What is digital procurement?
Digital procurement involves using digital tools to automate, streamline and optimize your procurement processes. Get it right and these activities will be faster and significantly reduce your costs by ensuring you're choosing the right suppliers for every aspect of the business.
However, the latest generation of digital tools is different from those available in previous years. Indeed you may hear digital procurement described as procurement 3.0, as it's considered the 'third wave' of procurement technology.
It's also important not to use it interchangeably with eprocurement, which belongs to the previous generation. While both use software tools to digitize these processes and create a comprehensive supply chain management solution, digital procurement goes much further, using advanced analytics and automation to create value and improve outcomes.
The benefits of a digital approach
Getting this right can bring a wide range of benefits to a company. Some of the key advantages include:
1. Reduced costs
A digital procurement process can give you wider visibility into all potential suppliers, allowing you to quickly determine what the market rate for an item or service is and which suppliers can make the most attractive offers. In addition, it makes the process faster and easier, so you have to devote fewer resources to this area.
2. Improved decision-making
Cost is just one factor to consider, and digital tools offer you wider insight into a prospective supplier's performance and suitability and spot red flags that might be signs of fraud or corruption. It can also give you insight into factors such as demand fluctuations that can give you a roadmap for the best time to make purchases.
3. Automation of tedious tasks
Many of the steps that go into procurement can be time-consuming and arduous for employees, leaving them deep in a world of paperwork and contracts. Digital tools can take many of these processes off their hands, from automating the drawing up of documents to reviewing and filtering proposals based on set criteria.
4. Better agility
The automated aspects of digital systems also enable users to make changes to their system that can immediately be sent out and reflected across the business, making it easier for firms to change course or adopt new policies.
The tools to make digital procurement a reality
At the heart of any good digital procurement initiative is data and the right analytics tools to turn this information into insight. Crucially, effective digital procurement solutions mustn’t limit themselves to information originating within the business, but should also take into account external factors such as wider industry trends and market changes.
For example, predictive analytics tools can determine the likelihood of market fluctuations or spot relationships that can affect supply and demand, allowing you to tailor your processes accordingly.
Technologies such as RPA have a huge role to play in streamlining manual tasks and spotting patterns. However, while these solutions typically use structured data and follow a defined set of rules, next-generation digital procurement processes can take this a step further with more advanced AI that can take in more unstructured data and even apply its own judgment.
This may mean, for instance, that when determining which supplier to select during a sourcing event, AI can apply a model using the buying history of the items being sourced, supplier ratings and performance, and recent pricing to recommend or even automatically choose the suppliers that should be involved.
This can be done without human involvement, at a high level of accuracy, and in a fraction of the time it would take for potential suppliers to be reviewed by hand.
However, to make the most of this, you’ll need the right talent. Data scientists who understand how to build the models needed to review the data and interpret the results will be vital.
Deploying a digital procurement solution will require major effort and investment - although cloud-based tools are available to reduce the need for large capital expenditure. But get it right and the improved performance and reduced costs you enjoy can set you up well for years to come.
- The Digital Transformation Partnership: Promoting the CFO-CIO Alliance
- Managing Procurement Risk: Enterprise Agility for a Changing World
- High-Performance Sourcing and Procurement: Driving Value Through Collaboration
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