- Digital procurement for category strategy
- Digital procurement for source-to-contract
- Digital procurement for procure-to-pay
- Digital procurement for supplier collaboration
- Digital procurement for sustainable procurement
- Advanced uses of digital procurement
Common digital procurement use casesThe majority of enterprise procurement organizations are global by necessity. To compete on this global scale, organizations must also be digitally enabled. Digitalization accelerates data capture, analysis, decision making and execution. According to a 2021 PWC Digital Procurement Survey, the top three strategic priorities in purchasing include cost reduction, supplier sourcing and management, and process digitization. However, there is good argument for why digitization is an enabler of those other priorities. Many processes in procurement that experience unnecessary friction from manual touches, bottlenecks and human error. The combination of digital services and solutions increases efficiency and accelerates value, contributing to a next-generation intelligent operating model.
What are digital procurement use cases?Digital procurement use cases demonstrate the many scenarios where digital tools make operations more efficient. Common examples are found across the value chain: category strategy, source-to-contract, procure-to-pay, supplier relationship management and sustainable procurement. “Within those categories are more task-specific use cases where digitalization and automation make a big impact on daily operations,” Aligned Automation CRO Steve Simpson said. “Studying use cases not only helps leaders understand direct applications of digital tools, but also initiates brainstorming for cross-applications unique to their own organization.”
Digital procurement solutions mapped against the value chain
Mapping digital procurement use cases against successful solutions.
Digital procurement for category strategy
Category strategy breaks down purchasing into specific product groups for optimal management. Digital applications and automated processes enable procurement category teams to work faster and increase value across the organization.
“Category management is complex,” Senior Manager of Operations Sarang Kulkarni said. “Managers must know their product, conduct spend analysis and be able to analyze and respond to global market shifts quickly.”
Digitalization, from automated processes to predictive analytics, informs category strategy in the following ways:
Digitalization helps category managers save more money while contributing value. By providing enhanced visibility into key operating data, it improves supplier performance, mitigates supply risks, improves cash flow and market basket and drives innovation.
Teams may implement automated intelligence in use cases such as:
- Identifying spend leakages vs. agreed category strategy
- Identifying strategic levers and options
- Communicating strategy to the user community
- Tracking implementation real-time, e.g., automated month-on-month realized value / EBITDA impact calculations
Procurement teams rely on market intelligence for decision making. In a digitally enabled organization, teams automate the collection of data from external and enterprise data sources including categories, customers, competitors and channels to create insights.
Market intelligence depicts useful information such as price escalations due to geo-political issues like conflicts, pandemics and more. Analysts use this data to minimize risks and determine new or alternate sources, either within the geography or through Best Cost Country Sourcing (BCC).
“Where manual analysis may take extensive time to gather and consider information, automated market intelligence can rapidly collate thousands of data sources,” Kulkarni said. “With real-time market intelligence, procurement teams are able to shift supplier strategies, negotiate and secure materials at the best price at the best time.”
Digitalization allows procurement stakeholders to anticipate category risks in real-time, analyze data and receive alerts for recommended changes in key performance indicators, unused potential and performance outliers.
Digital applications seamlessly track and analyze the large datasets common for enterprise procurement teams (like those monitoring nearly 20k materials). Teams collaborate across functions, action tracking and online impact assessments for risk identification.
Digital tools make it possible to ensure margin consistency and growth across all categories in a shorter timeframe. They provide transparency into forecasted cost fluctuations to inform better decision making that improves margins. Learn about margin optimization in our “Margin Optimization Case Study.”
Sourcing teams in procurement must sort through mountains of data, dozens of spend categories and lengthy reporting processes to optimize price, control costs and prevent spend leakage. Without visibility into categories or a streamlined way to edit classifications, it is difficult to implement effective sourcing strategies or see where leakage occurs. Digital tools offer real-time insight into spend that may take hours or days for human analysts to complete. These include analytical metrics and tools to address leading KPIs and improve the market basket for sourcing. Strong digital teams will optimize and automate their procurement spend management.
Digital procurement allows teams to foster cross-functional collaboration, promote idea sharing and perpetuate best practices. For example, a supplier collaboration platform may serve as the centralized location for strategic documents as well as initiative-specific learning and development. This may serve internal cross-functional collaboration as well as collaboration with suppliers.
“These tools help us capture ideas, qualify them and track them through value realization,” Kulkarni said. “For one petrochemical company, we used our supplier collaboration suite to drive savings on maintenance cost with a scaffolding supplier. This is just one example of the potential for strategic savings that the tools hold.”
Digital Procurement For Source-To-Contract
Source-to-contract represents the processes that take place for procurement teams to purchase their materials and services. Digital tools and AI make it possible to streamline these processes, from receiving quotes to controlling costs.
