The term procurement is a tricky one, and digital procurement can be even trickier to nail down. Procurement is an essential process for businesses, but few have a full understanding of it. In fact, it’s often used interchangeably with purchasing or sourcing, despite the three occupying different roles. While purchasing is a very cut and dry practice — it focuses on money spent and goods acquired — procurement is a much broader responsibility.
What Is Procurement?
In the simplest sense, procurement is the management of purchasing and everything involved with acquiring third-party goods and services. It deals with the brokering of trade agreements. It looks for ways to secure products at the lowest price. It makes sure purchased goods make it safely to the premises. It counts the cash.
So, it should be clear why procurement is so important. Without a dedicated department for acquiring goods, operations would stall. Project managers would need to make their own arrangements, and this opens the door for errors, losses and delays. The question is: what makes digital procurement different? Why has it become a buzzword for businesses?
The Relentless Rise of Digital
The digital revolution has changed everything we come into contact with, from telephones to doorbells, cat doors, heating systems, watches and even our favorite books. It’s no longer a surprise to hear that something has gone digital, whether it’s designed for the consumer market or big business. Procurement is no different.
Before we get into the meat of the matter, we need a foundation of what digital procurement actually is. Firstly, staying up to date on cutting edge trends and terminology is key to staying competitive. People are going to be tossing words like “digitization” around quite a bit, and knowing what they are talking about will help planning going forward.
Creating a Chain of Transformation
For instance, the terms digitization, digitalization and digital transformation are often used interchangeably. However, they have distinct meanings, particularly in the context of manufacturing and procurement. They can be treated as steps in a chain, starting with a literal conversion and ending with the creation of new markets.
Digitization refers to the conversion of analog processes into digital ones. This is where digital procurement starts, with a basic switch. You could, for instance, incorporate automation by investing in software from Coupa, Ariba, Sunsmart Global or another vendor. This is often the most costly and time-consuming part of digital procurement. Then again, keeping track of everything on pen and paper or through a colossal amount of spreadsheets is a recipe for disaster in today’s fast-moving world of procurement.
Digitalization refers to the use of active digital procurement processes. At this stage, you’ve made the switch, and it’s having an impact on operations. Now you should be monitoring every task and process to make sure that software or other technologies are having a positive effect. Automation, in particular, should save the company money each month. This is where you want to make sure you are getting the right amount of bang for your buck; if you decide to drop the money on automation and are still losing the efficiency game, you may need to go back to the drawing board.
Digital transformation happens at a later point when a company has invested heavily in digital technologies. At this stage, a “digital-first” model is adopted, and the business commits to a full and all-encompassing transition. Eventually, the digitalization of business processes will become ubiquitous, so unacquainted companies will be forced to catch up. The world is increasingly headed in this direction with even small businesses taking the leap into the digital realm to keep up with bigger competitors.
The Benefits and Pitfalls of a Digital Transformation
We’ve talked about the impending rise of digital transformations in the business world, but how what benefits will a digital procurement strategy bring to the table? We’re glad you asked because there are quite a few positives to jumping on the digital bandwagon:
- Happier Users: It’s safe to say that tossing out the pen and paper and replacing it with a customizable dashboard and real-time alerts would make any procurement officer happy.
- Removal Of Tedious Tasks: Procurement systems can automate many of the tedious processes employees have to slog through on a daily basis.
- Significant ROI: Sure, a digital transformation may be costly, but the money saved after a successful integration should outweigh initial spending.
- Better Decision Making: Visibility features give users actionable insights into their procurement processes. Not only that, but forecasting tools can provide a roadmap for fluctuating demand and layout possible paths to take for the greatest gains.
- Improved Agility: Pivoting a business still awash with analog record-keeping practices can be time-consuming, to say the least. An operation that has fully adopted a digital transformation can make changes in the system that will immediately be distributed to all important areas.
- Cut Costs: Streamline your operations with a digital platform that focuses on accuracy and error prevention. Fewer errors mean less money spent cleaning up after costly problems.
Nothing is perfect, especially software. The benefits may outweigh the cons, but it is still important to know the negatives before embarking on a process that fully transforms your business.
- Over-Managing: With great power comes great responsibility, a saying that works for both superheroes and software systems. These platforms put a lot of control into your hands, and the temptation to micromanage everything can be tempting.
- Non-Digital Suppliers: Just because you’ve decided to take the technological leap does not mean all of your suppliers have as well. Make sure that rolling out a new digital procurement system will not disrupt any supplier relationships.
- Approval Slow-Down: Much like the micromanaging aspect discussed earlier, more insight can slow down the review process substantially if bottlenecks are allowed to persist.
