To remain competitive in today's changing market environment, going digital is the key.
One year on, how have manufacturers adapted to the ongoing components shortage? What’s the outlook in 2022? What strategies would help improve the resilience of manufacturers’ supply chains? These and more in this month’s In Focus series.
Regardless of dependency on conventional systems, all electronics manufacturers have a common goal to achieve efficiency in their processes. Not to forget, the suffering inflicted by the same old systems is finally causing the digitization of procurement processes to gain traction, particularly among more prominent firms.
According to research from The Hackett Group Inc. adopting digital transformation can help procurement businesses reach higher levels of efficiency and effectiveness including 25% lower costs and 2.5x greater procurement ROI
Industrial firms are now balancing supply chain cost and risk optimization, reevaluating partnerships, and utilizing digital technologies to improve the supply chain, and adopting sustainable procurement best practices.
Sustainability with Digital Procurement
Procurement organizations that are serious about sustainability and seek to get the most out of it have the following characteristics and practices:
Digital Transformation enables the following Strategies:
According to The Hackett Group’s study, digital transformation may help average procurement organizations save 30% of expenses in their processes. Have you wondered how? With manual procurement, there comes an unlimited amount of human-prone errors. And to address those errors, organizations have to spend more resources such as time and money.
By using automation, you can eliminate resolution costs by streamlining the processing and doing it right the first time. In addition to this, digital procurement replaces the repetitive process and utilizes your staff in other critical tasks that helps you cut additional costs.
Moreover, organizations can use procurement automation to do three-way matching to assure a risk-free purchase, authorise invoices with an invoice management system, and generate errorless payments to the vendors.
Supplier Relationship Management
These strategies should be used to create long-term partnerships with suppliers who can operate sustainably. That entails establishing a systematic process for evaluating supplier performance while preserving long-term values that benefit people and the environment.
To meet these demands, digital procurement tracks the performance of suppliers and offers a better understanding of their operations. This can be done through reporting and the relevant intelligence generated by procurement software for continuous analysis and decision-making.
By digitizing the procure-to-pay cycle, manufacturers can enhance collaboration with their suppliers by providing them clear visibility on the requirements, enabling them to submit proposals against it, receive purchase orders with a purchase management system, and generate invoices—all through an integrated platform.
Moreover, with automation payments can be released to the suppliers on time, thus helping manufacturers maintain a healthy relationship with their suppliers.
Procurement not only involves ensuring a reliably sourced materials at the lowest possible cost, but it is also responsible for selecting strategic suppliers and developing deep relationships with them in order to foster innovation and differentiation.
In order to source your critical supplies, you need to expand the number of your suppliers. This is only for the critical supplies as you can not depend on only one supplier in this case. For that, you need to rely on data. Your beginning point should be the data you already have. One of the most significant advantages of automating procurement is that, over time, you will begin to combine reliable data, such as order history, supplier profiles, and contracts.
Procurement automation may help you gain understanding over your supplier performance, by assisting you in identifying pricing anomalies and determining whether or not volume discounts are applicable.
Moreover, through greater visibility into different data metrics like volume, purchase data etc, procurement automation can help in making strategic decisions like consolidating suppliers for a given product and negotiate for cost savings with the selected supplier.
Procurement automation assists in managing the amount of spend in various expenditure categories and delivers spend information of users at all levels to the concerned departments. Companies can easily track and report everything when all source-to-pay activities have been digitized and automated.
With purchasing and spending happening through every level of an organization, timely approvals are critical for efficiency and successful spend control. Procurement software provides a rigorous and efficient approval system that approves spending requests only for the products that are critically needed.
Manufacturers can lower maverick/off-contract spending with enhanced accountability and visibility into spending behaviors & increase expenditure compliance.
Manufacturers may face several types of risk with their procurement cycle that can be mainly divided into two categories:
There are many external risks an organization might face. For example, a substantial amount of products delivered by a supplier are faulty or have significant defects. In some cases, suppliers may not be able to make deliveries on time that can delay the production line. These risks not only decrease the efficiency of the whole cycle but may jeopardize the organization’s reputation.
The best approach to reduce risk is identifying it before hand and taking preventative measures. Through thorough research of supply market trends, contracts, and supplier performance scorecards, spend management systems detect threats.
To detect and reduce risk, manufacturers can track performance by cross-checking their delivery time, price and quality standards against SLAs in supplier agreements. Moreover, manufacturers can get automatic supply-market-related notifications, and receive frequent contract status updates via an automated procurement system.
Manufacturers are also prone to internal risks, and this happens when an employee or team member does not comply with the company policies, rules, or regulations related to the procurement process.
If a company’s policy is to procure sustainable items, digital procurement limits employees to purchase otherwise. That is because of the visibility and multiple checks built in the software. It also enables them to buy only from the contracted suppliers by declining approvals to non-contracted items.
To remain competitive in today’s changing market environment, going digital is the key. Most executives understand technology’s strategic relevance as a vital component of the business, not merely a source of cost savings. With the help of easy-to-use digital tools, it has now become feasible to accept change, overcome procurement challenges, and accomplish corporate goals at the quick speed required in today’s environment.
About the Author
Mohammed Kafil is a certified procurement consultant who has been coaching companies to establish resilient digital procurement operating models for over a decade now. With Kissflow Procurement Cloud, a flexible procurement management software that streamlines end-to-end procure-to-pay, and also eventually the vendor management process, Kafil helps medium and large enterprises with their digital transformation projects. In the recent past, he has also worked with Fortune 500 companies to implement platforms like Coupa, Ariba, Ivalua, and BuyerQuest.