Procurement Automation and How It Can Benefit Your Business
By Anthony Liu & Rosita Johnson
Procurement has traditionally been seen as a back-office function, but this area is fast becoming a gold mine for smart automation. In fact, many organizations are expanding procurement to play the role of strategic partner, driving improved cost savings, efficiency, market resilience and business objectives. In addition, intelligent automation can achieve such transformation. According to SAPinsider Process Automation in Supply Chain Study 2022 Benchmark Report, “procurement was among the first sub-function to embrace process automation in the supply chain in its early days” and “still ranks at the top” during the most recent survey.
Figure 1: Top Process Automation Focus Areas (Source: SAPinsider, September 2022)
Procurement can be difficult to automate because many processes require multiple systems and stakeholders: identifying the right product, selecting the best supplier, issuing a purchase order, overseeing the delivery process, monitoring payment issues that cannot be dealt with by the accounting department, etc. No wonder bottlenecks are common. But automation can improve efficiency and accuracy while helping to reduce procurement costs, at least 20% according to The Hackett Group research on digital procurement transformation. Moreover, intelligent automation can help provide strategic insights that facilitate better business partnerships.
Here are some of the reasons why automation of the procurement process is critical to a company:
Reduced Error Rate
Purchasing automation software reduces human error. For example, the percentage of transactions that require post-issuance activity can be two to three times less at an organization that uses an automated procurement system. The tasks that businesses with manual procurement processes often perform after the initial transaction are updating order quantities, correcting pricing, and handling part substitutions.
The reduction in human errors is due to the combination of pre-set parameters, forms, permissions, and processes that exist in most automated procurement systems. The user cannot enter information beyond the specified parameters or copy the purchase order. Fewer errors increase efficiency and quality of the overall procurement process and have even more impact if the business operates with a high number of transactions
Shortened Order Cycle Time
Automating the procurement process can lead to reducing the overall order cycle time by at least 30%. The user can enter information much faster using a list of the approved suppliers, sourcing through contracts with set pricing and lead times, and having access to item catalogs that have a purchase history.Templates and forms that exist in most purchasing software also speed up the process since the user does not have to manually enter information in the fields that have pre-populated lists.The contract lifecycle management (CLM) software that some businesses utilize as part of their procurement process can significantly shorten their purchasing cycle, as much as from three months to eight days.
Standardized Procurement Process
Standardization is important during the procurement process to ensure compliance with company policies and regulatory requirements. A procurement system that has an automated workflow process for approvals, financial and non-financial, prevents unauthorized access to confidential information, speeds up the entire process and eliminates errors often caused by emails. The procurement workflow process usually includes delegation of financial authority associated with every requestor and approver. This ensures that the approvals are performed in the correct sequence and are within the user’s budget level.
The standard terms and conditions (T&Cs) that are usually included in the procurement system, for individual purchase orders and for contractual agreements, help to ensure compliance with company policies and reduce the chances of litigation. Having T&Cs loaded in the system, and contract expiration dates readily available can also help with the number of lapsed contracts by 39%.
Access to Data and Analytical Tools
Automated purchasing systems can help you manage your supply chain more effectively because of the readily available data for vendors, catalogued items, pricing and lead times, and financial information.
COVID-19 showed the importance of access to quality information that is accurate and up to date. Increased lead times and unavailability of raw materials and supplies forced many businesses to expand their sourcing strategy. While Google and other similar search websites can be a great tool to find alternatives, having the ability to see historical transactions for similar vendors or materials that your company has dealt with in the past is often the best course.
With an integrated quality procurement system, you can view real-time data at any time including vendor performance and the effectiveness of your procurement team. Are your preferred vendors delivering services or materials on time? Are the vendors frequently increasing pricing, including on the contractually agreed items? How often do the purchasing specialists seek a discount or reject a price increase and find an alternative solution?
From automated purchase order processing with real-time insight, to advanced vendor management workflows including vendor ratings and self-service, automated procurement systems are combined with smart insights to keep budgets on track and advanced vendor performance analytics to better streamline existing procurement processes – these tools are well positioned to meet business growth needs and save businesses money over the long term.
Automating the purchasing process can save your company a significant amount of time in reduced error rate, shortened order cycle times and access to data that shows the efficiency of your operations. Reducing the time spent on managing tactical procurement activities would also help your company to allocate time to strategic planning and strengthening the competitiveness of your business. This kind of strategic planning and thinking makes your business more agile, stable, and better able to handle future disruption that may arise. A procurement system not only simplifies your current process, but also gives you the opportunity to improve a company's financial position in the future. Over time, your investment in the software will pay off.
ASCI specializes in helping businesses like yours to address supply chain management challenges, including end-to-end procurement support: contract management, material coordination, purchasing order issuance and tracking, material cataloguing, transportation coordination, and invoice remediation. Visit our website to learn more and to arrange for a free consultation.