What, How, and Why of Procurement Automation?

Procurement Automation

Learn why businesses are moving toward procurement automation and how it benefits a modern business.

According to the American Productivity and Quality Center’s Open Standards Benchmarking in Procurement study, 82 percent of the respondents use some form of e-procurement, with another 6% planning to do so in the next two years.

More than half of Chief Procurement Officers (CPOs) acknowledge that the underuse of automation tools in procurement processes is a significant issue that must be addressed. But why are businesses moving more towards digitization and automation even though it requires substantial investment?

What is Procurement Automation? 

Procurement automation is the process of automating time-consuming, mundane, and labour-intensive tasks of your procurement department to increase efficiency and reduce the time it takes to complete them. 

It frees you up from mundane tasks and helps to focus on critical functions like decision-making and planning. It synchronizes all components and sides of the supply chain with the help of automation. 

You may not only automate regular operations (receiving orders, paying suppliers, invoicing purchasers) but also manage your processes in a more effective, predictable, transparent, and secure way by integrating them into a single platform. 

A procurement software, for example, can provide you with accurate information on your organizational requirements so that you can immediately execute a contract with a listed or new supplier for automated dispatch of products when inventory hits the minimum level.

How Can it Help Procurement Transformation? 

Traditionally, procurement involves manual and resource-intensive activities that delay the entire process and consist of multiple human errors, which eventually cost the organization considerable money and time.

Procurement Automation ensures Faster Approvals 

Delay in order is just a symptom of a problem underneath, which is essential to address. The issue arises at the beginning of the procurement process when purchase requisitions and purchase orders get stuck for days in the approvals.

At times, even the processing requests take time due to the hierarchical approval structure. However, by adopting procurement automation software, you get clear visibility on the journey of the approval process. 

Let’s suppose a purchase requisition for the required goods has been generated from the procurement department but the order has not yet been placed. It helps identify where the approval process is stuck within the organization and which individual is responsible for the delay. 

Automating your procurement process enables you to reduce downtime during the ordering cycle, eliminate duplicate procedures, and allow procurement employees to achieve more in less time.

Procurement Automation Improves Supplier Relationships 

Businesses need to have a smooth flow of information and practical communication. Suppliers need to know your exact requirements, and likewise, companies need to understand their competencies as per their needs. Transparency and collaboration are necessary for healthy and long-term supplier relationships across the supply chain. 

Procurement automation enables your suppliers to communicate in real-time and follow the purchase order system status, their payments, feedback on the product or service, and so on. With automated purchase order acknowledgment, all of the information regarding an order is contained in one place. When a retailer receives a POA from a supplier, or if they don’t receive it within a given length of time after sending an order, they might be notified.

Order acknowledgments eliminate time-consuming and costly concerns such as manually managing order status with suppliers. It also saves the organization from ordering and retaining more inventory than is required. This enables teams to focus on more critical tasks to help the organization become more competitive in the market. 

Procurement automation also allows the creation of PO invoices digitally; this process is also known as a purchase order flip. Every line of the purchase order is electronically received, and the information is used to generate e-invoicing. This not only speeds up the invoicing process but also boosts efficiency and reduces the risk of error.

Procurement Automation Improves Data Centralization

Bits of information at multiple hands limit an organization from seeing the whole and bigger picture of the processes in the organization. This also creates silos in an organization that limits collaboration and create a hindrance in effective decision making. 

With the help of procurement automation, you can centralize your data and make the entire process and the order journey visible to all stakeholders. This acts as a single source of truth that grants access and helps monitor all transactions within a procurement system. 

Moreover, data centralization enables organizations to maintain a consistent track record of inventory, purchase requisitions, pricing lists, suppliers, orders, invoice management systems, contracts, and so on. It also presents a more clear view of organisational spending and reduces maverick spending. 

That saves time and quickly resolves any concerns within the organization and allows for successful supplier evaluation, cost reductions, and the maintenance of good supplier relationships.

Procurement Automation Increases Overall Productivity 

By automating your whole procure-to-pay cycle, your internal stakeholders – including budget owners, financial teams, legal specialists, and senior management – can receive real-time information on everything in the overall procurement cycle. That helps them ensure costs, efficiency, and compliance among the variables. 

Because manual processes are no longer required, all stakeholders have more time to focus on strategic work with the automated system. In addition, they can quickly obtain the necessary information without navigating through different systems or encountering bottlenecks.

With the removal of time-consuming and error-prone manual operations, procurement automation enables better management of the whole procurement cycle, thus improving overall productivity.

Procurement automation also improves the productivity of external stakeholders such as suppliers and partners by keeping everything available with a few clicks and providing them with an efficient way to collaborate with your business.

Why Is Procurement Transformation Essential Now? 

The effect of the COVID-19 epidemic is the single most significant problem that procurement organizations have encountered in the twenty-first century, demonstrating how interwoven and frequently fragile supply chain connections are. 

Procurement departments are frequently reliant on paper-based processes or antiquated technologies that refuse to evolve. As a result, it’s hard to obtain insight into the hundreds of suppliers they operate with and assess business continuity using such ineffective systems. ​

Amid COVID-19, businesses had to respond in a way that ensured the safety of their employees. Not only did companies have to cope with COVIDs’ impact on procurement, but they also had to do so while dealing with a large number of employees working from home amid a pandemic.

It is also true that many businesses have now realized that procurement automation is more important than ever. Procurement automation has the potential to reduce the negative impact on your organization brought upon by the present economic situation. 

Procurement automation systems assist in cooperation and engagement between the stakeholders along the whole procurement value chain, including planning, sourcing, contract administration, order fulfillment, payment control, and supplier management.

It enables employees to work from anywhere globally while helping businesses keep track of their performance and assignments. Instead of having meetings with suppliers, procurement automation software provides an efficient way to shortlist, onboard, and collaborate with suppliers in real-time.

Conclusion

Within three years, 60 to 70 percent of existing processes at major procurement companies may be automated, based on current adoption rates. Why? Unlike many other enterprise technologies, automation delivers immediate benefits such as cost savings, increased efficiency, staff reduction, and improved service. 

Each procurement organization will address these issues at its speed, but waiting is not an option. Procurement companies that overlook procurement automation risk falling behind. No business can afford to remain on the sidelines while competitors gain the advantages.

Those that begin now will have a greater chance of realizing the full potential of digitalization and becoming the innovation hubs that drive success.

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Mohammed Kafil

Mohammed Kafil

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 software that streamlines the end-to-end procure-to-pay process, 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.