Achieving Excellence in Procurement Processes via Emerging Technologies
Achieving excellence in procurement function can mean different things to different business professionals. It may imply risk management, while it may imply increasing competitiveness or working on company goals to others. To achieve this, procurement executives must have their fingers on the pulse of the procurement processes. It requires them to constantly identify issues and bottlenecks within the methods and find ways to improve them.
Several procurement functions still have manual processes, resulting in error-prone and time-consuming processes and highly inefficient and expensive. Let us look at some of the key procurement issues that adversely impact the function:
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Cost Efficiency
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Purchasing Costs
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Modernizing Procurement Application Platforms
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Strategic Sourcing
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Procurement Agility
Reducing the total cost of procurement is the most critical issue for procurement organizations in 2021. Top organizations will leverage high-performing talent and an optimized service design.
Reducing purchasing costs has consistently been a top priority for procurement organizations, indicating that providing core services is essential for success.
Enterprises modernize the procurement function via technology leading to improved agility, customer-centric processes, and cost efficiencies.
Spend influence is among the top measurements of procurement’s performance, leading to reduced purchasing costs, improved quality, and better strategic outcomes like product innovation
Becoming an agile enterprise means developing agile behavior at the functional level. Enterprises are increasingly investing in procurement transformation to engage closely with their ecosystem of suppliers.
Digital transformation solutions enable efficient processes and help procurement teams play an essential role in accelerating enterprise innovation. According to an IDC study, the worldwide procurement applications market will be $7.4 billion by 2024, growing at a 5.9% CAGR. Some of the emerging technologies in procurement are Blockchain, Internet of Things (IoT), Augmented and Virtual Reality, and Artificial Intelligence.
Blockchain
A blockchain is a distributed, digital ledger, which allows transactions to be completed on a peer-to-peer basis, with no centralized authorizing agency. Blockchain is a secure method for tracking a product’s veracity from sourcing to payment across its lifecycle. Because blockchain eliminates middlemen, speeds up transactions, and makes transactions traceable, it boosts trust among all parties involved.
Smart Contract
One of the applications of blockchain in procurement is a smart contract. A smart contract is an executable code (i.e., a software program) that executes the contract on top of the blockchain. It automatically produces a result or triggers an event when particular circumstances are met, such as releasing payment to the relevant party or parties. When pre-set terms and circumstances are met, these tamper-proof agreements can automatically execute between two or more parties. Smart contracts can self-verify and ensure that the conditions of the contract are followed. The entire transaction’s value and terms are fully integrated and visible to all parties, with each stage of the process being recorded on the ledger when its conditions are met.
Supplier Selection
Another blockchain application in procurement provides access to an immutable, secure, and shared database to all supply chain parties involved in procurement processes. It could be potentially used during the supplier selection process. Having been registered under one platform, companies can resort to the accumulated data associated with the suppliers’ portfolios, the service level agreements, and complaints. To put it another way, procurement managers can use the blockchain backlog to learn more about a supplier’s identity, reputation, and historical performance, thereby reducing the risks of doing business with them.
Internet of Things
The Internet of Things (IoT) refers to sensors, actuators, and data communication technology embedded in physical objects to help identify, track, and control their movement through the internet. These technologies generate data collected, routed through cloud storage on the internet, and then analyzed by the concerned information system.
Warehouse Streamlining
IoT systems in warehouses generate inventory data that helps procurement teams monitor stock levels. IoT-enabled warehouse platforms deliver a steady flow of real-time information on inventory levels and location since RFID tags and sensors enable the collection of data and the identification of commodities at the item level.
Transport Tracking
One of the key goals of smart transportation applications is the effective movement of commodities and merchandise. IoT can transform this space. Logistics departments are already using GPS to track and route vehicles. By using a GPS device and sensor inputs for products in transit, purchasing manager can gain access to the location of the shipment, as well as its condition (i.e., temperature, humidity, etc.). As a result of this easy accessibility, company procurement managers can keep in touch and sync with suppliers, lowering the risk for the organization.
Augmented Reality and Virtual Reality
Augmented reality and virtual reality (commonly abbreviated as AR and VR, respectively) are reality technologies that either enhance or replace a real-life environment with a simulated one.
Virtual Stockrooms
One of its applications in procurement is using an AR/VR-enabled hardware system to browse a digital catalog or an e-tailer website for a product or service. When customers order new things from catalogs, potential buyer misordering is a typical problem. Even from the better catalogs with clear product photographs and detailed descriptions, the buyer may not discover their error until it arrives at their doorstep. Virtual stockrooms can help mitigate this risk by allowing buyers to look and evaluate products in greater detail before making a purchase decision. People can try out a real demo to determine its worth rather than make a purchasing decision based on seeing a product picture or reading about a service.
Artificial Intelligence
Artificial intelligence (AI) is a field of computer science that focuses on creating intelligent machines that can accomplish activities that would typically need human intelligence. AI is an umbrella term that includes any software or hardware component that supports machine learning, computer vision, natural language understanding (NLU), and natural language processing (NLP).
Spend Analytics
Clear, thorough, and accurate spending data is required for financial analysis, reporting, and planning. Procurement spending can be divided into categories and subcategories using machine learning techniques. By enriching this data with additional information from the web, AI-powered spending classification enables improved analysis.
Contract Management
Unstructured contract documents can be converted into structured enterprise data using artificial intelligence. AI in contract management can assist businesses in detecting business risks and opportunities. Companies can use Natural Language Processing (NLP) to scan and interpret extensive and wordy legal papers for possible cost savings. As AI understands contract language and clause meanings, it transforms contract management from a static document management system to a dynamic, strategy-making machine.
Procurement roles will get more powerful and influential in the future. Strategic procurement will emphasize procurement technologies that offer better business insights and smoother vendor collaboration. Procurement teams can step up their game by reinventing traditional processes and adopting new procurement technologies. Technology is indeed proving to be a tremendous benefit for a wide range of procurement and supply chain tasks, allowing businesses to harness valuable data, enforce compliance through policy, manage to spend for improved visibility, and improve operational performance. Investing in new technologies and having a solid digital strategy procurement can help organizations lead the pack in the battle for a more robust value chain, more significant competitive advantage, and a genuinely agile and resilient firm.