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Procurement & P2P, Budget management | 3 Min Read

Identifying savings: six ways digital procurement can help every business of every size

Written by:
Neil Robertson on November 9, 2020

    

Every CFO is understandably sceptical of “Cost Optimisation” and “Spend Management” organisations promising procurement savings, and the smaller the organisation the CFO represents (such as an SME), the more sceptical they become.

But the world is continuing to evolve and by leveraging advanced AI and machine learning technologies, every CFO now has the opportunity to re-evaluate what is possible and evolve their business’s thinking to take advantage of the opportunities digital procurement now offers. 

Here are six ways that digital procurement can help every business of every size – including SMEs – to save more and spend smarter. 

 

1. Utilisation of granular spend data 

The first change is leading digital invoice capture applications being able to accurately extract all of the information on vendor invoices, invoice header and line-level information in particular (as it includes item code, description, unit of measure, quantity and price), and then utilise that data to identify procurement savings opportunities. Simply put, this level of granular data extract has never been possible for small and medium-sized businesses (SMEs)either due to cost or availability, and doing it manually was not cost-effective. 

The availability of this granular digital spend data redefines every cost optimisation and procurement cost review engagement. 

All suppliers are aware that their customers cannot cost-effectively review the prices they are being charged across a broad range of corporate spend and have taken full advantage of that fact for decades. The result is that almost every business is paying a premium of 11% - 30% on much of what they buy. 

 

2. The ability to benchmark prices automaticall

The second change is the automated ability to “benchmark” the prices being paid against $14bn of aggregated spend. This enables users of digital procurement software to highlight the procurement savings potential based on quantifiable lower costs and associated suppliers. Whilst this knowledge does not deliver savings in itself, it does remove the scepticism of the CFO in that clear procurement savings are available. This often generates a little irritation as CFOs realise those vendors have been fleecing them for years. 

 

3. Access to online marketplaces via digital procurement tools 

The third change is the growth of online marketplaces. An online marketplace is where 100,000’s of vendors proactively compete for your business. Using Amazon Business as an example (because we are all familiar with their buying experience), the buyer is automatically provided with the best match to their search and offered price comparisons for the same or similar products. As each product and vendor is rated by previous customers, it enables us, the buyer, to achieve the best value — this being the balance of quality, price and availability.  

As such, every business should proactively increase the volume of purchases they make online because buying online is far cheaper and great deal more convenient for everyone involved. 

 

4. Extend the functionality of your existing accounting/ERP software 

The fourth change is that digital procurement tools extend the functionality of your existing accounting/ERP software by automating the entire purchasing process (incorporating online buying). As a result, every CFO gains immediate visibility and total control over all purchases before they are made and can increase productivity — for everyone involved in the purchasing process, both inside and outside the finance department — by up to 90%. In today’s “new normal”, where the focus is on conserving cash, reducing costs and increasing productivity, CFOs can now have cost effective access to the tools, application and data they need to achieve these primary objectives. 

This kind of capability is incredibly important for SME digital procurement as they are now able to maximise their efficiency whilst keeping procurement costs as low as possible and saving more money on what they buy.  

 

5. Benefit from all of the above without breaking the bank 

The fifth change is that all the above – online buying, purchasing automation, digital invoice capture and accounts payable automation — is now affordable for every business of every sizeDigital procurement is no longer out of reach for SMEs.  

(Check out how to get accounts payable automation up and running for your SME) 

It can be integrated with your existing accounting/ERP software and is usually implemented and live in just 1 to 3 days. From a financial justification perspective, the savings from buying more online will deliver a cash ROI for most businesses in the first month, and that’s before considering the up to 90% productivity gains for everyone involved, both inside and outside the finance department 

 

6. Achieve long-term sustainable savings 

The sixth change is for organisations with over £10m/$12m in revenues. This is now the new tipping point where the level of “indirect spend” a company incurs becomes of real interest to both vendors and cost optimisation specialists.  

Cost optimisation/spend management specialists can now leverage the spend data accumulated, together with the digital procurement application, to undertake the multiple steps necessary to deliver savings by reducing procurement costs. These digital procurement tools and applications reduce the time required to identify the procurement savings potential and — perhaps most critically — consolidate the spend data across multiple existing suppliers to generate a tendering process in a format that vendors are willing to participate. 

From the vendor’s perspective, digital tendering provides smaller organisations (such as SMEs) with a cost-effective means to grow their business and as important, high confidence in receiving that business when the customer buys from them online. 

Every CFO now has a choice to make. Do they continue to operate their purchasing processes using methods that have not changed for centuries or, in these uncertain times, take the initiative that will help their businesses to not only weather the current storm but emerge far stronger, leaner and more profitable long into the future? 

If you want to find out more about digital procurement and what it can do for you – from cutting costs and conserving cash to increasing productivity and enabling you to get best value – download our eBook on Digital Procurement for SMEs by clicking the button below. 

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