Maximizing Your ROI Through Process Automation
A digital procurement platform that automates common purchasing activities reduces process costs and lead times. It also frees up budget and staff to pursue new opportunities, from new sourcing partnerships to new markets and products.
Every business should have a procurement function that continuously delivers value (is sustainable), provides value to all departments and stakeholders (is effective), and requires a minimum expenditure of energy (is efficient). Also, notice the symbiotic relationship between these components. For instance, time freed up by an increase in efficiency can be used to fuel effectiveness. In procurement, a typical example is using the newly available bandwidth to manage more spend and therefore produce new incremental value.
A recent Hackett report found that world-class organizations that take advantage of procurement technology are more efficient, with 22% lower labor costs and 29% fewer
full-time equivalents (FTEs) than typical organizations.
From ROI to VfM
Nearly every organization uses return on investment (ROI). This is a good starting place in that it measures the rates of return on money invested.
However, in a procurement setting, a better model is value-for-money (VfM). VfM unpacks the value from every purchase or every sum of money spent. VfM is based not only on the minimum purchase price (the “Investment” in ROI), but on the maximum efficiency and effectiveness of the purchase. VfM applied to procurement is about maximizing value from each dollar invested in the procurement function’s people, process, and technology.
Take sourcing or supply management, which involves multiple levers such as contract costs, spend under management, compliance with contracts, order-to-pay costs, usage costs, and risk. With a proper procurement tool, these levers can be moved, up or down, increasing VfM.
Automation is the key to realizing these benefits. Consider three common procurement activities: strategic sourcing; supplier management; and supply chain management. Are there manual or disconnected processes within these functions? If so, your procurement can’t be optimized; it won’t be sustainable, effective or efficient.
Data integration goes hand in hand with automation. A recent survey of 168 organizations by JAGGAER found that more than three-quarters (78%) integrate data. However, most handle this “integration” manually, using Excel or downloading/uploading files into systems.
Manual approaches undermine the promise of advanced automation. By contrast, smart procurement technologies can run almost autonomously, ultimately limiting human intervention to exceptions and special cases.
Automating how you gather requirements, interact with suppliers, and update internal systems (i.e. connecting the eSourcing tool and operational systems to automatically create contracts, POs, info records, etc.) will save time and reduce redundancy and errors. Moreover, this digital platform can offer deep analysis of current and prospective suppliers, helping you make more informed supplier choices and other business-critical decisions. This analysis should be both predictive (what will happen?) and prescriptive (what will influence what will happen?).
A centralized digital platform will assist with supplier discovery, onboarding and qualification. It will generate performance scorecards by absorbing input from a variety of source systems. Templates and forms, electronic workflows, and a supplier portal complete the picture.
Supply Chain Management
As the number and diversity of suppliers increase, the automation platform will help manage the supply chain itself. This ranges from issuing and updating orders to processing orders and resolving disputes. A searchable, self-service supplier portal (the supplier-facing aspect of a central repository) will reduce errors and paper invoices; automated workflow will streamline processing time (and route exceptions), and give supply partners a real-time view of POs, invoices, and shipments. Likewise, the platform’s automation and workflow mediates a number of time-consuming procurement department tasks, such as supplier queries, internal queries, and invoice disputes.
Most procurement organizations are only scratching the surface when it comes to automation, data integration, and advanced analytics. A modern procurement platform delivers VfM at all levels of the procurement process. Through automation and smart technologies, it makes teams faster, more agile, and able to focus on higher-value strategic work. Automation, combined with predictive/prescriptive technology, delivers value and opens up new business opportunities.