Why leaders can no longer afford to take procurement for granted

11 August 2021 Consultancy.asia 6 min. read
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The uncertainty of the current global economic and business climate today has forced many businesses to pay closer attention to procurement. Oliver Stein, Director South East Asia at Jaggaer, explains why.

Back-office functions are mission-critical for any business. While general effort has been made to automate certain back-office functions before the pandemic, most of such investments have been focused on transforming finance and accounting or information technology support departments.

A cautionary tale about ignoring supply chain and procurement processes remains in the current global chip shortage. The ongoing global semiconductor scarcity is impacting nearly every manufacturer around the world with businesses scrambling to try and find alternative solutions to fulfil their semiconductor needs.

Oliver Stein, Director South East Asia, Jaggaer

The disruptions could have been significantly muted had more businesses invested in digitizing their back-office functions, allowing them to be more agile, maintain better control over their supply chain, and gain greater visibility and build better relationships with their suppliers.

As the pandemic becomes endemic, we’ve seen procurement processes emerge as key elements of concern. According to research by The Hackett Group, a world class procurement function can deliver: 30% higher margins; 22% lower operating costs; 47% faster requisition-to-purchase-order cycle time; 36% less lost due to maverick buying; and 5x greater cost benefit from supplier collaboration.

The significant role that procurement plays in enabling businesses to operate seamlessly, expand and optimise performance, and of course procure goods and services from external suppliers to keep their businesses going, means even slight disruptions can have critical implications. And unanticipated disruptions are not what any business needs in volatile times.

Did anyone say resilience?

Resilience is the buzzword for any decision maker looking at the road to recovery, and this will make procurement and supply chain management more central to strategy. As mindsets switch from “just in time” to “just in case”, this does not equate to abandoning efficiency as a goal, but it does signal a greater reliance on technology solutions that afford visibility and adaptability.

A robust supply chain strategy will look different from organisation to organisation. For some, having a diverse portfolio of suppliers and market locations to rely on may be the most important factor. A limited network increases a company’s exposure to turbulence and reduces the ability to be flexible when required.

For example, many businesses have learnt throughout the pandemic that reliance on a single delivery route or single supplier base can have devastating consequences when those key components are compromised. By diversifying the approved supplier base, businesses can mitigate this problem and make themselves more adaptable to changing conditions.

For others, resilience will manifest as ensuring partnerships with dependable suppliers. Procurement decision-making is moving away from emphasising race-to-the-bottom supply costs as firms increasingly consider their suppliers more holistically. A supply chain built on the foundations of enduring, mutually beneficial partnerships can help businesses mitigate risk factors, by evaluating proximity, sustainability and reliability.

Throughout the pandemic, those with the closest relationships with their key suppliers, saw the least disruption for key goods in short supply.

Technology is ready to help – if you let it

What has become very clear over the past few months is that companies that have looked to technology adoption to digitally transform their sourcing and procurement processes have achieved better performance to manage suppliers through the crisis.

Organisations ought to take advantage of the many solutions available to help develop a robust procurement process, such as advanced analytics, automation and streamlined workflows. Because, no matter what shape supply chain strategies take, a resilient supply chain is one that can adapt, endure or transform in the face of unexpected circumstances.

The procure-to-pay cycle is typified by an unending loop of requests, orders, invoices, receipting and general relationship management with vendors. These processes take up time and dollars – all of which can easily be replaced through automation. Delivery, routing, checks, and processing can now all be done by technology. Organisations can keep tabs on spend by simply automating the most mundane of paperwork, freeing up precious employee time to engage in more value-added work, more strategic thinking.

Becoming more strategic enables much sought-after resiliency as firms strengthen ties with their supply base and better track overall performance targets and cycle times.

Data is king. Embracing full data transparency is another key benefit of automating procurement processes. Keeping up with multiple paper trails is archaic, especially now where there is growing concern surrounding data security. Vital information could get lost in unwieldy trails which pose a potential threat for any organisation.

Automated procurement platforms allow data to be documented and accessed through secure dashboards or trackers, better enabling businesses to act on this information. This leads to optimisation of core processes and visibility across orders, performance, spend, and cycle times. Businesses can’t start to begin developing the aforementioned resilience if they don’t have the right data from which to benchmark.

Last but not least, in a complex world, simplicity is a major boon. Automation helps simplify supplier onboarding and improve supplier diversity. With easily deployed technology solutions that are already readily available in the marketplace, smart operators can leapfrog from legacy systems to adopt next-generation supplier relationship management. Onboarding suppliers becomes a much smoother and simpler process, with less ambiguity, and increased efficiency and compliance.

Building back better, with procurement

Today, there are many solutions and platforms out there that can help organizations get smarter and more efficient with supply chain management. Picking solutions that are not one-size-fits-all but instead flexible enough to support your unique business needs and challenges will be key.

The global supply chain industry can be reasonably predictable if we know when and where to look and maneuver accordingly. Black swan events cannot be controlled, but better preparedness can make a world of difference when it comes to staying resilient amidst disruptions.