Let’s face it – even though procurement management is an essential part of successful businesses, it’s one of the most disorganized activities at many organizations.
More often than not, inefficient manual processes are the root cause of these challenges. These messy and wasteful processes causes delays, errors, and workarounds that result in much larger downstream issues such as:
- Mismanaged supplier relationships
- Delayed projects
- Unnecessary legal costs
- Overworked employees
- Lagging stock price.
Worst of all, manual procurement processes impede access to some of a company’s most valuable business data. Since this data is not digital, it’s either available only on paper (stashed away in file cabinets) or on shared network drives without proper access.
And without digital access to this critical data, it’s nearly impossible to learn what’s working and what isn’t, or to deploy modern technologies like machine learning.
What is Procurement Management?
Procurement management is all about optimizing your procurement process. It’s about establishing strong, lasting relationships with reliable vendors who will deliver quality goods & services in a timely manner at the best possible price.
It’s a strategic approach that ensures your organization’s resources are spent in the best way possible to extract the maximum possible value out of purchasing.
Instead of focusing solely on lowering costs, procurement’s priorities have broadened dramatically in scope. As modern business has accelerated and become more global – even small business source skills and sell products worldwide – procurement has been dragged along into the digital realm. It’s expected to be digital, measurable along mutually agreed dimensions and aligned with broader company priorities such as sustainability and ethics.
Modern procurement management is about far more than just cost control.
Why Automate Procurement Management?
Procurement management is a hefty, resource-hungry set of activities that are nonetheless crucial to any organization. Thanks to modern automation technologies, it doesn’t have to remain a disorganized mess.
Here are seven important reasons for businesses to automate procurement management:
- Improved compliance and legal protection,
- Better visibility into finances and spending,
- Fewer supply chain disruptions,
- On-time and on-budget project delivery,
- More productive and happier employees,
- Faster purchasing at lower cost,
- Access to digital data to prepare for a data-driven future.
Top 5 Procurement Steps to Automate Now
The procurement process has many steps, several of which are ripe for automation. Here are five key steps that should be digitized and automated sooner rather than later.
1. Vendor Management
Identifying, selecting and managing vendors on an ongoing basis is a time-consuming process. But, reliable suppliers who deliver on time at the best possible price are a key cog in any company’s operations. Otherwise projects are delayed, timelines are missed, and customers are disappointed. For public companies, product rollout delays immediately affect the stock price.
Nowadays, it’s equally important to ensure that vendors you work with uphold your company’s values and are themselves socially responsible corporations. With supply chains becoming increasingly global, managing these supplier relationships is a top procurement priority.
An automated vendor management system lets you streamline things like background checks, document follow up, consolidated billing and contract management.
Automating this relationship with your vendors should be one of your first priorities, since it will optimize the overall procurement cycle.
2. Purchase Requisitions
Purchase requisitions are internal documents used to secure approval – because they are internal, organizations often have a less than formal process for purchase requisitions. Purchase requisitions are different from purchase orders.
However, printed paper requisition forms – or even emailed Excel spreadsheets – are rife with inefficiency. For example:
- Errors and omissions are far more likely since there’s no way to validate data on paper/Excel.
- People will often email them to the wrong person; perhaps the instructions were confusing. Unnecessary back and forth communication is wasteful and results in lost information.
- You can’t connect to internal systems like a SQL database. That means users have to manually enter data that could be electronically pulled in.
- These documents often require signatures. This unnecessary printing wastes paper and it’s also hardly environmentally friendly.
To solve these issues, consider using electronic purchase requisition forms instead of creating forms in Excel or Word. Electronic forms reduce printing for signatures, automate routing for approvals, and are much more reliable and error-free.
Naturally, automated purchase requisitions lead to automated purchase order forms. The two of them should seamlessly work together in a single automated process. Once the internal purchase requisition is approved, the process can route instantly to Finance to generate the PO.
Note that purchasing is different from the overall procurement process. While procurement is a broad term for the overall process of buying goods and services, purchasing refers to the transactional act of buying such as issuing a PO.
Here are some immediate benefits of an automated purchase order process:
- Automatically generate purchase orders upon approval of a purchase requisition. Often, the generated PO is a PDF and the process can automatically generate a PDF with the necessary data and can also email it to the vendor.
- Use electronic forms with data validation and integration with internal systems to avoid data entry mistakes and missing information. E-forms also support mobility, digital signatures and business rules.
