Traditional procurement processes can be characterized by manual and resource-intensive activities. Even where some automation is in place, there can be unacceptable levels of manual transactions and activity to address exceptions, ad-hoc purchases or specific project requirements.
Plus, many companies still use very traditional tools, such as
- emails
- spreadsheets
- and phone calls
to engage with their suppliers. This activity, not just constrained within the Procurement function itself, makes for an often confused and costly engagement with suppliers.
This paper asks the question why? when there are automation tools specifically to address ad-hoc, project and more complex purchases that can be integrated within current processes and automation tools.
The Full Traditional Approach
A traditional procurement process is characterized by manual events, including many small, repetitive tasks. These tasks could be anything from approvals, writing RFxs contracts, negotiations and discussions of bids. Typical phone calls between a buyer and a seller can take an average of six minutes per call for basic interactions.
Traditional processes are also characterized by many email exchanges, sometimes with attached order forms or order forms pasted into the email. Changes to requirements are often sent through by follow-up emails.
On receipt of goods, any issues are similarly addressed with emails exchanged within the organization and with the supplier. Plus, acceptance of goods processes are often overlooked and invoices remain unpaid until some manual follow-up actions are taken by the supplier or finance function.
Documentation
Typically, with a traditional process, documents are printed out by multiple parties and filed away for a specific functional team’s requirements. Or used to obtain signatures for approval purposes.
Managing approvals, invoices and bills this way is both wasteful and costly and of course prone to errors and loss of paperwork. Plus, there have to be sufficient people to manage the processes, with business expansion resulting in a direct correlation to an increase in headcount.
Samuel Greengard the author of “The Route to Better Procurement” states that “traditional procurement could be costly due to the presence of many ledgers associated with many suppliers.” Whether these ledgers are in the paper, spreadsheets or email folders the issue remains the same: the cost of a traditional approach will escalate out of control as an organization grows.
Understandably, procurement is a difficult process to manually control across an organization:
- many groups with multiple users involved
- individual departments responsible for an element of the overall process
- blurred responsibilities across department boundaries
- no overall control
- miscommunication between individuals and the many suppliers involved
Spend Control
Spend control, In such an environment, is typically triggered at intervals to try to get “spend under control”. Possibly using consultants to explore where all the money is going!
Trying to manage cost in such a reactive way just makes things worse. Why wait until things are out of control before addressing your spend. Also, why use consultants to sort out your poorly maintained documentation and processes: why not provide the consultant with the data and tools they need to be more efficient with their time.
There is also the trap of “spend under management”: if I can achieve over 60% of my spending under the management of Procurement surely that is my job done. Other, more difficult and complex spending areas, I can leave to other department heads and their budget control. This is very traditional thinking over what can be achieved.
The Part Traditional Approach
So, you have invested in a Procurement automation system that handles suppliers and provides a mechanism for users to raise requests. It allows you, as Procurement, to manage the Direct Spend of your organization and provide a service to users to handle their non-Direct procurement requests.
Your system has a process to follow that reflects what you need as Procurement.
This approach partly automates and manages to some extent the transactional activity. However, much of the interaction with suppliers will occur outside of this process. Plus, there will be a tendency to work around restrictive processes that do not reflect the specific needs of users and departments throughout the organization.
Process flows of these Procurement automation systems typically follow a rigid path and there can be no flexibility on the process steps that have to be used. Whether the user needs some paper or a forklift truck the process is the same.
Supplier interaction
A critical issue is the need for users to interact with potential suppliers. Often the user is the expert and knows exactly what they require. However, if the automation process will not allow for this interaction, they will fall back on traditional contact routes to suppliers. Bypassing any system that could provide an audit trail of transactional activity.
The answer, of course, is not to change this system. Replacing one dinosaur with another will not help. The key is to address the user’s need not just the need of the Procurement and Finance departments.
Using Flexible Spend Management Process Automation
A key component to overcome these challenges is automation integrated into your current business systems. Linking buyers and sellers into one single platform. Plus, importantly, providing a flexible mechanism for users to make purchases, without involving Procurement in the day-to-day transactional activity.
If you already have a Strategic Procurement platform (Part Traditional), then augmenting this with an effective Spend Management solution, that provides procurement portal functionality, could be the answer to reducing cost and time wastage.
A flexible procurement portal removes any repetitive lengthy operations associated with the approval, contracting, negotiation, and discussion and replaces them with more automated processes and the use of standard forms.
A Spend Management platform improves visibility. Bringing all users, procurement professionals, and supplier transactions onto one platform. Suppliers, delivery, and financial information are then tracked in one consolidated system.
Integration
Additionally, integration to your key systems, such as payment systems and warehousing software, is achieved. Ensuring that the loop is closed from supplier selection right the way through to invoice payment on all purchase activity.
Dashboards provide users, and Procurement, with holistic information relating to any. Resulting in visibility and control over every transaction locally, nationally, and globally.
Note: using a cloud-based Spend Management solution enables access anywhere and at any time. Ensuring that significant efficiency gains can be realized across a geographically dispersed organization.