Over the past two decades, procurement has become a vital part of corporate strategy. The importance of the procurement function is being further strengthened by digital supply chain management and analytics. Today’s world of procurement features many different acronyms, and that can get confusing. The goal of this article is to highlight a few of the key areas of procurement.
Once upon a time, procurement’s main mission was focused on cost leadership and assurance of supply. In today’s market, that has broadened to include strategic insights and decision-making enablement. New technologies, such as mobile computing, real-time tracking, and cloud capabilities – which form the Internet of Things (IoT) – are leading the way for new applications and abilities across the entire supply chain, allowing procurement to offer further strategic value.
Some of the core technologies that are adding digital capabilities to procurement organizations include:
Other emerging solutions being closely watched by digital procurement SMEs include: sensors and wearables, cyber tracking, spatial analytics, and virtual reality.
Digital procurement allows organizations to more effectively deliver on their core business using different processes at a reduced cost. It often includes new operating models, organizational constructs, talents, and metrics. The disruptive technologies that are pushing boundaries for procurement strategy can be found in a few key areas of procurement.
Procure-to-Pay or P2P is an integrated system that fully automates the goods and services purchasing process. This goes all ways from requisition at the beginning, through actual procurement, and ends in payment. The goal of P2P is to optimize the purchasing process, bringing out better financial controls and efficiencies, which in turn help to reduce costs and minimize risks.
P2P systems are not meant to speed up the payment process, but rather to improve efficiency and financial controls. Certain best practices within a P2P system include strong technology utilizing a single point of contact such as a supplier portal and reduced complexity in catalogs and channels.
The typical P2P system encompasses a few main steps:
New disruptive technologies for P2P place an emphasis on automation and allow for:
Source to Contract (S2C)
Solutions that handle sourcing along with purchasing and payment are often referred to as Source-to-Pay (S2P). Often the main missions and challenges in a procurement department revolve around sourcing – finding the best vendors for each activity, negotiating with them, and managing the resulting contracts. Source-to-Contract or S2C represents the upstream and judgment-intensive processes within the S2P process. Many organizations are now outsourcing S2C for non-core or indirect spend because of benefits such as spend reduction and increased compliance. It is one of the fastest growing procurement segments, with adoption rising fast and spreading across industries, geographies, and different organization sizes.
Due to the nature of S2C, digital technologies for S2C place an emphasis on predictive intelligence, where supply base, price, and cost are all predicted, which leads to more transparent agreements.
New technologies for S2C focus on:
Supplier Relationship Management (SRM)
Supplier Relationship Management or SRM is the planning for and management of all interactions with third-party vendors that supply goods and/or services to an organization, with the goal to maximize the value of those interactions. SRM is about creating closer and more collaborative relationship with key suppliers to realize new value and reduce risk of failure.
The main steps in SRM consist of:
Digital technologies for SRM focus on being proactive, by instilling risk mitigation strategies that are preemptive and allow for continuous optimization of operations. These technologies enable abilities such as: