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How to streamline procurement in the digital age

Unlocking value

Companies should be encouraged to embrace digital when it comes to managing the complex and often tiresome procurement process.

Their challenge with this is knowing where to start, which is where their business banking partners can play an important role.

Many companies, large and small, are interested in digitising their procurement procedure but, as with so many different technological advances, they believe this will involve wholesale renovation of their software and payments systems.

Equally, despite the eventual benefits of streamlining procurement with the help of technology, there are often internal, cultural barriers to overcome. Whether it’s employee resistance to leadership change or lack of board-level conviction in new processes, these can both be challenged by incremental change led or supported by, banking partners.

Digitising the subway - MTA’s digital procurement advances

The truth is that these organisations don’t need a complete overhaul to adapt to faster, more automated, intelligent digital solutions.

In 2016, KPMG examined how the Metropolitan Transport Agency (MTA) could streamline its processes. From 360 issues identified, KPMG found potential for 53 separate improvement initiatives. Several involved “unnecessary manual processes in key areas and the sub-optimal use of technology”.

Automating PO generation, streamlining approvals which reduced the cycle by 20% while raising the number of POs from 500 to 800 per month. KPMG’s project showed that 125,000 new sourcing events could be done via a new technology platform - a 42% increase. A self-service portal enabled 12,000 suppliers to check their own invoicing and bids without involving anyone in the company.

More accurate invoicing means there are fewer queries later on and the ‘light touch’ processes that come from enabling everyone to self-serve via the tech portal frees staff up to focus on other things.

If companies are able to perform a similar project to KPMG’s, but on a much smaller scale - at departmental or even test project level, demonstrating the consequences of implementing technology is a powerful proof of concept for the rest of the organisation.

Even if you boil it down to the cost of moving paper, as seen by the example from French eProcurement specialists, Manutan, reveals, there are compelling reasons to embrace digital:

 Detailed costs of processing an outgoing paper invoice Detailed costs of processing an incoming paper invoice
Preparation, billing and accounting = €0.3 Mail handling = €0.9
Sending = €1.2 Data entry = €1.4
Payment reconciliation = €0.5 to €2 Validation = €5.4
Filing = €0.8 Payment = €2.8
Dunning management = €0.8 Filing = €1.5
Dispute management = €2.4 Dispute management= €1.8
Cash flow costs = €2  

The co-dependent organisation

It doesn’t matter what aspect of business you want to focus on, there is no doubt that every department is now interlinked to some degree. Sales can’t operate without working closely with marketing, which in turn needs to work hand in hand with operations and HR. But few recognise the potential of bringing procurement into the mix.

It’s the typical failure of executives who focus on business administration versus business drivers. Their belief is that sales, marketing, merchandising etc. - ‘create’ revenue while procurement, HR and to a degree operations, are just the ‘cost’ of doing business. But a digitised, streamlined procurement process is much more. A centralised payments system may be a single source of truth for the accounting team, but it is also a wealth of data that can be used for inventory and trend management. Frequency of ordering, traceability of product and much more can be found by interrogating an electronic procurement system.

To begin using digital procurement data for anything more than account and payments management may be a step too far for many companies. We are still at the start of the process. But soon it will become clear that there is no choice but to accept the intellectual argument that digital procurement has a wealth of financial benefits. Corporates’ banking partners are especially well-placed to lead that change.