CPO Strategy
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From digital laggard to cutting edge – why procurement must be the next frontier for digital transformation

digital transformation

Today’s business landscape has become increasingly complex, with geopolitical events like Brexit and the knock-on effect this will have on tariffs and freedom of movement impacting day-to-day operations. At the forefront of navigating this constantly changing marketplace is the procurement department, which has become a more strategic part of every business – perfectly poised to help manage and predict supply chain risk, unlock innovation, create sustainable cost savings, and help grow revenue. Alan Sugar once said that procurement is the third most important element to any business, right behind the product and sales. He went further, advising organisations to build supplier relationships so that in good times and bad times, all parties have the support they need.

With procurement professionals now playing a more high-profile role within the business, expected to manage risk, drive innovation and achieve sustainable cost savings, digital transformation has become much more important. However, very few procurement teams are digitally mature enough to access vital insights on spend and suppliers, nor are they able to automate low-value tasks that prevent them from spending more time on strategic activity.

Manual processes costing organisations dear

While organisations have been increasingly investing in digitally transforming business departments such as marketing and finance, at most organisations, procurement has remained a digital laggard – with 71% of procurement professionals saying the rate of digitisation is low.

Despite investment in other departments, procurement has seemingly been left behind. Research from Ivalua revealed that two-thirds of UK businesses are still reliant on paper-based or manual processes as part of the procurement or supplier management function. As a result, procurement professionals are spending almost a third (31%) of their time dealing with these inefficient processes, spread across a sprawling mess of emails, spreadsheets and paper forms/documents. On average, this is costing UK businesses £1.94m annually.

Over three-quarters (77%) of procurement professionals also say that the lack of digitisation is limiting the amount of time they could spend on performing strategic tasks. Organisations haven’t empowered teams to provide strategic input around innovation, revenue opportunities or risk. This must be addressed, or businesses will lose out on strategic insights that can create a competitive advantage over rivals.

Tech investment isn’t taking away the strain

Given the impact that the lack of digitation is having on procurement, the majority of organisations are investing in technology to help digitise processes. Cloud-based platforms and data analytics are leading the way to help centralise spend and supplier data, and to help teams examine trends, risk factors and supplier performance. A significant number of organisations are also adopting AI and digital assistants to help automate tasks and answer queries. 

But despite this investment, the rate of digitisation among UK businesses is still low. On average, organisations have only managed to digitise 45% of procurement processes, such as purchasing and invoicing. The least digitised process is supplier onboarding, which is one of the major obstacles for digital transformation. A recent study from Forrester found that an inability to onboard suppliers is the number one reason why many digital transformation initiatives fail.

If the process for onboarding isn’t simple, requires fees to be paid or suppliers to accept vendor terms and conditions – suppliers simply won’t sign up. If suppliers don’t buy into digital transformation efforts, then employees can’t find what they need to purchase and procurement teams won’t be able to access basic insights on capabilities, costs and other data.

The digitisation era is now

While digitising low-value tasks like purchasing and invoicing is a good starting point and opens up the possibility of automation, it’s still at a relatively low level, meaning procurement professionals aren’t able to spend time on strategic tasks. But if procurement is to become more strategic, then more needs to be done to ensure that teams can quickly access strategic insights to aid decision making. Organisations must also ensure digital transformation efforts consider suppliers, and how best to get them involved and onboarded.

Procurement leaders cannot sit back and allow a lack of digitisation in procurement to hinder their progress. It’s vital that organisations capitalise on the opportunity to transform themselves from a digital laggard into an advanced procurement department. Businesses must ensure they adopt the right technology to allow them to digitise processes and automate low-value tasks. Cloud-based smart procurement platforms are key to enabling effective digital transformation, helping organisations move away from managing processes over email, phone or paper, and instead capture everything digitally.

It’s clear that procurement isn’t as digitally mature as many organisations need it to be. For those businesses serious about creating a competitive advantage and unlocking the strategic benefits procurement holds, much more needs to be done to make procurement smarter, something that’s vital for surviving today’s rapidly changing landscape.

Alex Saric is a smart procurement expert for Ivalua

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