ● Leverage spend analysis capabilities for improved decision making in procuring raw materials, negotiating long term contracts with suppliers ● Use eProcurement & supplier portal capabilities to manage supply schedules and re-prioritize based on forwarding demand and forecasts |
|
Improved focus on innovation, delivery time, or new product/service launch |
● Take advantage of the supplier capabilities in product, service, and process innovation by establishing a strategic relationship with the supplier, leverage supplier information & performance management capabilities to understand the supplier's business better ● Establish and optimize true interdisciplinary cross-functional teams that operate both between organizational departments as well as with suppliers by using user management, workflow management capabilities ● Draft, execute and manage a procurement operating model that allows for changing imperative and functional needs |
|
Optimize the organization's operating model for tax and legal structures |
Realize tax benefits by redesigning the procurement organization using supplier profile analysis, identify and engage with suppliers with government aides and tax benefits |
The following roadblocks prevent many companies from successfully achieving digital procurement:
- No Clear Goals: Many companies don't know where to focus or how to adopt the many technologies available, be it stand-alone procurement suites or advanced analytics, automation, or AI-driven suites. The result is an ongoing debate about which methodology to use and how to adopt the right digital tools.
- Lack of coordination and support: Many companies dive into digital with a disconnected approach, hoping that at some point the efforts will simply ‘click’ together. Unfortunately, that's rarely the case. Instead, efforts are often disconnected, duplicated, and irrelevant.
- Lack of Cost Commitment: Many companies hesitate to embark on a digital transformation journey owing to the exorbitant costs involved from the existing software and service providers. This stands in contrast to the cost-saving goals of procurement organizations.
- Resistance to change: Digitalization brings new opportunities, especially in source-to-pay, and SRM activities. Procurement managers may want to extend their existing mode of operation, but this defeats the purpose of digital transformation and provides no measurable results or future scalability.
There's a broad range of digital solutions and technologies that can add value across the procurement value chain. Before deciding which technology to use, assess your current maturity levels. Your primary goal should be to digitize all analog-driven activities, but a phase by phase transformation may ultimately be more successful.
In the future, procurement will no longer be a large, siloed department but will be integrated into the broader organization's value chain. Unnecessary processes will be removed, and each functional resource will have to come together to form a network of expertise to address business issues.
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