As much of the business world continues down the path toward automation and digitization, the procurement department is one area where manual processes still prevail in many organizations. Not only are these processes time-consuming and error-prone, but they’re also expensive and inefficient.
The lack of automated processes in the procurement department are well documented. In its recent report, The CPO Agenda: Keeping Pace With and Enabling Enterprise-Level Digital Transformation, for example, The Hackett Group found that just 32% currently have a formal digital strategy, and only 25% say they have the necessary internal resources and competencies to support digital initiatives.
In The True Cost of Manual Sourcing, Andrew Durlak mentions a recent Harvard Business Review report that identified non-customer-facing operating activities—including procurement and sourcing—as “lagging” behind customer-facing counterparts in the use of advanced digital technologies.
“The lack of technological integration and automation in this area is particularly problematic,” HBR notes in its report, “given the increasing pressure to run the business efficiently, make strategically aligned decisions around the globe, provide valuable insights, and improve collaboration across the board.”
5 Areas to Watch
In his article, Durlak concludes that manual processes are not only holding back innovation within the sourcing function, but also costing businesses in ways they don’t even realize. Specifically, here are five ways in which manual sourcing is holding procurement back:
- Lost hours. “From tracking down vendor information in lengthy email chains to reviewing contracts, manual sourcing practices take a toll on employee efficiency,” Durlak writes. To solve this problem, companies are leveraging strategic sourcing platforms that automate time-consuming tasks and create a centralized repository that procurement can use for good decision making.
- Too much paper and too many files. When procurement contracts are stored in hard-copy or PDF form, procurement can’t rapidly-access detailed specs, negotiated terms and conditions, indexed pricing, and penalties. “An intelligent content extraction solution enabled by machine learning can convert static documents into data points for review and action,” the Wall Street Journal “A cognitive computing solution can read, interpret, and recognize multiple unstructured, disparate sources of spend information and build a single, constantly refreshed source of supplier spend. And connected sensors that digitize the status and transaction of raw materials can capture changes in demand, delivery, and consumption.”
- Missed savings. By speeding up tasks like vendor selection via an eSourcing platform, businesses can make faster, more impactful decisions, Durlak points out. “That means entering vendor relationships that provide the best quality for the lowest price,” he writes, “without months of manual comparisons.”
- No go-to source of information and data. Without a centralized “go-to” source for information about suppliers, pricing, and other critical points, purchasing agents are forced to consult with myriad internal and external sources to find what they’re looking for. “Since these tools are decentralized, a procurement officer has very little visibility into the procurement process, which can lead to compliance risk issues and savings leakage,” writes Andres Kuus in Pros & Cons: 3 Different Methods for Managing the Procurement Process. “With the details getting overlooked in the shuffle, the likelihood of a communication breakdown between procurement and internal customers or suppliers is very high.”
- Inefficient processes. According to HBR’s report, enterprises that implement strategic sourcing methods and processes can see returns of five to 10 times their original investment. “High-performing sourcing and procurement functions save $82 for every $8 in cost to procure, according to Accenture,” HBR notes, “effectively saving more than 10 times the cost of the procurement function.”
As the end-to-end supply chain continues digitizing and automating—and incorporating everything from robotics to artificial intelligence (AI) to blockchain—procurement departments worldwide will look at new ways to leverage these innovations. “Disruptive technologies—mobile computing and the cloud, constant connectivity, and sensors that enable devices and machines to form the internet of things,” Deloitte writes, “are now paving the way for new applications and capabilities across the supply chain that will enable procurement to offer even more strategic value.”