When talking about supply chain automation, it’s worth pointing out how vulnerable the channel is to fraud and counterfeiting. And this is not surprising! Businesses spend countless hours and millions of dollars sourcing goods that could be counterfeit, often in a very short period of time. This can lead to catastrophic financial losses and loss of reputation. Better ways to procure supplies mean better cost control and a potentially cheaper bottom line for your business. If you are wondering how to help businesses achieve procurement process optimization by creating a more efficient procurement process, read on, and we’ll dissect everything further in this article!
What Is Procurement Process Optimization?
⇒ Procurement process optimization (PPO) is a set of processes, tools, and methods that correlate with the digitization of procurement processes.
According to Procurement Tactics, U.S. retail operations have an average supply chain accuracy of only 63%. This can result in significant delays and restocking issues. For example, 34% of businesses have shipped an order late due to selling a product that wasn’t in stock.
Leading companies in various sectors have widely recognized the benefits of procurement process optimization. But what are these benefits? And how exactly can procurement optimization help your company to achieve its goals?
- Automate repeatable tasks. Certain tasks once handled by employees manually are now handled by automated software, which frees up employees’ time, making them more productive and efficient. Procurement process optimization also increases employee performance since there is less workload and employees can focus on organizational priorities.
- Ensure transparency and visibility. An automated procurement system puts the entire process on one screen, giving executives a clear picture of expenditures, inventory management, and other operational areas.
- Provide data accuracy. The system becomes vulnerable to human errors, data discrepancies, duplicity, overstocking, and obsolescence. An automated procurement process achieved through software solutions ensures the complete elimination of any human intervention that requires all vehicles and goods to be recorded in real-time with 100% accuracy.
- Establish effective and error-free workflows. A digitized process that coordinates ordering, shipping, and invoicing can eliminate human errors and connect suppliers to buyers better.
Pitfalls that Affect the Procurement Process
Although software companies are trying to make the procurement process faster with their products, many businesses still hesitate to make use of such additional systems or apps. As a result, companies may find that low-code software is the answer they’re looking for. It’s built to make it simpler for non-coders to adopt tech. A great example of the benefits a low-code platform brings to businesses when it comes to outdated technology is the case of modernizing legacy banking systems.
In almost every enterprise, whether a Fortune 500 company or a new startup, there’s an overwhelming amount of information. It comes from various places like email, phone calls, employee communications, etc. The constant flow of information creates challenges for everyone in the organization, from the senior leadership down to the frontline management, who need access to information quickly when it matters most.
For effective procurement, organizations must ensure that all parties affecting the procurement process (finance, office managers, HR managers, etc) are aligned. Such alignment enables processes and technology to work toward driving efficiency and profitability.
The procurement process optimization is headed in the right direction only when all global purchasing and procurement team members collaborate with one another. This is especially important in the early stages of procurement and indirect sourcing, where the parties involved discuss product specifications in detail to ensure that both the recipient and sender operate with a mutual understanding of what’s required.
Monitoring and Controls
Proper monitoring and controls are important for safeguarding against fraud. When controlling procurement processes, you must ensure that all transactions and contracts that go through your office comply with procurement guidelines. For instance, during the development of any software application, such as a procurement process app, it is important to set metrics and key performance indicators (KPIs) to measure the effectiveness of your outcome. These metrics and software development KPIs help in guaranteeing that the solution designed provides maximum value. In addition, quality control, compliance, and complaint management are vital for ensuring that the work follows contract requirements.
Optimize Your Procurement Process for Its Effective Function
1. Develop Different Sourcing Methods
Finding the right supplier for your business is essential for maintaining high-profit margins, competitive advantages, and satisfied customers. With the development of advanced methods of communication and transport, enterprises have access to the global market and are able to buy products and services from other countries to meet obligations in a timely and cost-efficient manner.
When looking for the right supplier, keep in mind one of the most difficult challenges businesses face: the inability to source and acquire raw materials that meet their quality expectations. This results in huge losses to profit margins and puts businesses at risk of losing customers.
But how to find the right suppliers? With tools like a SERP keyword checker, you can conduct an effective search in just a matter of clicks, and obtain a list of top companies for outreach along with valuable data on their websites. All you need to do is enter a keyword that you are interested in (like “packaging materials wholesale supplier”, for example) and choose the location. The tool will compile a list of the most relevant companies to your request, without needing to crawl the web from head to toe.
2. The Need for Automation
Imagine that you are the only person responsible for sourcing 1,000 parts. Without supply chain automation, your job would be incredibly challenging. You’d have to spend much of your time tracking individual parts and finding out what was going on with them. Your invoice-matching process would take 10 times longer than it should, as you’d need to sift through every line item on each purchase order and invoice to match packing slips, order numbers, and more. Plus you’d have no way to keep track of open quotes or pending orders.
Manufacturers are facing new business challenges and opportunities that require them to automate manual processes. With the assistance of intelligent automation systems, procurement teams can be more efficient in their execution of day-to-day tasks. This helps organizations adapt to the changing needs of customers and suppliers, resulting in improved levels of service and supply chain performance. It also frees up the team to focus its attention on activities that require more specialized skills, knowledge, and expertise.
