What does procurement have to do with digital transformation? More than you might think. Digital transformation takes many forms, from digital delivery of products and services to digital fulfillment to digital collaboration. The thing that unites these different forms of digital transformation is the need for procurement to play an active role in ensuring that the goods and services needed by the organization are acquired to support the overall goals of the business.
Looking at first glance
- The procurement function plays a pivotal role in managing risk and cost across supplier management, strategic sourcing, contract management, purchase to pay, and spend analytics.
- Not only does digital procurement create efficiency opportunities, but it also gives procurement teams a chance to lead in the race for innovation strategically.
- Automating purchasing processes frees resources for more strategic work such as agile partnerships to help implement the company’s digital vision.
Today, most companies have already started down the path of digital transformation. But it’s also true that many procurement professionals don’t consider this as one of their responsibilities or believe it doesn’t apply to them. That’s not just short-sighted; it’s missing out on an opportunity to transform your department into something truly cutting-edge and valuable to the company.
Learn why digital transformation in procurement can change how you do business while helping your organization stay competitive in the digital landscape.
Defining digital procurement
To some extent, defining existing concepts is repetitive. Still, when it comes to matters that merge two streams – procurement and digital in this case – it’s pretty clarifying and necessary because procurement can still be done with little or no help from digital tools.
50% of high-performing sales organizations have well-documented sales processes that are explicitly structured, compared to 28% of under-performing organizations.
Procurement refers to the set of practices and policies for selecting suppliers, contract negotiation, establishing purchase orders, monitoring the services and goods that are delivered, and managing invoices. Critical to any business, procurement is increasingly made better and more efficient with the help of digital tools. While procurement automation has existed since the 1990s, most of these systems focused on data processing and storage. While procurement automation has existed since the 1990s, most of these systems focused on data processing and storage.
COVID-19 outbreak reshaped digital transformation
COVID-19 crisis made obvious the fragility of certain supply chains. It has made it evident that procurement needs to be more agile in a digital world. One of the reasons for slow progress has not been a lack of will or technology but an inability to coordinate across multiple business units inside an organization. This is where technology is taking over and revolutionizing procurement as we know it.
In a crisis, digital procurement can serve as a great facilitator for more urgent coordination and cooperation. But for companies without digital procurement already in place, the experience has proven to be both an eye-opening and sobering lesson that is pressuring them to create a system.
In some sectors, the priority was to maintain secure supply chains. They achieved this in various ways. For example, they either diversified suppliers or relocated production to areas that would avoid a potential monopoly on the industry.
Benefits of digital procurement
The digital revolution is transforming every business, including procurement. It makes the overall purchasing management better. For companies to thrive in today’s digitally connected marketplace, they must leverage digital solutions for their internal operations and external procurement activities.
A study by Deloitte found that companies that use a digital procurement solution report an average 15% reduction in costs and a 20% increase in productivity over companies without such technology. This is due to increased automation and streamlined processes, which lead to reduced cycle times and improved accuracy. In addition, these same companies have reported improvements across all other key performance indicators (KPIs), including customer satisfaction ratings, quality control measures, inventory levels, supplier relationships, and more.
In addition, the whole organization and each department, in particular, can get a detailed breakdown of their spending. This helps the organization determine where to direct spending, which will improve supply-side operations, thereby reducing risks to goods supplies and providing more comprehensive product data, and authenticating supplier information. This can also involve social or environmental factors, and through Know-Your-Supplier policies, it ensures the integrity of the product.
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Embracing digital procurement needs change management
Digital transformation procurement is changing the way organizations do business, and they need to embrace this change to survive and thrive in today’s market.
It’s critical to have a well-designed digital strategy, and procurement teams often implement these in a vacuum. So, make sure you research what digital trends the company’s leadership, your industry, the market, and external procurement experts think to develop the most strategic approach.
Step two would be envisioning the future role of procurement. For example, what processes should be completely digital, and what solutions would you like to implement? Then, figure out how procurement will work with the business unit leaders and vendors to hasten innovation and achievement.
Step three includes setting an outline for how to change procurement. Once you put the essential elements of a digital shift in place, CPOs can set priorities like near-term goals and how much an investment will cost.
But while the digital transformation of procurement aims to harmonize processes, it is also essential that these processes remain as flexible as possible.
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Teradix As a leading provider of cloud-based procurement software, we know what it takes to deliver exceptional value with procurement management software that increases efficiency, reduces costs, and helps you make better business decisions.
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