Let’s look at the size of companies that are digitally transforming and those that aren’t — and let’s examine some of the barriers to digital procurement that leave businesses stuck with time-consuming and risky workflows.
Smaller companies typically don’t have the transaction volume or an existing ERP system that make the business case for upgrading their procurement and finance technology.
On the other end of the spectrum, companies at the enterprise level achieved that stature because they already have been upgrading their technology — maturing over the years so they can scale and grow their business. Their leadership adds best-of-breed modules or pays up to one of the large suite providers for a full set of solution that gets the whole organization closer to digitizing all aspects of the business.
But mid-size businesses that already have an ERP system can struggle with convincing the C-suite that more technology purchases for procurement can help the whole business. In reality, these are the businesses that have the most to gain from digitally upgrading the basics — shedding manual practices, ending paper-based processes, adding visibility across the business, reducing risk, and preparing the business to digitally mature even further.
If your business has an ERP but you’re still handling a lot of paper, manually entering data, and relying on specialists to read spreadsheets and brief stakeholders, then you need to make the business case for digitizing the basic functions. Best-of-breed modules these days work well, won’t break the bank, and offer an attractive return on investment.
The basics and the barriers of digital procurement
The basic areas of technology are modules for e-procurement, e-invoicing, AP automation, e-sourcing/RFX improvement, spend analysis and contract management. We’ll go into detail about the benefits of each, but let’s examine the barriers to adopting these solutions.
It can be a costly move if you don’t shop around, and convincing the executive team to spend more money can be a challenge. Also, it can be difficult to get all the departments onboard with the idea that procurement needs the upgrade. And many companies have a culture that’s averse to change.
Your company will also have to invest many hours to consider what processes to automate and to select the appropriate procurement technology that aligns with those processes. So time can be a barrier to adoption.
Taken together, those barriers can be difficult for a chief procurement officer to overcome, but CPOs have a case to be made that can sway CFOs, IT departments, and ultimately the CEOs. Procurement leaders must make that case by showing how the latest technology not only improves procurement but how it adds value across the whole business.
Also, technology is getting more robust yet easier to use. Modern systems can be powerful out of the box so you don’t have to customize it for your industry. But the technology should be flexible to fit different needs, and it should be easy to upgrade.
Remember, automation can be a gamechanger financially, so keep your focus on that goal.
How to make the business case
Spend Matters finds that procurement leaders can build the business case for adding procurement technology by stressing the benefits and the payoff from them:
- Saving time on RFIs, RFPs, RFQs and running better e-auctions
- Reduction in unauthorized purchases
- Increased purchasing from approved suppliers (to maximize negotiated savings capture, rebates, etc.)
- Payment terms standardization
- Invoice discount capture
- Reduction in invoice processing costs (first pass match/automation, recurring invoices, etc.)
- Duplicate payment reduction
- Purchase order error-rate reduction/elimination. This includes reducing POs requiring rework after issuance (e.g., based on incorrect quantity, pricing, etc.)
- Overall PO processing efficiency
To further build the business case, consider that the implementation of certain modules can be done in a matter of months, not multiple quarters. And cloud-based applications are paid for over the length of a contract, typically 3 to 5 years.
A hard-dollar savings based on the KPIs outlined above can be achieved within 12 months of contract signing in most circumstances.
Where to start
In reality, the technology that beefs up procurement actually adds insight for the finance department, HR, legal, IT and other stakeholders. It turns all the cells of a spreadsheet into easy-to-understand dashboards. It automates repetitive tasks so personnel can focus on more strategic goals. It can improve supplier relationships and curb risks by increasing what you know about your supply chain.
Also, the C-suite will have more insight into spend, better visibility of what’s driving value and more confidence in where to make investments to grow the company.
If you know you’re spending too much time on sourcing, the answer may be to automate your RFX process — turning the cumbersome manual process for RFIs, RFPs, RFQs into a digital experience. That saves time for your business and the suppliers — by making bid comparisons easier, facilitating e-auctions, and beginning the process for better supplier relationship management.
But if you’re manually comparing suppliers and doing auctions using emails and spreadsheets, then you’re opening yourself up to risks. Emails aren’t secure, and spreadsheets often pick up errors as they’re shared around different departments via email. Today’s systems have ways that vendors and suppliers can communicate securely.
Some companies manually do 30 to 40 RFPs a month. That’s a lot of work, but if you digitize it, that’s a big opportunity to save the time and labor costs that manual processes require.
For other companies, digital transformation starts by adding spend analysis — which can make sense of all the ERP data, the countless Excel inputs and the manually entered data for transactions. Once your spend analytics are giving you more insight, you can see other areas of need.
If you find a lot of rogue spend, adding an e-procurement module with a catalog for staff to buy approved goods and services can lead to more spend under management.
If you see that your contract terms aren’t adding value or that your leasing spend is leaking money, you can add a contract lifecycle management module to improve CLM. (The advanced version of CLM is CVM, or commercial value management, where contracts are digitally enabled to be at the center of all transactions by all departments, but basic CLM is a good place to start to add visibility and reduce risk.)
Your first step into procurement technology doesn’t have to be a costly end-to-end overhaul with souped-up features like artificial intelligence, machine learning and natural language processing.
Just making that initial move to digital maturity will elevate business efficiency enough to cut costs, improve workflows, impress stakeholders — and actually make the case that even more mature technology modules can be added.
As featured in Spend Matters.