Making Procurement (Tech) Painless

Mohamed Khalil
Jul 21, 2017 · 4 min read

A major lifeline of any business is the ability to purchase and obtain the resources & services that are vital to their day to day processes and product offerings. While it is a no brainer that companies would want to manage the procurement process as seamlessly and efficiently as possible, dense policies and procedures coupled with limited transparency often cause the procurement process to become a black hole. A recent Deloitte CPO (Chief Procurement Officer) survey revealed some very interesting insights on the outlook of CPOs for their business. With widening profit margins being a major desire for all organizations, ~3/4 of CPOs prioritize cost reduction as their top priority focus area. This however can leave procurement teams in a dilemma between cost savings initiatives versus value creation, which can often require higher investment. Furthermore, the Deloitte study cites that ~62% of CPO’s do not feel that their teams have the appropriate skill set to meet the demands of executing their future strategy. The confusion of strategic focus and widening talent gap can paint a bleak picture for procurement teams globally.

Many issues arise from current challenges in the procurement technology landscape:

Disparate systems with limited integration make it difficult for seamless data flow to manage an overall procurement cycle. Many large organizations leverage a combination of centralized and decentralized procurement processes, allowing business units ownership of their procurement process cycle, but rolling up to a centralized corporate procurement function to manage the overall budget and security processes. Having unreliable data flow and differentiated buying processes across business units creates an unclear overarching picture for corporate procurement teams and limited ability to action against the data they receive in aggregate.

Leveraging big data insights has not been a strategic focus for many procurement teams at large organizations. Procurement being a transaction heavy function generates a wealth of data that can be used for insights on buying and spend patterns. To date companies are focused on spend levels and adherence to budgets. A deeper look at where money is being spent and correlating across business lines could add a significant advantage.

User experience continues to be a challenge, especially for users not in procurement. Very often procurement technology users are regular employees processing requests, checking on business related orders, or booking corporate travel. The user interface more often than not is not very intuitive, hard to follow, and creates confusion. Furthermore, there is generally very little user support to help someone figure out how to go about doing what is in all likelihood a very simple process.

As procurement organizations seek to transition from solely being a cost management center to a strategic force in their organizations, several tech trends can help propel that progression:

Forecasting and managing spend rather than analyzing it post purchase will help procurement teams attain their cost reduction goals while not losing sight of organizational strategic priorities. Often times purchasing of certain services and goods occurs on a regular basis; the ability to forecast needs even before the business units do will potentially enable organizations to capitalize on lower prices due to earlier purchasing action, while obtaining the higher quality version of the goods needed.

External market data aggregation and synthesis against internal purchasing data can be used to assess supplier health and risk of falling into financial difficulty. Companies often have services and goods that they procure in large quantities that are vital to their product offering. While teams generally do assess health of their suppliers, automated signals of potential future difficultly can help mitigate any potential pitfalls.

Streamlined integrations and universal APIs will be crucial for seamless data flow across platforms. Purchasing information is a source of financial cost information as well as inventory information. This data often flows into various platforms (ERP (financials), inventory management, human resources/human capital management (HCM), vendor management systems (VMS), customer relationship management (CRM)) that different functional areas leverage to get their work completed. Ensuring that data moves seamlessly with minimal to no human action will be vital for more efficient work processes.

Gamification of Procurement is starting to gain traction in some aspects of corporate procurement such as travel booking. New startups such as Trip Actions, have introduced a rewards element to the corporate travel booking process. Employees are rewarded for booking travel under a specified budget, creating a great experience for the employee and providing action against the cost management strategy.

As new software companies form to meet the changing demands of the procurement market, it will be imperative that they keep several points in focus.

  • New platforms need to be capable of capturing data on all types of products/services and meeting industry specific demands. This may cause the need for vertical specific procurement solutions to arise as well.
  • In a globalized economy, goods and services are increasingly traded across borders which create the need of understanding currency implications to the purchasing cycle. While spend analysis and forecasting will allow buyers insight to costs based on historical data, new platforms will add increasing value if they can capture currency fluctuation impacts to cost in the buyers currency. This can help mitigate any unforeseen margin shrinkage due to cost increases from currency rate disparity.
  • The ability to provide rapid access to analytics across suppliers, sourcing, contracts, working capital, etc. will be crucial for a market leading offering. Speed and accuracy will factor into broader use cases.
  • An easy to use and intuitive user interface will increase the likelihood of user engagement to manage the procurement cycle wholly within the platform rather than as a data entry tool to follow protocol.

The procurement software market is estimated to be ~$5B with SAP and Oracle capturing the lion share of the market. As companies continue the shift from on-prem technology to a cloud based strategy, many will open up RFPs for new bidders across several platforms. This will create a significant opportunity for new entrants and their investors.

Mohamed T. Khalil

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Mohamed Khalil

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