Impact of Digital Technologies on Procurement

Digital Tech Drives Procurement

Procurement is the new buzzword that’s doing the rounds in the corporate corridors. It is the new kid on the block that’s making organizational heads sit up and take notice. Today, procurement has evolved beyond the contours of being merely “procuring and acquiring” goods or services from third parties. In fact, it has donned a new avatar, where purchase planning, inventory control, supply-chain handling, negotiation and a host of other factors merge with each other with a single goal in mind- to boost corporate performance and get the best deal possible from suppliers.

With everything in the world going digital, it was time for procurement, too, to turn to digital technologies. In order to understand the true impact that digital technologies have on Procurement, it’s important to know two things-

  • How Procurement impacts the supply chain and helps increase profits
  • How Does Digital Transformation Influence Procurement?
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Digital Technologies Drive Procurement

How Procurement Impacts Supply Chain and Helps Increase Profits

A Paradigm Shift

The traditional concept of sales being THE driving force to generate revenue and increase profits is slowly taking a back-seat. Thus, procurement, which was often on the back-burner, is in the limelight- being treated on par with sales. The rather outdated view that sales and procurement are at odds with each other is evolving. The broader and newer concept is that they are synergistic and complement each other very well.

There’s no getting away from the fact that soaring sales figures boost businesses and impresses corporate heads. However, you need to remember, too, that it is no longer the sole factor that defines success. Apparently, that does seem bizarre at first. Just sit back and dwell on the other factors that trigger profits and enhance the effectiveness of any organization. Isn’t brand value and capital important? Isn’t agility a core factor; doesn’t strategy lend a hand? Well, Procurement has a finger in all these pies and helps shape profits just as sales do.

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Procurement triggers Profits

Does Procurement Help Trigger Profits?

The answer is a resounding YES! To the untutored minds, it may be hard to believe that Procurement and Sales are ‘two sides of the same coin.” However, it’s a given fact that Procurement has a hand in shaping sales margins. It is a primary contributor to the sustained growth and success of an organization. That may seem a little ‘clichéd and vague’ so let’s follow Procurement’s footsteps and see how this happens-

  • Procurement creates value in the supply market and suppliers, in turn, provide tremendous value to your business. This new value finds its way to your clients and customers. In short, what your suppliers produce and what they do will determine customer perception of you and your business
  • Procurement aids in reducing the price and cost of raw material and also operating costs
  • Helps in efficient sourcing and ensures the timely delivery of quality goods and services
  • More importantly, it helps align the supply chain with customer needs and wants and thus delivers greater value
  • Procurement helps to streamline processes and identify new and better supply sources

Procurement is Four-Pronged…

  • Progressive Procurement (‘ever-evolving’) triggers the innovation of products and services
  • Effective Procurement enhances efficiency and improves the bottom line of organizations
  • An updated Procurement process will keep the supply chain intact and afloat, no matter what happens
  • An optimized Efficient Procurement process will help sift the chaff from the grain and get rid of vendors that are not performing

Organizational Change

Having seen the tremendous benefits Procurement brings in its wake, it is high time organizations shelve the traditional seller-buyer relationship. It’s time to realize that rather than being confrontational, it should be constructive.

Selling and procuring are both important for success and for generating profits. Having said that, the changing economic scenario calls for a radical shift in the way Procurement is dealt with.

Today, technology has the ability to save Procurement professionals time and money so that they can focus on obtaining ‘higher-value add’ from suppliers. Moreover, digitalization impacts all facets of Procurement- right from bidding, delivery, and negotiations with suppliers, to responding to their needs, and the needs of the consumer. It is imperative that organizations take advantage of digital technologies to transform the face of Procurement.

