Our partners Auditel share how the face of procurement is changing and the methods that are replacing traditional procurement methods.
Traditionally, procurement as a business function has been slow to make the most of technological advancements and has generally been viewed as an administrative cost-cutting exercise.
Procurement has progressed leaps and bounds in the past five years. However, some argue that the real gains will only be realised once companies start to innovatively and creatively implement new processes. Big data and predictive analytics are set to be the secret weapons of procurement for the foreseeable future.
Advancements such as cognitive procurement, which harnesses technologies including blockchain, machine learning, cloud systems and the internet of things, are being utilised to overhaul every aspect of supply-side economics. According to ProcureCon’s Annual CPO Study of Chief Procurement Officers, as of early 2019, a mere 3% of respondents would have no procurement process automation while 61% would have between 21% and 60% automated processes.
By using emerging technologies businesses are able to validate supply chains like never before, ensuring a level of transparency that has not been possible previously. This move towards distributed ledger technology such as blockchain allows for a single, immutable, secure record of every transaction to be maintained, eliminating the need for local work within individual businesses.
With procurement functions often stretching globally, companies require full visibility throughout the supply chain in order to guarantee that it is free from issues such as modern-day slavery or corruption. With consumers more aware than ever of their impact on the world, procurement is under scrutiny to ensure ethical sourcing throughout the supply chain. The recording and tracking of goods was formerly carried out on Excel spreadsheets, is now automated by web apps.
Automating procurement processes, such as e-procurement are now routinely used to improve the supply of goods and services, especially for companies with global operations. Automation can help to map out the connections within a supply chain, which for a CEO who is responsible for the elimination of poor processes, places procurement in a different strategic light. With corporate spend on third-party suppliers averaging 30-40% of revenues, procurement should have a much higher-level representation than it historically has had. Furthermore, there are even greater possibilities brought about by predictive analytics, such as machine learning and artificial intelligence. These are transforming how data is manipulated, which allows departments to foresee the future with increasing accuracy.
So where exactly does this place us humans within the mix of disruptive technologies and artificial intelligence? It is certainly true that many of the processes that were once manual processes can now be replaced by machines. For example: buying via a central hub, with automatically-generated invoices that are directly sent from the supplier’s system to the purchaser’s finance department, matched using optical character recognition and paid using blockchain technology. This was once all done by spreadsheets, phone calls and emails, and because of these new processes many now foresee a procurement department fully replaced with machines.
However, machines and technological advancements can only go so far. Andrew Coulcher of the Chartered Institute of Purchasing and Supply argues that “Procurement cannot be managed within a silo,” and that “there is a place where artificial intelligence and emotional intelligence meet. There will always be a role for human-to-human contact.” What this means for those who are working within procurement is an evolution of their duties, from what was a simple buying role, to one as a trusted advisor. Human interaction is required to ensure that the correct performance models are utilised, and humans will always be required to be inventive.
Strategy and the Role of CFOs
Cost-reduction os a huge benefit of automated procurement, but it’s also about getting closer to suppliers and becoming more collaborative in how you operate. Procurement is now so central to company performance that even a credit rating can depend on the methods used by the department. Manual processes, including paper invoices, PDFs, Excel spreadsheets and so forth, are becoming obsolete.
Moreover, due to supply chain and finance becoming more transparent, banks can make a clearer assessment of the financial strength of a borrower, lowering borrowing costs. Furthermore, CPOs are becoming increasingly important as they can offer the board critical insights into the company’s future. Technology has driven cost-savings, efficiency-gains, improved supplier relationships and requires a high level of innovation and flexibility. This will make CPOs more influential than ever and has led to procurement being a job that embraces a multitude of different roles.