Procurement in 2023 is no longer just a tactical function focused on reducing costs but extends beyond. It is a strategic value-added profit centre that drives supply chain growth across the organisation. Therefore, to ensure a sustainable competitive advantage, businesses now need to overhaul old ways of working with faster, more intelligent and future-proofed solutions.
Furthermore, the uncertainty and volatility of current market conditions have only accelerated the need for procurement transformation.
Let’s explore the importance of procurement transformation in 2023, as well as the factors that can influence the success of a business’ procurement transformation strategy.
Current Challenges in Procurement
While procurement plays a critical role in ensuring that an organisation increases its revenue and sustainability it needs to drive efficiencies in the supply chain. Procurement leaders and their teams must go beyond traditional cost control and are currently facing several challenges that make it difficult to carry out their duties effectively.
Challenge 1: Limited Visibility into Spending
One of the major challenges facing procurement professionals is limited visibility into spending. Many organisations do not clearly understand where their money is being spent and how it is being used. This lack of visibility can make it difficult for professionals to identify areas for cost savings and negotiate better deals with suppliers. According to a survey by the Institute of Supply Management, 47% of procurement professionals cited limited visibility into spending as a major challenge.
Challenge 2: Lack of Standardisation
Many organisations have disparate procurement systems and processes in place, which can make it difficult for procurement professionals to obtain the information they need to make informed decisions.
Challenge 3: Insufficient Data and Analytics Capabilities
According to a survey by Accenture, 63% of procurement professionals cited insufficient data and analytics capabilities as a challenge. Without access to accurate and up-to-date data, they may be unable to make informed decisions about which suppliers to work with and which products and services to purchase.
Challenge 4: Complex Supplier Landscape
The complex supplier landscape also poses a significant challenge to the procurement function. With the proliferation of global supply chains, procurement professionals must navigate a complex network of suppliers to find the best products and services at the best prices.
In addition to maintaining profitability and preserving cash, companies are also faced with the added challenge of changing supply chain dynamics, working structures, volatile demand and other risks that make the supply chain vulnerable to disruption.
Procurement leaders are now reimagining how they address the current situation with the help of innovative solutions that drive procurement transformation, setting their organisations up for success.
What is Procurement Transformation?
Procurement transformation is the “holistic approach to improving all aspects of a procurement operation for improved results and long-term sustainability” through the implementation of bespoke technology solutions that drives organisational change, savings, efficiency, and profitability. Procurement does not only include the fulfilment of its functional objectives but is also a key driver to the achievement of business and revenue goals while mitigating the risks.
There are three main drivers that contribute to the value of procurement transformation:
Management of risk.
This includes managing risks associated with:
- Inaccurate internal need analysis where a business unit might overstate or understate their need, set unrealistic timeframes, inadequate budgets or poorly designed requirements. Procurement solutions help with trend analysis, forecasting and budgeting from procure to pay.
- Poor vendor selection which affects the quality of products, on-time delivery, reliability and compliance could result in supply disruption. Solutions like SAP Ariba help to lead employees to the right suppliers through a simple, guided buying experience.
- Incorrect approval and inaccurate reporting could result in the failure to meet “compliance and regulation” standards. Next-generation procurement technology are able to flag incorrect or missing data in line with PEPPOL standards, reducing the risk of hefty fines from incorrect audit trails.
- Disorganised supplier management such as onboarding of incorrect suppliers could result in the breakdown of vendor relationships as well as the overall customer experience. Automating vendor management systems with procurement automation software help nurture these relationships
Cost savings.
Procurement transformation helps close gaps in spend to genuinely impact profit and loss. Procurement technology solutions enable businesses to source and manage suppliers better, identify savings on addressable spend through the amalgamation of relevant spend categories, utilise the power of procurement networks to collaborate with suppliers that guarantee sourcing savings regardless of the geographical location as well as utilise rebates/discounts made available through a business network.
Transactional efficiency.
Manual processing can be a cumbersome, expensive process. You are more likely to make errors when forms are hand-written, amplifying supply chain risks considerably. Other risks may include lost forms and data, delayed approvals, wasted time correcting mistakes and chasing paperwork.
Through the digitisation of these processes on a single all-inclusive platform, procurement teams are able to simplify and streamline operations to control spend, achieve better visibility over transactions, manage suppliers and improve compliance across the board for an enhanced user experience.
Decentralised procurement models also help individual stakeholders to make purchases for their departments without the involvement of the procurement team, freeing up precious time and avoiding potential delays. And the results speak for themselves, with 54% of employees saying automation of menial tasks could save them up to 240 hours per year.
However, true transformation cannot be achieved without considering the factors that affect and sustain change.
People, Process & Technology
Procurement transformation is about making foundational changes to business processes, rather than relying on simple platform deployment as a one-and-done task. It incorporates changes to policies and processes, by first looking at people as key to sustained change before implementing upgrades in the technology landscape.
When people interact with processes, we are able to scale. When people interact with technology, we innovate – finding new ways of doing things. When processes meet technology, we automate – operating at a speed and accuracy previously out of reach, giving people time to innovate. It is when these three elements work together cohesively that true change/transformation occurs, and we achieve growth.
From there, continuous deployment helps maintain sustainable results to focus on innovation, speed and quality while also reducing cost, time and risk – characteristics that will help a business stand out in a crowded market.
If you or your organisation are thinking of transforming the procurement function of your business, we believe a solid business case provides the foundation to success. With a variety of services to assist companies at any stage of their journey, get in touch with us today.
