Okay, we admit it. Procurement is not the most exciting business function out there. But doing it right could make or break your business.
“Procurement is about acquiring goods, not just at the right price, but also in the right quantity,” writes Valuestreamguru, a business information website. “Too many and there are storage implications as well as an interruption to cash flow. Too few goods acquired and there is an interruption to production and also day to day running of a business.”
Consequently, many organizations are implementing “just in time” systems that get them new material and other goods only when they’re needed, and not before. But that puts companies at the mercy of their suppliers if they fall behind. With companies competing on providing next-day and even same-day deliveries, keeping the supply lines going is crucial.
That’s why suppliers are increasingly working with, not for, their customers, Valuestreamguru writes. “Suppliers are seen as partners, with the view being held that procurement is a relationship which can be mutually beneficial and that keeping suppliers content and happy in the relationship can bring about greater flexibility, the ability to negotiate and a very productive working arrangement,” the organization notes.
Evidence abounds showing a broadening and deepening of the role of procurement. A recent survey, The Future of Procurement, from Oxford Economics found that 63 percent of respondents said procurement was more tightly aligned with other parts of the business (particularly finance), while 51 percent of executives said the function was working more closely with suppliers.
Technology can help. Business process automation software helps organizations track the amount of goods and supplies it has, automatically notify a supplier when inventory is running low, and keep track of the ordering and shipping process. “In recent years, e-sourcing tools have improved the way we source and communicate with suppliers; analytics have allowed us to more accurately track savings and performance; and increased data volumes permit better risk management,” writes Patricia Dreghorn in Supply Management.
The Oxford Economics survey also backed this up. “Around a third of executives and practitioners surveyed said investment in procurement and supply chain technology was a priority,” writes Marino Donati in Supply Management. “Nearly half said they intended to fund supplier innovation programs. Some 70 percent said they expected invoice management to be completely or mostly automated within two years, closely followed by strategic sourcing and contract management. And 35 percent expected business networks to have a significant impact on procurement in the next three years by enabling new, more efficient ways for companies to collaborate with their global trading partners.”
What are some technologies that will help provide innovation in procurement?
- Analytics—particularly in the context of applying spend analytics to real-time, self-service applications, write senior analyst Mayank Taneja and assistant manager Dhrubajyoti Kalita of the Smart Cube. “Companies have been trying to understand their spend (direct and indirect) for quite some time now—both manually and with the help of spend analytics,” they write. “One of the major problems with traditional spend analytics solutions is that they only analyze historical data, which leads to a lag in decision.” Current systems also require staff to perform the analysis. “57 percent of the surveyed CPOs employ 2 to 5 people to conduct spend analysis, leading to increased cost.” Self-service apps will reduce this cost, they write.
- Security—critical to ensure that the supply chain doesn’t get interrupted and doesn’t provide a gateway for hackers, Wired editor David Rowan, told the World Procurement Congress earlier this year. “With everything connected, the risk factor is increased,” Tim Burt reports in Procurement Leaders. “But failure to invest in the technologies that will protect against such things will result in a damaged reputation and potentially costs through fines. The smaller companies are those at most risk so it is essential to investigate your supply chain to ensure that there can be no piggy-back attacks through them to you.”
- Internet of Things (IoT)—sensors will be able to communicate with each other, Taneja and Kalita write, such as by alerting a provider when inventory is low. “Imagine the data from the RFIDs going into your supplier management solution to track the KPIs and alter contracts in real-time, i.e., two birds with one stone—contract management and supplier management,” they write. “Imagine drones delivering products and collecting real-time feedback from consumers.” The IoT is even reaching the consumer level with the Amazon Dash Button, which some people thought was an April Fool’s gag when it was announced earlier this year.
The upshot? Thinking procurement is a snore could mean you’re sleeping through something critical to your company’s future.
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