For anyone in any doubt, the transition to Digital Procurement for the thousands of UK organizations that need to manage their supplier relationships & contracts, costs & prices, service & supply arrangements, compliances, risks, & now, ESG policies, is fully underway.
I see more & more of our UK & Global organizations transition toward using digital software solutions to digitize the management of their procurement.
However, despite the term ‘Digital Procurement’ being used to cover a multitude of different software tools & functions, I also believe that a fully digitally supported procurement function is something that is ‘achieved’ once you have all staff within your business purchasing everything from online sources.
This means everything that is required to run that business, from sourcing the right suppliers & prices right through to contracting, reviewing, integrating, ordering & even blocking & removing – & of course, invoicing & payment – is being purchased online.
When looking at any procurement tech, you’ll come across the terms ‘Best of Breed’ & ‘Best in Class’ or ‘Suite Provider’ – this isn’t anything to do with dogs or sofa’s, in fact it refers to the differences between the various software houses & whether they provide a solution for one specific area.
These areas include Business Intelligence or E-Sourcing (Best of Breed) or a full procurement software suite covering everything from Sourcing to Contract (S2C) or Sourcing to Payment (S2P).
Both approaches have positives & negatives, depending on the size, scale, complexity, requirements, expectations, & above all, budget planned in place.
For larger organizations with deeper pockets, it has always traditionally made sense to go for an all-in-one solution (or so you would think).
Putting ‘safe’ money with a trusted & well-known provider – but surely thinking about this in reverse, each element or module of a software suite needs to be that much more capable & feature rich due to the increased requirements in a larger organization.
Just because I COULD borrow my friend’s tractor to deliver pizza, that doesn’t mean that I SHOULD. (Although, it does sound quite fun, talk about farm to plate!)
So that means Best of Breed rather than a Suite is better for larger organizations?
Depends who you ask…
In my experience, there are 4 key elements that are critical to be integrated as part of the same software suite when trying to drive cost savings & sustainable purchasing policies within an organization.
So, when we talk to our customers about Sustainability & Digital Procurement, many of them have committed to ambitious ESG & Carbon Reduction goals, without the necessary understanding of the software technologies out there that can help them.
During a recent presentation to the CIPS Members, it struck me that many organizations could fail at the first hurdle simply by choosing the wrong software tools - or even worse, choosing not to use any at all.
For any organization considering transforming their procurement processes to digital / software to drive a more sustainable agenda, we’ve listed the four key elements within a Digital Procurement ‘tool set’ that you will need:
- Integrated Online Buying
- Accounts Payable Automation with line level invoice data extraction
- Spend analytics or business intelligence reporting
- Contract & Supplier Management
This concept refers to having ALL key suppliers to an organization integrated directly into their purchasing software.
Many solutions exist, some with a mix of ‘Punch-Out’ & ‘Catalogue’ (so for some supplier orders, end users order via the supplier's own website, others they simply order via a text-based list).
In recent years the industry has seen many new ‘marketplace’ providers, essentially linking together multiple suppliers & their products / services into one ordering ‘front-end’ - whilst this is also a great idea, there is a never a ‘one size fits all approach’ when dealing with businesses &, unless the front-end is a better ordering experience than purchasing directly from the supplier's own website, difficult to embed into any organization successfully.
Integrating with key suppliers so that end user sourcing & purchase order requisitioning must be done from within the procurement software allows more sustainable procurement rules & guidelines to be implemented.
Functionality such as cXML punch-out integration means that suppliers can form a trusted digital relationship with their customer using the purchasing software to create the integration & has been available to larger organizations for many years now.
However, many suppliers do not have the technology to integrate in this manner &, especially when considering newer sustainability & ESG based legislation, that is not a reason why a larger organization should not purchase from a smaller local business.
With true Integrated Online Buying, every supplier that the business wishes its staff to purchase from is available, from within the purchasing software application, importantly using the supplier’s own website and creating a simple, powerful method for implementing a digital procurement strategy into an organization.
This means that vendors the business wishes their staff to purchase from can be controlled and even (although this word is currently being overused!) curated.
Not only is this an important element when using purchasing software to control costs and spending, but a critical stage for the supplier too, as this is where the profit margins can be balanced effectively to make the pricing deal work.
Having worked as a supplier for many years, I understand that the work that sits behind every negotiation, every price change, every adjustment to the service terms has potentially huge implications – much of the time that need to be hidden from view from the customer to create a sense of calm & that nothing is too much of a problem for a customer however behind the scenes this is not the case.
