When is it Time to Invest in Procurement Technology?
- Procure to Pay
- Source to Pay
At what point in an organization’s journey is it time to make the shift from reactive purchasing by non-practitioners to hiring and developing seasoned specialists who are able to look at spend holistically and create strategies that help an organization transform towards value management? When is it time to move from the tactical to the strategic? For every company, the answer to this question is going to be different, depending on the industry, the current organizational structure and other variables. Based on my experience and as a rule of thumb, once a commercial company hits $500 million in annual spend, the old operational ways of doing things is simply no longer an option.
However, here comes an important caveat to that “rule of thumb”. The inflection point or trigger may come about earlier. It may have little to do with spend volume. It may occur as a result of the changing external business climate or a sudden shock. Or it may be an executive mandate driven by a leadership change or the arrival of an individual who understands the earnings contributions or growth that a well-run procurement organization can deliver to an enterprise.
Short-Term Pain Means Long-Term Gain
We saw that after the so-called dotcom crash of 2000, which led to an upsurge in interest in electronic procurement; up until then eProcurement had been little more than an idea. The financial meltdown of 2008 provided a further impulse. And now we are seeing it again in the wake of the pandemic and the economic downturn that has followed (for the majority of companies).
Whichever way you look at it, most SME (small to medium enterprises) and large companies alike have found managing supply chains and their spend very difficult compared to how it was just a few months ago. The road back to the pre-pandemic situation, or to the much vaunted but still vaguely defined “new normal” will be a tricky one to navigate, if it is even possible.
Short-term pain is often a prelude to long-term gain, and I’m betting this will be the case in the post-pandemic era. Many companies that were only considering digital transformation in procurement will now be ready to make it reality:
- They have been forced to come up with more creative solutions amid social distancing and remote work
- They have needed to find ways to retain cash in the business
- They have had to rethink their sourcing and supply chain strategies, with many inshoring or nearshoring
- They have come to realize more than ever the value of close supplier relationships
These short-term imperatives will encourage organizations to continue investigating their options for further investment that allow them to remain agile and competitive when conditions in their industry stabilize.
Resiliency and Agility is the Name of the Game
The big difference between now and earlier crises is that there is a far greater focus on resilience, and this will make procurement and supply chain management more central to strategy. It has been aptly described as a switch from “just in time” to “just in case”. That does not mean abandoning efficiency as a goal, but it does mean a greater reliance on technologies that give you visibility and allows you to adapt.
We have already witnessed this shift in industries such as manufacturing, where “lean” thinking still has an important role to play but intelligent Industry 4.0 technologies, which provide companies with greater agility in delivering on customer expectations, are helping to build more sustainable business models.
Companies likewise need to become more adaptive in their supply management from source to pay in order to build-in greater resilience while continuing to seek efficiency gains. If your usual supply chain breaks down, how can you quickly find alternatives? The optimum answer may not be simply replacing a single link in the chain by plugging in a replacement, but without visibility, you are not going to know that.
This issue is gaining attention among business leaders. An important shift in mindset was highlighted in this recent article in the Harvard Business Review: “Deployed strategically, procurement can help firms build whole constellations of value – rather than simple chains of value – in which stakeholders of all sorts are connected to one another holistically and dynamically.”
No Time Like the Present for Procurement Technology
I have been arguing for some time that we need to take a team-based approach to these issues and put strategic suppliers at the center. Only procurement is in a position to do this. It’s the only department within the business that works with every other internal team and with suppliers, to help the business achieve its goals.
But as spend volumes increase, the supplier network or “constellation” gets more complex and the probability and impact of unknowable external shocks increase, it can only be managed with spend and supply management technology.
At JAGGAER we have found that the companies and organizations that have fared well through the pandemic are the ones that have made it easy for existing preferred suppliers to do business, e.g. through self-service portals, and for new suppliers to onboard smoothly and effortlessly to provide greater resilience (as well as achieving other objectives, such as greater supplier diversity).
We are also seeing many companies initiate new digitalization projects or accelerate existing ones to ensure that they get the supplies, materials and talent resources needed to adapt quickly and meet customer and stakeholder demand no matter what comes next.
So, the time to invest is most definitely now!
In my next article I will discuss the half dozen or so essentials that must be in place to ensure a successful implementation and rollout of your initial eSourcing or eProcurement project.
See what JAGGAER customers think of our procure-to-pay suite with Gartner Peer Insights.