What Is Digital Procurement Transformation & Strategies To Succeed
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Nearly every company is involved in some form of digital procurement transformation, but how many deliver a comprehensive improvement to their organization?
The answer is fewer than you might expect. Research by Bain & Company found that only 8% of global companies have been able to achieve their intended business targets following their investment in digital technology. Essentially, it means that most companies are still struggling to deliver on the promises of a technology-enabled business model.
What is Digital Procurement?
Digital procurement, which is sometimes called e-procurement or electronic procurement, refers to the electronic acquisition of products and services. This can range from online catalogues and marketplaces to request-for-quote (RFQ) systems, auction websites, and electronic procurement platforms.
Organizations can utilize modern technology such as automation and artificial intelligence to make more-informed business decisions. This includes implementing optimization informed by insights from advanced data analysis.
This empowers businesses to make better decisions when planning and developing strategies while using automation to reduce costs and enhance the efficiency of the key stakeholders.
What is Digital Procurement Transformation?
Digital procurement transformation is the fundamental reconceptualization and restructuring of procurement strategy. It is the response to the emergence of new digital technologies and transforms staff, skill sets, and support systems.
New opportunities are made executable and result in significant gains. The organization also becomes more agile and competitive. Both the method and the outcome are transformational for the organization.
Benefits of Digital Procurement Transformation
Transformation to digital procurement offers many advantages for organizations, including:
A digital procurement system saves money by minimizing the need for the following:
- Time spent updating a manual procurement system
It also makes it easy to check rates and get the best deal from vendors.
The e-procurement system automates many procurement-related operations, including:
- Requests for quote (RFQ) management and contract administration
- Requisition approvals
- Purchase order production
- Invoice processing
Organizations can then focus more on strategic aspirations, such as supplier relationship management.
Better expenditure management
A digital procurement system with real-time visibility into purchase processes provides comprehensive expenditure control. This helps uncover money-saving options, such as combining suppliers or negotiating lower rates.
Organizations are assured of compliance with standards including the Sarbanes-Oxley Act and the Payment Card Industry Data Security Standard by automating the procure-to-pay process.
Enhancement of decision-making
A digital system provides users with real-time data to assist in making better purchase decisions. Automating the procurement process also helps boost the organization’s transparency and visibility. This enhances communication between buyers and suppliers.
Enhanced vendor relations
Supplier information is also handled more efficiently. This leads to enhanced supplier relationships through automated communication, payment processing, and tracking.
There will be fewer surprises in the future when it comes to crucial information such as product specifications and quality assurance requirements because you will have everything in order.
In addition, you will be able to automate payments and other transactions, saving time and effort. In the end, your suppliers will value your efforts to streamline the process and will be more inclined to collaborate with you in the future.
A comprehensive view of the supply chain
By automating the procure-to-pay process, you can adopt a holistic approach to your supply chain and increase buyer-supplier cooperation. This helps simplify processes and save expenses, besides improving inventory management and stock levels. Automating the procure-to-pay process also helps enhance overall supply chain management.
Procurement Transformation Ideas & Strategies for the Digital Era
When we consider the implementation of digital procurement by organizations, one of the most common mistakes is not challenging the existing considerations of what procurement functions have done over the last couple of decades.
Digital procurement transformation does not mean implementing a new P2P or S2P solution like Ariba, Coupa, Ivalua, etc. – this is not digital procurement transformation. As Jon Hansen explains, “The technologies today no longer pose the same problems and limitations that were present in an ERP-only environment, yet people are getting no further ahead. They seem to be stuck in a holding pattern. What this means is that transformation is no longer rooted in technology; the technology will do what it’s supposed to do.”
There, therefore, needs to be bolder thinking and a willingness to challenge the status quo. The focus needs to be on the transformational aspect, not incremental improvements. So, if you are looking for inspiration, here are five ideas you can consider that are aimed at challenging your thinking about how to implement digital procurement transformation for your organization.
Embed a supplier experience and data flywheel philosophy into all activities
Costas Xyloyiannis, CEO of HICX, states “The philosophy here is that better experiences create better data and better data creates better experiences.”
In order for data to be kept up-to-date, and bearing in mind that the supplier is most often the source of the required data, every supplier has to be engaged with its customers as much as possible. If communications are difficult, multiple log-ins into different systems are required, or if information is arduous to find, then suppliers are going to avoid any information sharing until a critical point is reached and that information becomes vital – and even then, it is likely to be limited to sharing only what is necessary to overcome a current bottleneck.
On the other hand, removing the complexity and friction that suppliers face when dealing with multiple systems and departments in your business and providing them with tools, such as the ability to self-serve information that matters to them, means that suppliers are empowered to efficiently accomplish what is needed. This will return more often to update more information.
