4 Straightforward Reasons to Digitalize Procurement ProactivelyBusiness | December 06, 2022 | By
Enough and much has been said about Industry 4.0. It has been the buzz word of the manufacturing and production world since the break of the pandemic. And is the focus of organizations moving forward. The future seems to be a good blend of traditional manufacturing prowess and the edge of technology, that will push the go-to-market of products and services quickly, efficiently and impactfully. And it is imperative that all functions in the manufacturing life cycle are in synchronization with this change.
And that includes procurement. According to an A.T. Kearney reports “While procurement represents both a major expense and a huge opportunity to transform business performance, it is responsible for 30% of a service company’s revenue and at least 50% of a manufacturing company’s revenue.” Procurement is a strategic function in the manufacturing lifecycle. It helps directly improve the organization’s profitability and can have a lasting impact with streamlined processes, reduced raw material prices and costs, and identifying better sources of supply. To put it in simpler terms, procurement helps reduce the ‘bottom line’.
As of today, the procurement function is in a dilemma. While there is a sufficient use and dependency on technology in the function, they are archaic and limited to certain uses only. And the process is very much in the analog. Data, which is the key indicator in procurement, is handled across numerous Excel spreadsheets and Word documents. When data seeps away in isolated data silos, it becomes invalid to be used for automation or prediction, and leveraged for a better strategy. The situation is indeed a far cry from truly digital procurement in the Industry 4.0 era. The situation is a far cry from digital procurement, in the era of industry 4.0.
The best way forward is to digitalize, actively and proactively, such an important function as procurement. Here are 4 solid benefits that will add value to Procurement and the business overall with digitalization:
Procurement processes involve capital investment and man hours. When processes are standardized and well-defined workflows are deployed, it ensures the mitigation of risks associated with supplier issues such as delay, frauds, compliance, etc. And situations where maverick purchases happen when a procurement professional buys products outside of the channels defined by the company, can be prevented or at the least supervised.
With the digitalization of procurement, stakeholders and managers can place orders directly via online ordering systems saving time that would otherwise be spent in processing orders, additional paperwork, and communication with suppliers. According to a McKinsey report, most organizations spend between 3 to 4 percent of their budgets because of transaction costs and inefficiencies within the manual process. Digitalization improves operational efficiency, accelerates process timelines and reduces human errors owing to the automatization of the process. The increased efficiency allows procurement managers and stakeholders in the various manufacturing lifecycles to focus on strategic tasks and decision-making.
Clarity and Transparency:
The analogous systems of working are deeply dependent on paperwork, standalone softwares and systems, and arbitrary processes that are bent to suit situations. Digital transformation ensures better organization of processes, with the defining and structuring of the information required at each step of the way. This change in the procurement process provides a birds eye view of the entire process lifecycle by increasing the visibility of transactions. This enables clarity and transparency on orders processed and products purchased. With more visibility of spends, it now becomes simpler to reduce the overall TCO and profits.
Digitalization of Procurement will ensure better flexibility and responsiveness than analog processes and styles of working. Making the factory of tomorrow almost paperless is the biggest challenge of industry 4.0. Going digital would mean the existence of a connected factory where employees share and exchange real-time information with each other and machines. This will directly impact responsiveness between different teams which is essential for operational efficiency. Plus, documenting roadblocks can help in preparing contingency plans for unpredictable shutdowns, and be on track with necessary maintenance and supply actions. Overall, the digitalization of the procurement process eliminates paperwork, provides data in real time and repository environments, removes redundancies, and shortens the communications chain.
The list of reasons, to the tee, can be nitpicked upon and elaborated as to how every step may become better with the digital. But the fact of the matter stands that it is the way of today and the foreseeable future. And to be ahead of the curve, proactive transformation is necessary for a critical and imperative function of the manufacturing lifecycle as procurement.
Take that step toward digitalization with the most comprehensive Source-to-Pay software, Zumen. Zumen The software is capable of handling the entire direct material procurement lifecycle, irrespective of its complexity, while understanding and bridging the link with the product and part life cycles. The software capability will help companies manage direct material procurement from sourcing to GTM and also fulfills the needs of the indirect procurement process, enabling faster product launch. To know more, reach out to us at [email protected] or schedule a free demo.