The benefits of digital procurement: direct, indirect & strategic

Benefits of Digital Procurement

The direct benefits of digital procurement include better sourcing, forecasting and efficiency. Procurement teams can reduce costs through improved negotiation or staffing strategies. Ultimately, companies can have a better-equipped team, enhanced functionality and happier customers.  

Details on digital procurement benefits include:

• Better sourcing: Digital procurement allows companies to understand their overall sourcing costs and strategy. That provides insights for smarter spending. Gaurav Gulati, a procurement practice lead for Aligned Automation, says digital procurement tools allow companies to do better supply chain management. In addition, the tools enable companies to analyze procurement strategies better.

  For example, one common decision is whether to use one supplier or a small group of suppliers for certain materials. Using one supplier may offer large price discounts but using a few more suppliers prevents the risk of your only supplier having issues or going out of business.

  “To make these choices, you use a lot of data points,” Gaurav says. “You use a lot of information from systems and analytics … to be able to guide towards what that category strategy should be. How much do they buy? From which sources do they buy? Where in the world are the products coming from?”

  Gaurav adds that once a company makes those decisions, digital procurement helps assess whether they were the right decisions.

  “If they choose to go with a particular strategy and implement it, they also need to see what results that strategy brought over a period of time,” he says. “You want to see one year, two years down the line – is it working? What tweaks need to be made to that?”

• Improved forecasting: Digital tools allow companies to forecast their demand and supply better. Predictive analytics that integrate historical data with market projections can inform and guide decisions. That allows for smarter planning and more efficient use of resources.
  
  
• Increased efficiency: Digital procurement solutions increase efficiency in many ways. Team members can eliminate repetitive paperwork, reduce manual touchpoints and process orders faster.E-procurement and other tools help your company “optimize how the entire process runs,” Gaurav says. Your company should try to make “as many transactions automated as possible. Organizations may have hundreds of thousands of transactions, so the goal is to make it as automatic – and as simple – as possible.”
  
  
• Lower staffing costs: Increased efficiency means reduced staff hours to do procurement well. Procurement Leaders, an internal network, researched this topic. It found that using complete digital procurement systems could save the world’s top 5,000 companies $86 billion annually in staffing costs. In addition, companies that spend $1 billion to $3 billion per year could save $12 million annually in staffing costs.
  
  
• Lower overall costs: Advantages like improved efficiency, sourcing and forecasting bring obvious benefits to any company’s bottom line. Digital procurement tools reduce costs in many ways. Most importantly, they allow companies to buy and spend in smarter ways.
  
  
• Faster procurement: The business landscape demands speed. Companies must be the first to identify and serve markets. They must also be the fastest to respond to changing influences.

  Everything moves more quickly when you automate procurement processes, from purchase orders to invoices.

  “From the time a purchase requisition is made by a plant person, to the time that the good is received into the warehouse and they can use it, it can take weeks or months for that to happen,” Gaurav says. “That process can happen in an automated way so there are less touches – it can happen as fast as possible. And the suppliers are paid on time. Once you pay the suppliers on time, then you have their trust, and you can ask them for further discounts. Otherwise, they never see their money coming into the bank on time and they are not interested in giving you a discount.”

• Improved supplier relationships: Suppliers play a critical role in the procurement value chain. Many companies rely on strategic partnerships with suppliers to innovate or create new solutions. Digital tools aid in building trust through transparency of information and actions across organizations and a single source of truth.
  
  
• Faster analytics and reporting: Digital systems can help your staff accomplish other tasks more quickly as well. For example, a Bain and Company report detailed how an IBM procurement employee created a bot through a digital procurement system that helped produce a regular cost savings report. The bot decreased the staff member’s time on the report to three hours – from three days.
  
  
• Fewer errors: Automation reduces human errors that often happen with manual entries. Additionally, effective digital procurement emphasizes a foundation of quality data. Clean, quality data can be trusted and run operations better. Fewer errors also mean less time correcting mistakes, which frees up employees for more strategic work.
  
  

  For one customer, we implemented Intelligent Character Recognition, or ICR, to streamline and automate data intake from PDFs, scans and images. The legacy manual data entry of each field was heavily time intensive and subject to bottlenecks and error. This automation allowed procurement Channel Managers to shift their focus from manual work, such as searching data bases and opening individual PDFs or scanned images to match order specs, to higher value work, such as selecting high-performing vendors and creating new contracts.

• Standardization: Digital procurement enables better standardization of a range of company processes and workflows. That standardization lowers the risk of compliance issues and supplier fraud. It also can reduce the likelihood of maverick purchases outside of a company’s defined channels.
  
  
• Transparency: Digital procurement increases the transparency of a company’s supply and ordering processes. That transparency makes it easier to see waste or savings opportunities. It also aligns teams within the company. For example, the accounting and customer service teams can see details about a customer who is past due on the payment. Additionally, bid waivers are transparently initiated and sent through a uniform online workflow to ensure documentation of approvals.
  
  
• Customer satisfaction: Digital tools can give companies and their customers insights into the supply value chain. This includes real-time analytics and proactive alerts. For example, digitalization can help a company immediately tell a customer when a committed date of order delivery may be missed due to delays of shipments in underlying components from your suppliers. They won’t be surprised later by what they might consider a delay.
  
  
• Better work culture: As digital procurement tools improve processes and make them more efficient, employees’ jobs become less stressful. Their work takes on more meaning as they consider fewer work hours wasted.