Procurement transformation is not a simple task, but if done successfully, can transform how a company does business.
What is Procurement Transformation?
Day and Atkinson explain procurement transformation as referring to a specific type of organisational change management which focuses on strategies to enable major and long-term improvements to procurement and supply management processes, activities and relationships.
Procurement transformation does not happen overnight. Changing any system is complex and requires co-operation from everyone to effectively change the strategy and structure of a business.
It is important to come up with a detailed procurement transformation roadmap so everyone is on the same page and the process can work as efficiently as possible.
Steps of Procurement Transformation
Procurement teams need to assess their people, process, and technology and come up with a procurement strategy to close any gaps or resolve any issues in these areas to ensure the organisation does not fall behind in the ever-changing procurement world.
Sohelia Lunney identifies the triangle of people, process, and technology to identify procurement challenges and raise questions a company needs to ask in order to move successfully through the steps in their procurement transformation.
People are the foundation of a company and are critical to procurement transformation. It is essential to have an understanding of the teams’ current skill sets and to identify the skills necessary to reach the end goals. To begin, ask yourself the following questions:
- Do we have the right people to deliver today as well as in the future?
- What skills do our people need to excel in their positions?
- What do our people need to get their jobs done better, faster, and more accurately?
Everyone in the company needs to be doing the right job to ensure proper procurement transformation. This includes everyone from customer service to IT to the CPO, and even to suppliers. If an employee is lacking the skills their job requires, the company will suffer.
For example, if an employee knows nothing about ERP systems then that gap needs to be filled so they can be trained and appropriately meet the needs of the organisation.
This element of transformation in procurement is not a once-off step. Constant feedback must be given from the people in the company to ensure everyone is always up to date.
The next step is to assess your current processes and decide what needs to be changed to reach your procurement transformation goals. Possible questions to ask yourself to start are:
- Do we have the right processes in place to get the job done today as well as in the future?
- Do we have consistent and repeatable processes in place, and are they as efficient as possible?
For example, if the goal of the procurement transformation is to save time on the ordering process, then dealing with invoices manually is not appropriate and a new system must be brought in to automate the process.
If everyone is not on the same page about the organisation’s new processes, the company could face serious setbacks anywhere along the supply chain and lose their competitive advantage.
The world is currently going through a digital transformation and the right technology can seriously help an organisation reach the goals of their procurement transformation. It is critical to have solid people and processes before the technology is implemented to make your company world-class.
- Does our technical structure align to and support the needs of our organization?
- Do we have the right technology to execute?
For example, if the company’s procurement transformation goal is to improve customer experiences then out of date AI or bots will not suffice.
Technology, if used correctly, can take a company to the next level through procurement transformation.
“Research shows that the Global 5000 could save up to $86 billion per annum if their procurement function is fully automated. Companies spending between $1 billion to $3 billion a year, they save $12 million per annum in procurement headcount and companies spending upwards of $3 billion a year could save an average of $27 million on headcount.”
Challenges with Procurement Transformation
Transformation in procurement has been around for a long time, but it has only recently become a hot topic. It is not a very well understood concept as it is relatively vague and quite complex so it is not always easy to follow. Creating a detailed roadmap to follow helps reduce any confusion that may arise during procurement transformation.
Disrupting an enterprises system or process may be beneficial in the long run, but be accompanied by short-term drawbacks. For example, while the company is still getting used to the new system in place it may not perform as well as usual because of the unfamiliarity of the situation. These short-term setbacks, however, will be offset by the long-term benefits the company reaps from procurement transformation.
Length of the Process
Procurement transformation takes time. Fulfilling all of a company’s goals may be time-consuming and costly, but ultimately, the long term benefits of the transformation makes the lengthy process worth it.
How can Procurement Transformation improve how your Company does Business?
Every company wants to save money, and procurement transformation allows them to do just that. Procurement Leaders conducted research which shows that the Global 5000 could save up to $86 billion per annum if their procurement function is fully automated. This means for companies spending between $1 billion to $3 billion a year, they save $12 million per annum in procurement headcount and companies spending upwards of $3 billion a year could save an average of $27 million on headcount.
With procurement transformation, the benefits go far beyond just reducing costs. Strategic procurement calls for an enterprise to utilise the appropriate people, processes, and technologies which offers more strategic value than ever before.
Deloitte have identified many areas where digitisation and procurement transformation can improve how a company does business, specifically optimising its purchasing process.
Source to Contract (S2C)
- Predict demand with artificial intelligence
- Categorize and manage spend in real time
- Know landed cost for any commodity for all alternate countries of origin
- Predict sources of future innovation
- Act on timely alerts from all negotiated agreements (indexed pricing, penalties, renewals, etc.) through smart contracts
Procure to Pay (P2P)
- Automatically sense material demand and consumption and requisition replenishment deliveries from suppliers
- Exchange goods through validated and trusted decentralized ledgers
- Eliminate repetitive processing through robotic process automation
- Trigger payments utilizing real-time signals of material delivery
- Execute automated secure payment
Supplier Relationship Management (SRM)
- Monitor potential for risks in real-time through the aggregation and visualization of third-party data feeds
- Conduct supplier visits from their own office utilizing augmented reality
- Perform supplier audits through crowdsourcing
- Monitor sustainability across entire ecosystems through automatic reporting and visualization
Optimising purchasing processes allows for frictionless collaboration which decreases the amount of time procurement teams spend dealing with payments, allowing them to spend their time elsewhere, on more productive work. Problem-solving and cycle times are accelerated, in turn, increasing the value-added of a company.
There are also various indirect impacts of procurement transformation that can help how your company does business.
World-class procurement organizations understand the need for strong stakeholder engagement. The more involved the shareholders are, the easier it will be to achieve procurement transformation goals.
Risk management needs to be monitored throughout the procurement transformation process. Processes need to be implemented to monitor and mitigate risk. Reducing risk will likely lead to fewer disruptions and increase the value of the enterprise.
Being able to Change with Ease
People are naturally resistant to change and the first time a company undergoes procurement transformation it may be met with resistance before acceptance. In the future, however, when the organisation is faced with the need to change their processes, they will have already been through a similar ordeal and will be more willing to consider a new approach to how the company works, speeding up the entire procurement transformation process.
Acknowledging the skills, or lack thereof, of your employees, is one of the first steps of procurement transformation. Employees can learn new skills or hone the ones they already have, an opportunity that likely would not come up without procurement transformation. Management change also gives employees more experience and responsibility thanks to the ever-changing processes.
Procurement transformation is a lengthy process, and it may take several years to reach your goals. If successful, however, your company will benefit greatly from the management change. With an apt team, leveraging efficient processes and appropriate technology your company can reach unprecedented.
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