Digital Procurement Transformation Creates a Powerful Competitive Advantage Across Industries

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Procurement, long considered a transactional, back-office function responsible for minimizing spending in the acquisition of goods and services, is on the verge of a dramatic reformation.

Covid-19 has revealed deep inefficiencies in the global supply chain, highlighting that procurement remains among the last functions to undergo full digital transformation. Governments have pointed to antiquated operational processes and technology as a cause of widespread shortages of consumer goods, record price increases in basic necessities and inflation spikes around the world.

Is this a smokescreen to deflect criticism of deeper, systemic problems in global commerce? Perhaps, as many variables have contributed to the inflation rates we see today. Regardless, this criticism of outdated technology has acted as a wake-up call for businesses, governmental bodies and nonprofits. Digital procurement transformation is no longer an option, but a business imperative.

Compelling incentives and key considerations

Digital transformation is a complex undertaking that must be executed with precision. If done properly, the rewards far outweigh the cost and effort involved. It’s critical to remain focused on the benefits and not get lost in the process, because digital transformation is a marathon, not a sprint.

Factors defining digital procurement transformation and the future of business spend management include:

1. Process automation and reduced project expenditure

Cloud-based procurement and spend management solutions automate time-consuming, manual processes such as approval routing, freeing up employee time to focus on relationship building and strategy. These solutions also capture loads of data, generating actionable insights that reveal inefficiencies, increase productivity, cut costs and reduce overall project spend.

2. Data-driven decision-making depends on correct data usage

Despite data’s transformative power, poor data usage continues to plague many procurement organizations. “If procurement was scrutinized to the same extent as other internal functions, there would be lean consultants crawling all over it,” says James Meads, leading procurement technology expert and digital transformation consultant. “Much of the waste caused by poor data and manual administrative processes in procurement often goes overlooked, generating an invisible cost to the business.” Digital procurement transformation facilitates better data usage, which eliminates wasteful spending and leads to smarter business decisions.

3. Improved communication, collaboration and transparency for the post-Covid era

Today’s centralized procurement solutions illuminate any blind spots in the supply chain, leading to improved transparency, easier communication and better collaboration at each touchpoint along supply routes. The best solutions integrate with an organization’s other IT systems, creating one source of data truth for all internal teams. Moreover, with more employees now working remotely, digital solutions bridge the physical divide with built-in requisition capabilities that improve cross-functional collaboration among procurement teams.

4. Diversifying supplier networks and sourcing closer to home

Many procurement teams were burned in the early days of the pandemic; in some cases, all their suppliers were in a country that was locked down. Diversifying supplier networks minimizes the risk of shortages and ensures dependable consistency in the flow of goods and services. Working with suppliers closer to a company’s center of operations further minimizes risk and facilitates formation of strategic ordering partnerships among peer organizations.

5. Focusing on sustainability and environmental, social and governance (ESG)

Younger generations now represent the majority of global consumers and, in many cases, the stakeholders that businesses and nonprofits answer to. Younger consumers often have a strong sense of environmental and social responsibility and increasingly demand sustainable and socially responsible sourcing practices. This represents a major opportunity for procurement to evolve from a cost center into a strategic revenue engine.

6. Procurement that shifts from transactional to strategic

In the coming years, we expect procurement to become an indispensable strategic function with considerable decision-making power. By partnering with sustainable, socially responsible suppliers and leveraging transport routes that minimize environmental damage, procurement will play a major role in maintaining a strong, positive brand reputation. We’ll see procurement collaborating closely with marketing and human resources to spread the word about the positive impact they deliver to the communities they serve. This will generate loyal consumers and attract top tech talent.

7. Easier compliance with government regulations

In the wake of Covid, there’s a high probability that governments will introduce new, stricter purchasing regulations. Digital procurement management software lets organizations implement formal procurement policies with built-in workflows that hold teams accountable for adherence, which ensures compliance with any new regulations that appear.

Financial gains from digital transformation

When you combine the factors above, you can see the distinct advantages of digital procurement. Current data tells us that fully digital companies enjoy a 1.8x increase in annual earnings growth and a 2.4x increase in overall enterprise value.

This alone underscores the need to begin digital transformation today. Organizations that continue to delay will inevitably fall behind the competition and may ultimately fade into the background. Furthermore, there’s no valid reason to delay any longer, as technology continues to advance and open up new opportunities for procurement to drive revenue and deliver value, not simply reduce costs.

Global changes call for a new era of procurement management

Most of the changes that Covid has forced upon us, such as social distancing, have been temporary rather than a “new normal.” But history shows us that new threats to supply chains are never far from emerging. Over the past two decades, we’ve seen outbreaks of SARS (a coronavirus), avian flu and swine flu; HIV showed up in 1981, and Ebola virus in 1976. Moreover, natural disasters are a constant threat to supply chain fluidity.

Procurement enters the era of customer and employee experience

Customer experience and employee experience have never been as important to business success as they are today. But what about supplier and partner experience? It all matters in an eventual post-Covid context where human interaction is likely to take on increased importance. And with procurement poised to take center stage across industries, “procurement experience” will soon become a commonly used phrase.

Final thoughts and next steps

The procurement organizations of tomorrow will look quite different than they do today as they assume a strategic decision-making role in organizations across industries. The procurement and spend management tech space is forecast to experience “massive growth” over the next seven years as more organizations kick off transformation initiatives. Organizations that further delay digital procurement transformation will quickly fall behind the competition.

The writing is on the wall: The time to start your procurement transformation is now.

This article originally appeared in Business Reporter. Image: iStock id697996054