The good definitely outweighs the bad, but as they say, knowledge is power. If you’re sold on embracing the digital lifestyle, you may be wondering how to begin the process. Luckily, we just so happen to be talking about that next.
A Roadmap to Digital Procurement
You recognize the value of a digital transformation, but the path to accomplishing such a thing is unclear. Developing a digital procurement strategy often falls victim to one perilous downfall before even getting off the ground — creating it in a vacuum. It’s easy to look inward and decide what you want, but in the end, what matters is how your digital procurement strategy works in the business world, not just in your offices.
1. Gather Data From Inside And Outside Sources
One of the best places to look for information on how your digital procurement strategy should form is future trends. By analyzing these, you can ensure that when your digital transformation is complete, you aren’t behind the times. In a way, it’s like building a runway before landing a plane — you want to make sure you are prepared before your strategy lands. Explore every avenue you can, find out how trends are shaping the market, vendors, procurement experts and your own company before heading to the drawing board.
Take a look at which systems and solutions are seeing an uptick in adoption and what sort of features and tools they bring to the table. Ask yourself, your leadership and your teams what the goal of this transformation is. Are you trying to increase automation? Does your accuracy need the most work? What problems are you actively trying to solve with adopting digital procurement? Answering these should give you some valuable information on how to move forward in a way that sets you up for success.
2. Creating A Vision Of The Future
Now is a good time to imagine the role of procurement down the line. How is procurement going to function in the next five years and how does your digital procurement strategy fit in? Sit down with your procurement officers and discuss how the procurement process should work in the coming years. When you’ve identified how your strategy should function, think about what technology you need for it to succeed.
Think about the things you need to support your digitalized procurement strategy. Are you going to need analytics in place? Do you need any other supporting systems or apps to succeed? Will your new strategy require you to re-evaluate your relationships with your suppliers? Identify all of these critical factors, and by the time you are done, you should have a clearer vision of how your strategy needs to function when it is complete.
3. Implement The Vision
Once you have done all of the necessary prep work, it’s time to get your digital strategy moving. Set achievable goals in the near future as these can help build up some forward momentum. Create a timeline to ensure that you are hitting a satisfactory ROI for your new digital procurement strategy.
If you have taken the necessary steps in the first two portions of this roadmap, this shouldn’t feel like a trial by fire. If things aren’t meeting standards, consider some minor adjustments before writing off the entire expenditure as a loss. There are always growing pains when it comes to large-scale changes.
The Future of Digital Procurement
The biggest impact of digitalization is increased speed. With automated procurement processes, everything moves much faster. This includes both supply and demand, a scenario that’s very tricky because they don’t always move in the same direction. For procurement teams, life is a perpetual push and pull between internal and external forces.
Software can help with this, but only if a company has clear goals. In order to realize the full potential of the digital revolution, procurement teams must restructure their entire philosophy and align it with these new technologies. The following objectives are an integral part of the journey towards digital transformation:
Firstly, it makes sense to work with suppliers that are heavily invested in digitalization. In fact, preference should be shown to those with digital products and services. It’s a good idea to have a team monitoring digital competitors and keeping an eye out for new inventions.
Supplier Relationship Management
Managing supplier relationships is a critical part of the procurement process. However, digitalization requires the precise management of suppliers to stay successful. Leveraging analytics and business intelligence tools can be very helpful in identifying possible suppliers. Information gathered through these methods can also help stakeholders make educated decisions about future initiatives.
The term “VUCA” is used to describe markets that are volatile, uncertain, complex and ambiguous. Depending on what industry you operate in, this could very well describe the commercial landscape at certain points of the year. It’s necessary to meticulously monitor the value chain across all tiers in order to maintain a competitive position.
Selecting the Right Tools for Digitization
It’s important to remember that digitization is not an end in and of itself. Rather, it’s a way of generating a measurable benefit for procurement teams. Crucially, the key to achieving this is selecting the right tools and software. The following technologies are worth considering if you’re trying to bring procurement processes into the 21st century:
Data and text mining uses algorithms to analyze information. Business intelligence plays a central role in the optimization of operational processes. It can be used to identify risk, support decision-makers and forecast market demand.
Smart contracts are digitally signed guarantees that are executed by software code built on blockchain technology. They allow contracts to be automatically adjusted to suit a range of circumstances.
Sensor tracking is a great way to monitor the movement of raw materials and finished products. This increases operational visibility, reduces the capacity for error and gives customers and suppliers peace of mind.
Ultimately, procurement is about more than purchasing goods and services from outside sources. It relies on strategic planning and careful observation to meet cost targets, deadlines and quality standards. It’s a vital part of the business for any company that wants to grow fast and stand the test of time.
How has adopting a digital procurement strategy streamlined your operations? Let us know with a comment below.