For many businesses, Procurement Automation (PA) provides a significant, sustainable and near term profit opportunity.
As top line revenue growth becomes increasingly challenging to achieve, forward thinking business leaders are looking to deliver more value from their supply-side transactions. However, many businesses operate on-premise systems that may solve a specific functional requirement but are difficult to integrate into the wider business. This is driving the demand for procurement automation technology.
According to Valueneer’s Global Procurement and SCM Study, 80% of company purchases by volume are made by employees, not by procurement professionals. These transactions are manual and too small to be managed by the procurement team and too diverse to be sourced through a single vendor catalogue.
A $1bn revenue company, for example, will make over 35,000 purchases per year, without procurement involvement. That’s $140m of un-managed expenditure. And a lot of sourcing events, suppliers, approvals, orders, deliveries and invoices to manage.
Legacy Enterprise Resource Planning (ERP) is simply too complex and cumbersome for this type of spend, so employees use online search, phone calls and email to source products and services from suppliers, resulting in poorly specified requirements, use of unqualified or unsuitable suppliers, limited price negotiation and wastage.
These inefficiencies are costing up to 30% of total expenditure – or put another way, could deliver ±10% increase in EBITDA.
The key to unlocking this potential is to consider the source-to-pay (S2P) process in its entirety. With a powerful and connected cloud based S2P capability – organizations connect sourcing, contract management, inventory, ordering, approvals, receipts and invoicing in a single, unified process.
Companies therefore benefit from increased efficiencies and reduced costs. They connect budget holders, specifiers, buyers, approvers, suppliers, fulfillment, logistics and finance in an intuitive and collaborative workflow. Procurement professionals can set rules and define workflow in order to centrally control localised transactions.
Information flows between integrated on-premise and cloud based systems in real time, so better decisions can be made quicker. Consumers, retailers, wholesalers, distributors, logistics, manufacturers and raw materials providers can increasingly rely on data flowing up and down the value chain.
With the right cloud based S2P technology in place controlling a streamlined end-to-end process, management has real time visibility of every transaction, locally, nationally and even globally.
Armed with such powerful information, repetitive tasks can be automated and more value can be delivered to the business. For example, a sudden spike in demand in one part of the business can instantly alert finance to expect increased supplier payments weeks ahead of time or employee orders can be aggregated and routed to take advantage of pre-negotiated volume pricing.
With a single, highly automated process and flexible access to expert resources, data will become more accurate, more immediate, more granular and more accessible. Automating transactional processes for sourcing, supplier management, catalogue, procurement, receipting and invoicing, will inevitably enable data to flow up and down the process resulting in improved data quality.
According to an Everest research study, automating procurement can reduce cost by 35% to 65% for onshore delivery operations and 10% to 30% for offshore delivery operations.
Procurement Automation can be extended into the supply chain. By looking deep into tier 1 and 2 suppliers and streamlining processes, most buying organisations gain significant benefits. Data is increasingly ubiquitous and shared across the collaborative team in real time. By sharing demand and performance data, integrating into key supplier’s order processing software or automating supplier delivery, invoicing and payment cycles releases more value for buyer and supplier. Farmers in Asia can invest in equipment to grow more crops if they can rely on real time consumer transactions from retailer in Europe for example. An adverse change in a supplier risk rating automatically alerts sourcing, supplier management and accounts. Delays in shipping or delivery shortfalls will notify goods receipting and trigger adjustments to invoices, as well as updating the supplier. And all in real time.
With a more streamlined end-to-end process, expertise is released from manual transactions to deliver even more value to the business. They no longer need to be involved in advising on tactical sourcing or supplier management, but can focus on interpreting the actionable data generated by the technology to deliver real intelligence.
Combining procurement automation with Artificial Intelligence (AI) can go way beyond simply automating predictable tasks and apply business rules to make objective decisions.
Artificial Intelligence (AI)
As organizations automate more of their procurement processes, they not only free up resources to work smarter, they also have access to an increased breadth and depth of data.
Smart procurement leaders are increasingly adopting AI in order to interpret large data sets, define rules and monitor supply chain performance and continually optimize the end-to-end process.
For example, AI can help normalize data from multiple sources or identify commonly ordered products from across a dispersed organization. It can flag supplier risks early enough for the risk to be mitigated. With a continual approach to learning, the right AI can make more informed decisions, such as maximizing savings opportunities by aggregating volumes or taking advantage of changes in currencies or commodity prices.
This sort of data becomes even more valuable when enriched with data sources such as changes in legislation; changes to supplier risk ratings or localized weather forecasts for ocean going shipments.
Advanced AI has the ability to evaluate and prioritize multiple data sources to make informed decisions, monitor performance across the supply chain and procurement cycle – and to learn from those decisions in real time.
With such a powerful capability, smart organizations will be quicker to realize opportunities, eliminate supply risk, make greater and more sustainable cost savings and generally out-perform their competitors.
So by combining Procurement Automation with Artificial Intelligence, business leaders can revolutionize their procurement, enhance supplier performance, reduce risk and maximize profits.
The future of procurement automation is bright. And this is just the start.
About the Author
James Samuels. Co-Founder and Chief Executive Officer of Claritum Spend Management. Claritum help companies in streamlining the purchasing of print and marketing services of their organization. James has twenty years EMEA marketing experience in the automotive and technology sectors for enterprises such as VAG, Peugeot, Intel and HP.