A procurement strategy is a corporate supply purchase plan that meets two key goals: reducing risk and reducing costs. The procurement inherently carries risks: significant orders are placed incorrectly, delivery is later than expected, and suppliers fail to satisfy the buyer’s conformity norms. Add a complex supplier web, and there’s plenty of chance for error. In addition, the chances of cost inefficiencies are high.
Comparing costs across vendors and implementing budgets is crucial, but the two are a time drain and place an organization with no dedicated procurement team. Fortunately, technology is enhancing its likelihood of success by automating several components of a normal procurement strategy. Below are seven ways in which automation is used to lower both procurement costs and potential risks.
Benefits of Automation For Your Procurement Strategy
- Increases Trust and Reliability in Supplier Relationships
Transparency and a clear line of the disclosure are required when establishing long-term supplier relationships. Procurement automation aids in the establishment of clear real-time communication between the buyer and the supplier, allowing for easy order tracking, time and cost savings, and quick grievance resolution. In an automated purchasing system, responsiveness is great, allowing buyers to assign orders to the best offer and suppliers to respond swiftly to bids.
- Bundles Orders
Consolidating orders under one vendor or acquiring bulk goods for discounts are other means of cost savings. By combining orders across a company’s numerous locations, automation can help. This raises the potential for large orders to save and minimizes the number of compliance documents that the company needs to submit. This method is particularly useful for companies with strict supplier skills as a single supplier’s order removes the need for repeated conformity inspections and accompanying documentation.
- Organizes Data
One of the biggest threats to a procurement plan is disorganization. When information is scattered or missing, employees waste time looking for it, and the potential for human mistakes skyrockets. All procurement information may be centralized in one location with the correct technological solution, making vendor and buy administration fully automated.
The need to visit dozens to hundreds of websites individually or remember many log-ins and passwords is eliminated by centralizing the buying procedure in one spot. Placing and approving orders becomes a more efficient, allowing everyone on the team to save time.
- Reduces the Amount of Time Spent on Purchasing
If time is money, then automation saves the finance and the operations teams a lot of money by evaluating items and making orders with multiple vendors simultaneously. In addition, it’s possible to use vendor management systems to virtually automate orders, eliminating the need for a team member to order a product in high demand regularly. The repeat order can instead be set up as a subscription so that no one has to remember to place it.
This feature helps to expedite the ordering process. Faster ordering means faster delivery, lowering the risk of late shipments for organizations.
- Reduces Uncontrolled Spend
Rule-breakers frequently hinder procurement strategies. Employees sometimes go rogue and make purchases outside of allowed processes because there is no technology in place to organize and manage spend. Unapproved spending is bad for a firm since it breaches the budget, even if it isn’t always done intentionally. By pushing staff to follow a process and stick to a budget, automation can help reduce tail waste.
By definition, technology follows the rules, so it will not enable purchases that exceed the budget without the assistance of a system administrator.
Finance teams can easily enforce budgets, and decrease tail spend thanks to these technical constraints. In fact, according to a BCG study, organizations that use digital procurement systems reduce their annual spending by an average of 5% to 10%.
- Invoicing is made Easier
Finance departments must handle a time-consuming process of tracking and paying receipts and invoices to maintain track of expenditure across vendors. By eliminating, tracking, and centralizing all invoice data, automation streamlines this procedure. This simplification saves finance teams a significant amount of time while lowering the chance of errors in their reporting and tax filing.
- Provides the Information Needed to Evaluate the Success
A plan to gauge success should be part of any successful business strategy. Spend data is one of the most telling indicators for procurement teams. It can take a long time to recover and organize spent data. However, automation makes it a lot easier. Vendor management solutions keep track of spend data in one central area automatically. Finance and operations teams can now run spending reports and conduct analysis in a fraction of the time it would take them to do so manually.
Some Other Benefits of Automation in Procurement Strategy
- Enhanced Visibility
Supplier and cost information is at your fingertips with an automated procurement process. When all of the information for a transaction is in one place, tracking orders becomes considerably easier. Furthermore, the data acquired provides you with greater transparency up and down your supply chain, allowing you to have a real-time view as well as a more comprehensive assessment of your supply chain’s overall health. In addition, you can obtain insight into next-tier suppliers and upstream value chains by exchanging data with your suppliers.
- Superior Quality Assurance
To simplify your quality control operations, procurement automation technologies manage the incoming inspection of supplies, placing parts in a quality queue and flagging them for review. If the item(s) fails inspection, the reviewer enters the reasons into the tool and works with the supplier to determine how the material should be handled.
- Maximized Efficiency and Resources
When the procurement function is automated, the order process speeds up, resulting in reduced lead times and increased efficiency. Managers can use automation to allocate team members where they’re most required, rather than assigning them to low-priority activities that can be automated. In addition, it increases communication with internal stakeholders and vendors. For example, the finance department can secure more timely and accurate reports. Other departments’ purchasers can rapidly find out where their orders are, and the C-suite may make strategic business decisions based on data.
- Compares cost across vendors
Identifying vendors with the lowest costs is one of the most obvious ways to deliver on the cost-efficiency component of a procurement strategy. Manually doing so, on the other hand, can take days or weeks. Thankfully, vendor management systems can perform a lot of the legwork for you. This guarantees that your company gets the greatest discounts without depleting your team’s resources.
Procurement automation provides a significant amount of advantages to any firm. Cost savings are improved as off-contract, and non-catalog spending is reduced. More activity, including tail spend, can be brought under management. The procurement team now has a far better view of all of its operations, allowing it to minimize risk and maximize efficiency and resources.
For more information on Procurement Automation, contact Procurement Partners.