- Ensure timely purchase order processing to avoid procurement delays that cause cascading project delays and missed deadlines. Stakeholders can also easily view the current status of a PO without emails and phone calls.
- You may be surprised at how much a manual purchase order costs you and how large the ROI of process automation really is.
Another important aspect of the procure to pay process is invoicing. Invoices are sent by vendors in response to a purchase order. Procurement managers often go through a 3-way matching process. They make sure that the invoice matches a valid purchase order and that the items being invoiced have been received in satisfactory condition.
This is the invoice approval process. Procurement managers manually cross-check the invoice with a PO, obtain signoff from receiving, pay the invoice and then file it away for records keeping – often doing so by scanning the invoice into an ECM system.
Manual invoice approval results in delayed or unpaid invoices (and understandably upset vendors). It also makes it harder to track invoices, especially in the event of a financial audit.
When negotiating with vendors and establishing communication rules, consider implementing an automated invoicing system with them. This way, your financial department can gain automatic access to invoices and keep solid records.
Most vendors will be happy to cooperate, since this will result in a smoother process for them as well.
5. Digital Records
If you are still keeping paper records in a filing cabinet, that’s a recipe for disaster. Paper files can easily be lost or destroyed, and even when they remain intact, they are difficult to access.
Digital documents are easier to access, especially when they’re properly indexed and stored in an Enterprise Document Management system such as M-Files or SharePoint.
Of even greater importance, digital data can be analyzed to provide actionable business insights in real time. It’s the fuel on which newer technologies like machine learning and AI run. In an increasingly data-driven world, access to digital data is a must.
4 Ways to Optimize Procurement Management
With all this in mind, how can automation be used to optimize your procurement management? Here are 4 ways to get started:
First, ensure that all existing procurement workflows from purchase requisitions to invoice approval, have a formal, written workflow definition. Use modern, visual automation tools to create electronic versions that don’t rely on back and forth emailing or phone calls.
With automated electronic forms, you can digitize all the relevant forms. Because they are digitized, there’s less room for error or interpretation for employees who need to fill in or approve these forms.
This is an absolute no-brainer in almost every case. Do not waste resources on the following things:
- Reentering data that can be pulled from a SQL database e.g. inventory or part numbers in a purchase order,
- Manually typing information from one system to another,
- Scanning paper forms such as invoices or dragging-and-dropping email attachments into an ECM system,
- Reconciling invoices with purchase orders.
Automation is tailor-made for these repetitive tasks.
Take a look around at what people in your procurement department are doing everyday. If you see them emailing Excel spreadsheets around, printing documents for signatures, or chasing paperwork, you’ve found a target activity to digitize.
Your employees are your most valuable resources. If there is a task on their workload that can be handled by automation, take the necessary steps to digitize these tasks. That way, they can spend time doing the things machines can’t do like cultivating invaluable supplier relationships.
The same applies to records keeping. Get rid of filing cabinets and shared network or email folders. Use a modern, affordable document management system that lets you find documents easily, maintains an audit trail and the processing history of each document.
4. Digitize Data and Analyze Everything
Data is the new oil.
It’s never been truer. We see it everywhere – from Google and Amazon analyzing everything to promote their wares to NFL and MLB teams analyzing player statistics to optimize productivity.
Your organization is no exception. Procurement processes deal with financial, product, inventory and supplier data. It’s some of your most valuable information.
Without digital data, you’re operating in a fog while competitors are zooming ahead with clarity of vision. With digital data, you can mine your proprietary business data for actionable insights, react quickly to changing customer demands and stay agile enough to take advantage of new opportunities.
By digitizing all of your organization’s data, you open the door for possibilities such as:
- Analyzing your KPIs
- Advanced machine learning
- Generating valuable reports that accurately depict your performance.
These are the things that will truly help your organization become more efficient and improve your current processes, which is the entire point of procurement management.
Because manual processes are so risky and resource-consuming, true efficiency cannot be achieved in your procurement management without automation.
Procurement employees spend a lot of time on repetitive, inefficient tasks from vendor management to record keeping. Many of these tasks can be automated using technologies available today. Digitization helps your organization by:
- Reducing costs and improving productivity of procurement processes,
- Getting more accurate predictions of financial spending,
- Improving compliance and communication,
- Preparing you for a data-driven future.