The key is to ensure that for every new activity, every workflow, every process and every initiative the supplier experience has been prioritized. Take every opportunity to review the friction points in these activities and remove them. Review whether you have the best tools for each activity. Consider the acquisition of new technologies in the context of how it impacts the supplier experience and data quality flywheel. Make it central to all that you do.
Be more Amazon – it’s all about the data
Amazon’s ability to conquer e-commerce and redraw the retail landscape did not come about from good luck. It was due to building data into the fabric of its operations from the ground up, a feat that allowed it to achieve visibility across its business, make data-driven decisions, and stimulate and delight customers.
Successful Procurement functions of the future will be those that follow the same model for increasing the efficiency in how they work with suppliers. In a supplier-first, data-centric model, the metrics will have to go far beyond an internal target to make cost savings.
Instead, it will need to incorporate behavioral data that provides insight into the efficacy of the supplier experience being provided. This will include data such as supplier adoption of appropriate digital tools and channels, ongoing supplier engagement rates, and initiative completion rates.
As Carmen Erhardt of Henkel explains, “What I think is interesting, in this context, is to start measuring what you’re demanding from suppliers. For example, one metric would be to count the clicks – how many clicks does a supplier need to make to do business with you?”
If we pause for a moment and consider that, really the function is very much like marketing but just for supply markets, then we should think about savings differently.
In the same way as marketing has a contribution to revenue, that is not the only KPI and the only way in which marketing is measured. The same applies to Procurement and Finance – you cannot place the supply market function under Finance because it wrongly over-emphasizes savings.
Savings is a finance KPI that is hugely reliant on Procurement’s contribution. As supply market experts, these stakeholders deliver far greater value than those created by savings.
Segmentation is dead. Hyper-segmentation is king.
As consumers, we are all used to a world of increasingly personalized content and experiences, whether this is via recommendation engines or highly targeted adverts based on browsing history and similar. It is founded on the vast amount of information that brands can access about us. The same principle holds true for suppliers.
While the Kraljic matrix enables internal decisions to be taken about which strategies to use, its function is primarily to inform resource allocation. On the other hand, the second reason we segment, as Anthony Payne explains, “is for what one might call ‘experiential’ reasons. In other words, how do we adjust the experience that the supplier receives based on their characteristics? This is a much newer phenomenon but it’s one we know that some of the most forward-thinking organizations are addressing.”
The technology is available, for instance, to enable a supplier to access an enterprise portal in their chosen language, to see their preferred currency, to see the compliance and risk information relevant only to them, or to access important transactional information at the click of a button. This is in spite of an organization perhaps having 18 different ERPs, two P2P suites and a dozen other best-of-breed software solutions which might need to be accessed in order to serve the supplier.
As Anthony Payne concludes, “If you combine this with intelligent self-service so that the supplier can express their own preferences – just like I can choose the language on the website of a multi-national brand – you can deliver what feels to the supplier like a one-to-one experience just for them and that removes friction.”
Hyper segmentation can therefore be used to:
- Improve supplier adoption of enterprise platforms
- Improve outbound communications
- Improve outcomes of initiatives
- Improve supplier engagement
Procurement needs a Head of Supplier Experience
A common reason why Supplier Experience Management does not exist in many organizations is that no one has the mandate to own it. Corporations are too often internally focused, with each function having its own silo or solutions.
Only once the problem is externalized and looked at from the suppliers’ perspective can the issues be identified and solved, as the whole experience is viewed end-to-end.
As Costas Xyloyiannis explains, “The real challenge here is, there is no owner of the supplier experience. Nobody has an end-to-end understanding of what the suppliers go through. That means, for a start, organizations do not see that they have a supplier experience problem. And, if there is no ownership, there is no way that the problem can be fixed.”
Procurement owns the inputs into the business
Suppliers reflect the brand. And consumers are starting to move away from companies that they consider unprincipled. A study by Deloitte has found that 45% of Gen Z consumers stopped purchasing certain brands because of ethical or sustainability concerns. As this pressure continues, so too does the reputational risk for companies that don’t comply.
To this end, supplier master data, the foundation upon which all supplier-related information must be built, has to be well managed. It’s crucial that organizations gather the right information at the beginning of the relationship rather than keeping it updated during the relationship.
This must be done in a structured and controlled manner and procurement is best placed to manage all end-to-end supplier-related information and to make it transparent and accessible across the business. It should be given the resource to achieve this.
‘Transformation’ is usually thought of in terms of technology, but it is really all about the way in which people think and how they approach different scenarios.
You may not think these approaches are possible within your organization, however, digital procurement transformation is all about pushing boundaries.
Meanwhile, the technology is there to enable these capabilities and to help you deliver these goals.
Article updated September 2023