Digital strategic sourcing empowers teams to leverage the full potential of supply markets. Often referred to as eSourcing, these platforms facilitate tasks such as quotes from suppliers, collaboration across sites to evaluate suppliers, run RFQs, negotiate deals and award contracts.
“The potential for eSourcing capabilities is expanding,” Kulkarni said. “One exciting example is advanced route optimization, which utilizes scenario modelling options for available routes and makes recommendations to suppliers for the most efficient course. This capability offers real-time analysis that accelerates value capture for procurement teams and their suppliers.”
Tail spend optimization
According to BCG, tail spend is generally defined as the amount of money organizations spend on purchases that make up approximately 80% of transactions but only 20% of total spend volume. With its vast data, tail spend has been considered difficult to wrangle by analysts. But digital tools offer teams the ability to firmly grasp and optimize extensive and complex tail spend.
“Organizations can rapidly deliver positive cash flow by tapping into and managing tail-spend,” Kulkarni said. “They may also conduct holistic tail-spend assessments to rationalize suppliers and increase market basket with preferred suppliers. More than just grasping what is going on, they can make strategic decisions with the information.”
Other examples of tail spend optimization include integrating marketplaces into Procure-to-Pay systems so that all non-contracted spend goes through open bidding, and proactive alerts on a material level for non-compliance.
Digital Procurement For Procure-To-Pay
Digital solutions in procure-to-pay offer teams the ability to gain more control, minimize risk and increase efficiency through automation.
Working Capital OptimizationImprove the effectiveness of working capital by applying measures across all operational areas. Working capital includes accounts receivable (money coming in), payable (money going out) and inventory cycles. Optimization looks at the daily management of these parts to ensure they interact harmoniously. Digital tools can help streamline the process through alerting when to pay accounts so the organization remains in good standing.
Procure-To-Pay Automation & ManagementP2P automation reduces paperwork and cuts down cycle times by removing human bottlenecks and errors. Enterprise Resource Planning (ERP) systems often offer automated P2P workflows to manage this process. By automating processes, buyers can shift their focus to only manage exceptions rather than the entire process.
Procure-To-Pay AnalyticsP2P analytics tools offer teams real-time analysis of all procure-to-pay processes to ensure transparency, discover inefficiencies, highlight potential risks and opportunities, and uncover trends.
Digital Procurement For Supplier Collaboration
With supply chain disruptions and bouts of scarcity, strong supplier relationships are more critical than ever. Supply chain optimization makes the best use of technology and resources like blockchain, AI and IoT to improve efficiency and performance in a supply network.
“A high-performing and intelligence-powered supply chain enables business efficiency and responsiveness,” Kulkarni said. “Customers get what they want, when and where they want it in a way that is both profitable for the organization and contributes to supply chain sustainability.”
Intelligent Supplier Relationship Management systems (SRM)SRMs provide consistent visibility into supplier performance that allows procurement teams to make informed decisions. SRMs encourage organization, facilitate analysis and enable streamlined operations to strengthen relationships with suppliers. When materials are limited due to unexpected circumstances, a strong supplier relationship built with goodwill could mean receiving scarce goods over competing organizations.
Digital supplier collaboration toolsThese allow teams to share demand forecasts, secure supplier commitments and view critical information including:
- Fulfillment rates
- PO expeditions needed
- Freights in transit
- Invoice approval stages
- And more
Digital Tools For Sustainable Procurement
Competitive organizations are incorporating sustainability into strategy discussions to meet 2030 and 2050 sustainability goals across the value chain. It is both a moral and ethical necessity, that when correctly situated with digital capabilities can accelerate positive change while increasing business value.
The number of companies prioritizing climate is growing, with 76% of Fortune 100 and 13% of Fortune 500 companies setting at least one climate commitment. However, Procurement professionals, such as those surveyed for the 2021 PWC Digital Procurement Survey, listed cost cutting as the top priority, with only 2-3% focusing on sustainability. The gap represents a strategic misalignment that may harm the organization as they come under scrutiny from customers and partners for setting up sustainability PR campaigns that don’t deliver results.
With technology, sustainability opportunities are both abundant and profitable. Efforts should be an important consideration for any transformation plan. At a high level, there are two use cases procurement organizations should start with to accelerate their sustainability plans: (1) supply chain traceability, and (2) smart sourcing. With these capabilities, teams can make better decisions that conserve resources and facilitate ambitious sustainability goals.
Supply chain traceability
Procurement teams are increasingly focusing on choosing the right energy sources (electricity, fuel, water, etc.), using recyclable materials, cultivating supply chain transparency and more.