3. Analytics with AI and RPA
The demand for predictive supply chain management systems has gained traction in recent years. While conventional methods require months of observation and research to draw conclusions, new methods using Artificial Intelligence (AI) and Robotic Process Automation (RPA) have made it much easier by removing the need for human intervention and even guesswork that could bias the results.
One of the biggest challenges for supply chain managers is making decisions based on vast amounts of real-time data flowing in from their businesses. That is why they are seeking better ways to make the right decisions — leveraging insights that span across a number of data sources. Analytics with Artificial Intelligence (AI) provides these insights, enabling managers to take control of their supply chain operations and perform at a higher level.
Analytics with AI can automate many repetitive tasks, giving managers more time to take a closer look at their data and make smarter decisions. Using AI for analytics and decision-making solutions can help make businesses more agile and responsive by analyzing large data sets, delivering actionable insights, predicting future events, and enhancing capabilities like planning, prediction, optimization, and simulation.
Robotic Process Automation is also revolutionizing the way businesses optimize their supply chain operations. RPA technology enables businesses to automate mundane, repetitive tasks and processes, such as order processing, inventory management, and transportation scheduling. By leveraging RPA, businesses can streamline their supply chain operations, resulting in increased efficiency, cost savings, and improved customer experience. RPA also provides visibility into the supply chain process, enabling organizations to identify bottlenecks and take corrective action quickly. With its ability to automate a wide range of tasks and processes, RPA is becoming an essential tool for optimizing the supply chain.
4. Proper Procurement Model
Procurement processes have always been a key aspect of companies, and their strategic orientation determines their operating model. Operating models, in turn, determine how procurement and supply chain functions are organized, managed, incentivized, and rewarded in an organization. There are three dominant models of operating procurement departments: decentralized, centralized, and center-led. The business model varies depending on its size and the sector’s scope. While the ideal procurement strategy likely involves some combination of these three models, it is important to understand the strengths and weaknesses of each one.
⇒ Decentralized Procurement
Decentralized procurement is a model where individual stakeholders within an organization are able to make purchases for their department without extensive oversight. This often happens due to a lack of a formal contractual agreement between parties or due to the fact that individual stakeholders are forced to collaborate and make decisions with others in their department because no formal legal agreement or framework exists. A structure like this can be effective for many public sector organizations, but it needs to be managed carefully to avoid any drains on the organization’s resources.
⇒ Centralized Procurement
Centralized procurement is a purchasing structure that centralizes buying power in an organization to one department. This saves money with bulk purchases, easier procurement, and reduced logistics costs. The idea behind it is that if you purchase an item centrally, you will use fewer resources (time, people, money) than in the traditional decentralized model. One central entity has access to all the supply options (which are usually limited in number) and can help negotiate better prices.
⇒ Center-Led Procurement
The center-led procurement model allows any internal department to purchase what they need while being guided by experts, but without having to get permission from management. This means that the team is held responsible – for anything from help desk calls to maintenance and upgrades. This tends to be a rather common practice in the private sector but it is also gaining more traction in public organizations as well.
5. Prioritizing Mobile Procurement
Today, it’s not only possible but also necessary for businesses to be able to go through their daily processes using a mobile device. It’s become common practice to receive goods and services through an app on your phone instead of calling up your supplier, as was done in the past. It is now possible to view reports and dashboards on the go, allowing you to track business performance and make better decisions based on the information captured and analyzed.
Applications such as electronic document management applications (EDM) are no longer limited to traditional office spaces. Organizations can transform their EDM into a mobile procurement application by adding just a few provisions. Furthermore, with mobile procurement, there’s no need to guess where a purchase order is. With the click of a button on your mobile device, you can scan a barcode and be directed to a specific purchase order in real-time.
6. Invest in Staff
Your procurement team consists of members within your organization who help to buy the right assets for your business through the procurement process. Development is a crucial part of the career of every professional. It helps them to get better at what they do, make better decisions on the job, and automate the procurement process flow with modern technologies that save on costs. It also coincides with other corporate and institutional goals for businesses such as increased productivity, lowered costs and expenses, and more profits.
Besides, it is important to realize that each member brings something different. Some may have more experience with administration, while others will be better at managing the supply chain and manufacturing efficiency with the acquisition of products. The key is to find a diverse team so that each member complements the others’ abilities, creating synergy within the team and leading to better purchasing decisions.
To improve your chances of success, invest in upskilling your employees by providing them with continuous training, sharing best practices, and setting clear objectives. With very little time, money, and effort, you can grow your staff’s knowledge base, skill set, and, in some cases, roles. You can commit to professional development throughout the year or when a specific need arises within your team.
The procurement process, in a way, is an inevitable part of business planning. It highlights which products/services your company needs to fulfill certain requirements and demands. The foundation and groundwork of setting up a sound procurement department not only depends on the right tools but also hinges on having an insightful and knowledgeable staff. Some essential elements for a smooth procurement plan include a strategic approach that involves demand planning, adequate funding for future supply needs, investing in the personal development of all staff members, and implementing automation for better oversight and management.