Creating software-based supplier integrations make better business sense for both the supplier & the customer, locking in critical business deals that when performing well can be hugely beneficial to both sides, when not, a huge pain.
The key point to this being that it’s only now that the technology required to achieve this concept is affordable enough to a far wider range of businesses.
Critically, this includes now the ability to create integrations from within the software to almost ANY supplier / vendor.
Left to their own devices, most people in a business will use their own resourcefulness to find a supplier that can provide what they are looking for.
Go back 10 – 20 years, they may even have been commended for taking the time to search for better prices & options.
Digital Procurement software tools, & in particular Purchasing automation makes it easy for Procurement & senior leadership teams to ensure that all their business expenditure is allocated & spent with the suppliers they have reviewed & specified for the business to use.
If the criteria under which a supplier has been chosen to be used by a business includes sustainability elements, this is the best way of all to ensure that all end users follow the strategy, removing any possibility of error (even with the best intentions).
2. Accounts Payable Automation (AP) with line level invoice data extraction (not OCR!)
Accounts Payable is where the invoice for the purchase order raised in the previous step arrives in the business to be recorded into the accounts department, reconciled against the purchase order to ensure all details are correct (right bank account number for payment, right prices, items all received etc).
This can be a hugely time-consuming job depending on:
How accurately the person creating the purchase order has entered all of the correct details to allow the invoice to correlate & ‘match’ in terms of values, prices, products.
If there are any discrepancies or issues with the invoice – the key role of the AP team being this element, as errors here could be extremely costly.
From a pure sustainability point of view, all invoices received into your business should arrive in digital format with an AP Automation tool such as Compleat, cutting out any hard copy / paper invoice arriving in the post.
However, from the point of view of procurement wishing to drive a Sustainable Procurement Strategy, we need AP Automation because it provides us with a rich source of accurate data – as long as we have the correct digital technology tools to extract it correctly.
Invoice scanning technology has been around for a long time now, however much of it is based on old technology – primarily Optical Character Recognition (OCR).
OCR works on photographic imaging technology & is therefore only as good as the image quality it sees.
Again, advancements in both the affordability & the technological capabilities of data & document capture software mean it’s now possible to receive all information from suppliers (e.g. invoices, contracts) directly into the application & convert this immediately into extracted data, ready for analysis, insight, key tasks or any other necessary reason.
3. Spend analytics / business intelligence reporting capability
Now that you have the concept of:
- All Suppliers accessed via Integrated Online Buying within the Purchasing Software
- All Supplier invoices & documents received directly into the AP element of the Software, with all data lines extracted into a cloud database
You have the first two critical elements required to give you the necessary Real Time, Cloud based data source required to feed any Spend Analytics or Business Intelligence tool.
PowerBi & other well-known data & business analytics software is widely available, however very much less available is the required expertise to really create meaningful dashboards & visualizations of your data.
So, for Spend Analytics or Bi reporting, when required for ongoing analysis of company expenditure, this must be built into the same tool as your purchasing software in order to avoid any costs or issues with data source, format or migration.
Once you have this in place however, this becomes the single most powerful tool in the entire set, as it provides incredibly insightful visual detail, numerical reporting & dashboards to give an ongoing & in-depth view of the business’s entire expenditure.
Now that more Carbon & ESG based supplier data is becoming available, it’s a logical step to link this to company expenditure-based Bi / Spend Analysis as this gives any senior management within an organization using these tools total oversight on who they are / aren’t buying from - & the reasons why.
4. Contract & Vendor Management
Knowing your suppliers & having software to manage their data creates visibility & accountability to the supplier & ensures the right providers are purchased from for the right reasons.
Information on the vendors we purchase from is being increasingly more important, much in the same way that ‘KYC’ (Know Your Customer) regulations in Financial Services require the same information so that business know who they are selling to, the same applies in reverse.
Vendor risk management looks at the risks associated with having a supplier provide products & services to a business. It assesses criteria such as how critical the delivery of this product or service is to the business & the various ‘what-if’ scenarios that could occur.
Within a Sustainable procurement setting, having some form of Vendor & Contract Management solution is crucial as it allows business to understand their suppliers Environmental, Social & Governance policies in greater detail to ensure their expenditure is spent with the suppliers that help support their own agenda, creating in turn stronger & better partnerships between supplier & customer.
Influencing end user buying decisions will be one of the next phases of my journey that I’m looking to explore further, & how information from the Vendor / Contract Management software can inform the person sourcing the product or creating the order at buying stage on ESG led choices.
Perhaps then, we will be able to really drive a sustainable agenda as simply put, for a supplier & a customer to transact in any other way simply is un-sustainable.