“With supply chain traceability tools, teams can track any impact of disruptions to the Level 1 and Level 2 supplier sites and delivery commitments,” Kulkarni said. “We can track carbon commitments to ensure sustainability metrics are met throughout the supply chain and challenge partners to meet certain standards.”
Other key efforts include tracing sustainability measures across the organization, tracking current emission levels with deep granularity and assessing whether implemented changes are having the desired positive impact.
Smart sourcing / relocation sourcing
Digitally enabled solutions may promote transparency between suppliers and customers and enable teams to make more sustainable decisions when it comes time to renew contracts. More than tracking alone, there are also technology solutions that can help teams be more proactive and efficient with maintenance and emission reduction.
Discover more insights about how procurement organization can drive sustainability here.
Advanced Digital Procurement Use Cases
Many organizations fall in the early stages of digital transformation, whether they’ve recently started the journey or have stalled out along the way. For those who have a firm grasp on their data and are already integrating much of the technology described above, adding innovative AI could provide additional optimization.
Virtual purchasing assistantVirtual assistants combine technologies such as artificial intelligence and natural language processing to create helpful AI assistants. Virtual purchasing assistants are specialized versions of these bots for procurement teams that take the form of a chatbot.
A procurement team may rely on the bot to provide rapid access to information that helps them choose the right product, ensure regulation compliance and alert users to problems, such as a shipping delay or incorrect address.
AI-guided buyingAI-guided buying is an advanced purchasing assistant. As the technology develops and data becomes more widely available, these bots have the potential to make more complex recommendations. One example is proactively advising procurement teams on purchasing based on the highest profit margin. The technology may ingest data from historical purchases combined with present pricing information to forecast the best purchase price and time.
Steps in Digital Health
Digital procurement use cases examples by industry
As nearly all major industries involve purchasing goods and services, digital procurement is useful for a variety of industries where leaders seek to cut costs, increase efficiencies and spur innovation. More information about why industries are moving toward digital procurement can be found in our blog, “The Benefits Of Digital Procurement: Direct, Indirect & Strategic.”
Digital procurement use cases in manufacturing
Includes the five main categories: category strategy, source-to-contract, procure-to-pay, supplier relationship management and sustainability. More specifically, manufacturing teams may benefit from digitally enabled turnarounds, which helps teams predict downtime and increase uptime by collaborating across three functions:
- Engineering for specifications
- Manufacturing for quantities
- Procurement securing supplies
Digital procurement use cases in oil & gas
These may include telemetry or connected devices. For example, a company may place connected devices on refinery machinery, which can include hundreds of machines over many sites. The devices collect data on maintenance and function, which can be used to predict and plan future maintenance and avoid excessive downtime.
Digital procurement use cases in healthcare
These may include purchases for healthcare facilities, construction of those facilities and even in the manufacturing of pharmaceuticals. More specifically, because healthcare is a heavily regulated industry, digitalization may help compliance through automation or reference chatbots, which reduce human error.
Digital procurement use cases in retail
Includes inventory management. For example, a procurement team may introduce Robotic Process Optimization (RPA) to monitor inventory and alert managers when to order more product. Conversely, RPA may alert teams when current inventory is sufficient but an order is scheduled, allowing teams to react and thus reduce excess product. This has the potential to prevent wasted resources, prevent degradation of products in storage and free up storage space for other products in higher demand.
Prioritizing Your Procurement Use Cases
As long as there is uncertainty in the world, there will always be a need for data-driven, reactive decision making. But the more risk that can be eliminated via proactive insights, the more strategic and valuable procurement becomes.
With the right technology, tools and processes, procurement professionals have everything they need to effectively monitor, measure and mitigate risk – within the organization, across the supply chain and within the supplier ecosystem. These systems help with immediate response to shocks, but also allow predictability to take precautions beforehand.
How pandemics and crisis situations impact the order companies prioritize their use cases
To successfully build resilience against an uncertain reality, procurement professionals should start with managing their data to gain real-time visibility into every aspect of the business. Following a firm grasp of data, applying analytics, AI/ML and automation allows the team to use that data to respond faster to changes. Finally, look outward, and use that information to build more strategic relationships with suppliers. (Read more about resilience in our blog, Three Ways to Enable Resilience in Procurement.)
Digital tools provide transparency and a single source of truth metrics that allow teams to see which suppliers are performing and which may not be valuable partners long term.
Aligned Automation: Your partner in strategically applying digital transformation to procurement
At Aligned Automation, we combine innovative procurement knowledge with dedicated technical experts who care about delivering digital transformation with efficiency. From enriching and connecting disparate data to pursuing better future options, we work alongside procurement teams to execute ambitious business goals.