Top 5 Ways Automation Can Improve Your Procurement Strategy

Procurement Automation & Procurement Strategy

Learn how your procurement strategy can be greatly improved with automation.

Efficiency is critical to businesses in this age and time where every advantage is needed to carve out a place in today’s ultra-competitive markets. All redundant and time-consuming tasks cause operations to lag, affecting the productivity of entire organizations. Unfortunately, such processes are particularly dominant in procurement departments. However, now technological advancements have enabled superior solutions to aid with automation. 

Procurement automation refers to digitalizing the procurement workflow to transform time-consuming, menial, and labor-intensive tasks through sophisticated software to increase its efficiency. It is designed to liberate organizations from mundane tasks to free their resources to focus on other critical areas such as decision-making and planning. As a result, automation holds tremendous potential to enhance the work of procurement departments and improve organizations’ internal strategies.

Procurement Strategy Improvement Powered by Automation 

Automation takes over labor-intensive tasks and allows for centralized control, seamless communication, and enhanced visibility. The advantages it offers can enhance an organization’s procurement strategy and operations in several ways:

  1. Eases Policy Implementation

When organizations deploy a designated software, it provides them with a centralized platform to access and adjust data, policies, and processes. A manually operated procurement department suffers from communication gaps and enables behaviors like rogue spending to go rampant. Implementing new procedures like changing or adding to approval workflows can become problematic as manually communicating and enforcing them becomes a challenge.  

On the other hand, automation creates a central channel for the procurement workflow, negating the need for lengthy meetings or phone calls to relay messages. Stakeholders can be notified of any new changes in policies or processes through notifications, and the approval workflows, etc., can be set up and improvised upon by relevant authorities digitally. So, even if employees miss notifications, the digitally imposed workflows shall ensure that discarded practices have not been followed. Automation’s ease in policy implementation can significantly streamline a procurement department’s work.

  1. Helps Set and Measure KPIs

As the procurement department holds a critical position in the supply chain, measuring its performance is crucial. KPIs allow organizations to judge the efficiency of their operations in the form of factual, numerical information. They provide insights into what processes need improvement and can let employees have a clear picture of the organizational goals in mind so they know what to aim for.  

Traditionally the KPI measurement process required manual tracking and calculating data points in the form of transactions entered at different stages and times, making the process time-consuming and prone to errors. However, automation uses cloud-based purchasing software solutions, which constitute modern reporting tools to allow for instantaneous access to data and its swift analysis.

Sophisticated procurement software further has function-specific tools that allow reporting of all historical and real-time KPIs regarding POs, delivery, invoice approval app, payment terms, three-way matching, etc. These can be accessed in the form of custom reports that show key metrics, providing organizations with flawless insight into key performance indicators. This enables businesses to calculate KPIs and lets them maintain a record to keep an eye on their growth and development over time. Any negative trends in performance can be recognized quickly, allowing for a quick assessment to build strategies to fix them.    

  1. Drives Operational Efficiency

An increase in efficiency entails improving the internal working of a business. An organization’s operations need to be cost-effective, make the most out of the available time and resources, and deliver products of quality. 

Automation provides the immense potential to boost operational efficiency. As the procure-to-pay system’s cycle becomes digitized, mundane, time-consuming tasks like keeping track of transactions, processing payments, generating receipts and invoices, collecting signatures, updating records, etc., do not have to be performed manually. 

This improves the strategy as it frees employees to focus on strategic work. In addition, the ability to set approval workflows ensures that employees do not have to face delays due to a lack of communication. With access to real-time data, the decision-making powers of stakeholders are enhanced as well. Processes prone to errors like data entry, invoice processing, and three-way matching become automated, ensuring that the work done by the department is of quality. All these factors allow organizations to produce better output faster while reducing any waste of inputs, effectively enhancing their efficiency. 

  1. Helps Identify and Build Strategic Relations with Suppliers

The unautomated supplier selection process involves going through a multitude of different supplier catalogs individually, placing numerous phone calls, maintaining a record of updated information on discounts, etc. It hardly allows any insight into past performances of suppliers and makes the process of tracking their performance a challenge. 

On the other hand, digitalization allows access to real-time data on prices and performance metrics. A centrally employed software enables organizations to maintain a single, detailed record of suppliers’ operational performance statistics, history, reviews, and current financial health. The insights revealed by tracking performance allow companies to easily round-up suppliers of strategic importance known to offer quality goods and timely deliveries.

After identifying such suppliers, firms can move on to build long-term, profitable relationships with them. A lack of transparency between the parties involved in transactions can deteriorate goodwill and ruin relationships. Automation comes to the rescue by allowing visibility and clear disclosure. The buyer’s expectations can be clearly communicated, and any grievances can be identified and resolved at speed. Real-time communication becomes easy, and tracking the status of orders becomes quick. Suppliers can raise invoices, track purchase orders, and manage payments easily through Vendor Portals. These features allow for consistent payment processing, letting organizations maintain healthy relationships with suppliers. 

  1. Helps Mitigate Supplier and Spend Related Risks

Lack of visibility of processes and policies and poor communication between employees can pose multiple spend-related risks for organizations. For example, employees may begin purchasing from vendors outside of the company-approved list of suppliers, the organization may not have clear insight into its spend patterns, frauds may be left unchecked, and dark purchasing could be rampant. In addition, the supplier side may bring with it its own set of risks arising from inconsistent quality, delayed delivery, etc. Manually having to keep track of such problems and inconsistencies can be detrimental to the efficiency of procurement teams. 

Integrating automation with vendor management systems can alleviate such burdens. Centralized approval workflows mitigate the risk of purchasing from unauthorized vendors, chances of fraud, etc. All spend data is gathered automatically and can be reviewed through custom-made reports. Moreover, supplier-related risks like accidental contract breaches made due to maverick spending, getting poor quality goods, not having legal protection, etc., are negated as organizations set up their software to allow purchases from a consolidated list of quality suppliers.   

The Bottom Line

Over the years, procurement departments have relied on paper-based processes or archaic technological tools. As a result of such ineffective systems, their procurement strategy and evolution have been slow. As technology advances and competition forces slow businesses out of line, the investment in procurement automation is a decision organization can no longer delay making. It enables superior cooperation between stakeholders and easy onboarding of suppliers, mitigating the need to hold countless meetings and phone calls. As a result, the cost and time savings it enables are incomparable, and the enhancement of efficiency is undeniable. 

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Prasanna Rajendran

Prasanna Rajendran

Prasanna Rajendran is the Vice President at Kissflow, where he heads the business operations of Kissflow Procurement Cloud, a flexible procurement software for procurement teams to streamline all their purchasing processes in a single place. He has over 20 years of experience in technology and has helped Fortune 500 companies with custom solutions in the sourcing and procurement space.