Smart companies are beginning to see procurement as a strategic advantage. How are companies doing this? They are streamlining procurement processes with intelligent automation tools. Using real-time insights from these tools allows companies to improve supply chain management, eliminate maverick buying, improve customer service, and more.
But this isn’t a simple task.
Procurement processes are complex. Improving those processes is made more difficult by external pressures – an ongoing war in Europe, a labor shortage, the increasing pace of extreme weather events, and the ongoing global pandemic; to name just a few. Internal challenges for procurement professionals often boil down to a lack of clear, accurate data into procurement processes.
We’ve written before about how process mining can provide an “X-ray” and provide insights into supply chain and other procurement processes, such as accounts payable. In this first post of our series on improving the procurement process, we’ll provide you with insights into the strategic value of procurement, challenges, and an overview of the technology tools you need to make it happen.
Over the coming weeks, we’re going to share our insights into how technology tools, particularly intelligent automation technologies, play an essential role in enabling this new role for procurement as a strategic partner for business. We’ll focus our insights on the procure-to-pay process.
Procurement Versus Purchasing
Procurement is strategic. Purchasing is tactical. It’s important to remember this over the course of this series of blog posts. There is an overall movement to push procurement to a strategic level within companies. That said, we’ll focus on the practical aspects of improving procurement processes to help you turn strategy into reality.
Before going further, here’s an explanation of the difference from Investopedia for anyone who isn’t a procurement professional:
“Procurement and purchasing are both processes that involve the exchange of goods and services, so it isn't uncommon for people to confuse the two. But there are certain distinctions between the two.
For instance, procurement is more of a strategic process that involves the acquisition of goods and services. It places a greater emphasis on the value of products and uses a series of steps to complete the acquisition. Businesses generally take a proactive approach when they submit procurement orders. Doing so allows them to identify future deficiencies and fill them before they are needed.
Purchasing, on the other hand, is a transactional process. As such, it involves buying goods and services. When an entity purchases goods and services, it places greater importance on price rather than value. Purchasing is usually a reactive process that satisfies a more immediate need.”
The New Importance of Procurement
Ongoing supply chain disruptions have been one of the main driving forces in this elevation of procurement to a strategic level. Leading companies “are more likely to say that procurement ‘somewhat’ or ‘significantly’ helps the organization achieve key goals, such as improving profitability, driving innovation, improving product quality, and bringing new products or services to market faster.”
In Leaders AIM Higher research conducted by Oxford Economics, there is a definite gap in how leading companies view the procurement process and focus on data versus the rest.
The research also identifies 10 challenges for procurement:
- Supplier risk and supply continuity
- Reduce spend
- Becoming a strategic advisor
- Corporate sustainability
- Accelerate digital transformation
- Improving analytics, modelling, and reporting
- Aligning skills and talent
- Modern procurement
- Stakeholder centricity
Here’s what the research says the leaders focus on:
- 99% use machine learning and AI to analyze data for decision-making
- 70% of leaders are able to gain a clear view of overall spend in real-time versus just 17% of others
Understanding Procurement Processes and Where to Extract Value
Accurate, real-time (or as near to real-time as possible) data is essential to addressing the procurement challenges we’ve mentioned. Process mining plays an essential role in making the needed data related to processes accessible.
As depicted below, procurement encompasses a wide range of choices, decisions, and business processes.
Process mining connects the data in these processes to identify exactly where execution is failing. By accessing the event log data of the business systems used in procurement processes, process mining can “X-ray” your processes, providing a real-time look at your procurement. Are any individuals or divisions going rogue and buying supplies on an ad hoc (and expensive) basis? Are accounts payable on track or deviating from the norm? Are you taking advantage of cash bonuses for early payment?
Here’s a high-level overview of how process mining works to remove execution gaps in procurement processes. With process mining, you can:
- Extract data (about your processes) from multiple data sources – from ERP to Excel spreadsheets to procure-to-pay software – to provide a real-time X-ray of your procurement processes from beginning to end. Your “X-ray” isn’t static. It continually evolves as the data changes.
- Benchmark regions, business units, buyers, and requisitioners against each other to identify process patterns, execution gaps, and best practices across your business.
- Monitor process performance against best-practice models to identify inefficiencies, the impact, and the root causes.
- Identify recommendations based on execution best practices to remove process inefficiencies.
- Automate improvement actions across systems while alerting and deploying the right people to remove execution gaps when manual intervention is required.
How can companies realize value from improved procurement processes? We group them in five buckets:
- Spend Reduction – including using discounts, eliminating double payment, and consolidating suppliers
- Optimizing Working Capital – Minimize early pay, negotiate better discount terms
- Labor Productivity – Automating POs, automating 3-way match, identifying root causes for retrospective POs
- Supply Reliability – Identifying suppliers with the least price and deliver data changes, forecasting supply and demand
- Compliance and Sustainability – Eliminating maverick spending, detecting fraud, reducing waste
4 Technologies That Will Streamline Procurement Processes
In future posts, we’ll go into more detail on these technologies. But let’s introduce them now:
- Robotic Process Automation (RPA) – Very effective in improving 3-way match accuracy
- Intelligent Document Processing – Use AI-based document classification, extraction, and validation to automatically understand and process purchase documents and data
- Process Mining and AI Analytics – Discover process gaps and perform root cause analysis
- Smart Workflows – Manage and orchestrate business processes in combination with the other technologies
Leading companies now view procurement as strategic.
Do you? Do your competitors?
Our next post will focus on the value you’ll see when you focus on optimizing procurement costs, especially procure-to-pay processes.
Doculabs can identify your procurement process gaps. We do this with a “Report Card” approach. It’s an X-ray of your current data based on a combination of Doculabs industry expertise and process mining from Celonis to:
- Diagnose how well core processes are performing
- Provide an executive summary report that will include process improvement recommendations in order to budget for 2023 and beyond