As we’ve seen earlier, the term procurement goes beyond the purview of mere purchasing. It seeks to broker trade agreements, acquire goods at the lowest possible price, ensure the safe delivery of goods, gather in the moolah and also assess vendor reliability. Thus we see that Procurement is an integral part of all businesses. Whether it be in the service industry, the hospitality industry or in manufacturing. Procurement organizations believe that digital technologies will dramatically alter the way service is delivered and also determine the pace of growth.

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Digital Transformation

What is Digital Transformation?

When digital technology is incorporated into businesses, it results in operational changes and alters how you deliver value to customers. This is known as digital transformation.

Today, digital technologies are being used to understand customers better, connect with them and access new information that will alter the modus operandi of buying and selling. The result? Creation of new markets and an increase in the innovation of products and services. Also, entry of new customers and an enhanced ability to reach out to more businesses, easily and seamlessly. Nowhere is this digital transformation more apparent than in Procurement.

 

How Does Digital Transformation Influence Procurement?

AI-&-Automation-in-procurement

AI & Automation

Automation

First and foremost, the Procurement process is complex and elaborate one. Documents, suppliers and a hundred other elements have to be managed optimally. Automating all manual work in the Procurement department eliminates inefficiencies and impacts the entire business environment positively. Invoices can be automatically generated at the supplier end and sent directly to the purchaser. Payments can be made using blockchain technology. Contracts can be optimally managed and timely delivery of orders is ensured. Supply chains can be validated and a great degree of transparency is introduced.

Cloud Services

Procurement and supply chain will be impacted positively when organizations opt for digital technologies such as cloud services. This makes it easy for buyers and suppliers to access documents and applications, anytime and anywhere. Documents can be electronically generated, stored and delivered. This speeds up processes and accelerates interactions within the supply chain. Reports can be generated quickly and analyzed, costs can be cut, and even budgeting becomes much easier. It’s easy to keep track of multiple suppliers from different companies and keep track of payments.

Data can be stored off-site and accessed whenever needed, and changed according to requirements. With no hardware to manage, Procurement professionals can focus just on managing their business- the act of buying and selling takes on a new note.

Artificial Intelligence

AI, though still in the incipient stage, is fast gaining ground and is rich in promise when it comes to Procurement organizations. Its platforms augur well for submission of e-bids or tenders, is pretty useful when it comes to the alignment and arrangement of data and sheets or even in the purchasing of material. Solutions that use AI are being used by Procurement leaders to identify new markets and the best suppliers. In addition, it helps organizations to leverage big data in order to improve decision-making.

Collaboration and Communication Tools

In any Procurement organization, internal communication is of great import. Interaction has been transformed with the introduction of digital tools. The onus is now on encouraging user communication within an application through the use of these tools. Virtual assistants such as chatbots are making their way into procurement software.

Geographical Barriers Eliminated

With contracts, tenders and all allied documents in a central location, Procurement professionals can manage and monitor their businesses optimally. As a result, spending is more responsible, everyday transactions are more transparent and productivity naturally increases. Managing budgets and Expenses is easier.

By using the right digital tools, Procurement can hasten its digital transformation.

What is the future of procurement?

There’s no doubt that digital technologies are going to play a greater and far more important role in Procurement. Yes, adoption is slow, but sure, and automation is being implemented more seriously. In fact, companies will be forced to adopt and adapt while going digital. In addition, once they see the big advantages and the benefits it brings them, companies will no longer sit back and allow their competitors to pass by.

It is indeed an exciting road ahead for Procurement. The glitch is the lack of strategic planning, clarity of goals and clear direction. These are holding organizations back from exploring the entire gamut of digital technology. The sooner they learn to use digital technologies to their advantage, the better equipped will they be to reap the full harvest of digitization.

Many world-class organizations are well ahead on this road but many are yet to catch up. An early advent into digitization can only accelerate their growth. Corporates, are you listening?

About Ram

Ram is a researcher/author who has been writing since he could hold a pen! He has been writing professionally for the past 9 years. As the Founder-Head at IntegrityNetworks and The Write Options, his area of expertise covers varied niches.

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