The way we procure software has changed a lot since the days when we used to receive it on CDs in the mail.
SaaS products offer solutions that can be implemented immediately via the cloud. Cloud companies are doing very well financially, with a recent market value of over $2 trillion. This shows how quickly SaaS technology is progressing.
Even though digital procurement is a process that is constantly evolving, it is not doing so at the same pace. Many procurement leaders are still using traditional procure-to-pay processes. Software is implemented digitally but, in many ways, it’s still treated like the old CD method.
Many procurement leaders do not feel confident in their change management abilities, and some are not prepared to choose technology that is right for their business.
This can no longer be an excuse. Digital procurement is the way of the future for companies. Traditional buying processes are becoming outdated and need to be replaced by digital ones. Only after they have implemented a well functioning business intelligence solution can they use technology for proactive, predictive, and automated purchasing.
How is digital procurement different from traditional procurement?
Procurement teams now have to decide whether to change their methods to match the new digital world, or stick with the old ways that don’t make sense anymore.
Digital procurement complements the new SaaS buying process. A good digital procurement platform creates a central place to monitor every application and subscription and ensures that an organization only pays for the apps and subscriptions that it needs.
Vendor management can save you money and help you figure out which tools are worth their cost and can be cut from your tech stack. It also helps organize data from across the organization so leaders can see how different tools interact with each other as part of their technology infrastructure.
This results in the same issues and problems being faced on a regular basis. You can think of almost any subscription renewal as a purchase that is not under the control of anyone.
How to set up a successful digital procurement process
1. Prepare in advance
SaaS spend management platforms can help businesses keep track of all digital purchases. These platforms can support three specific areas:
- Software license management: Monitor user license adoption and consumption metrics for each SaaS provider. Know when a tool is used or wasted.
- Software vendor management: Instead of bringing in SaaS vendors only during a problem, such as overage charges or acceptance issues, build a strong vendor relationship that will help your business get the best prices, leverage all features, and seamlessly renew your agreements.
- Software spend management: Control costs and plan for strategic investments. IT centralizes spend management for every software connected to your technology stack, making it easier for different business units to buy what they need.
2. Assess your current SaaS spend
The next step to successful digital procurement is looking at your existing technologies and seeing if they need to be updated. Find out what your teams use with these steps:
- List your applications.
- Identify new applications since you last checked your tech stack.
- Track logins and usage. For example, the licenses and functions used.
- Measure changes in logins and activity over time to determine each application’s value.
- Plan and visualize software renewals to identify where cancellations or downgrades can save money.
3. Involve the right stakeholders
Digital procurement cannot take place in isolation. When deciding what tools to buy and how many, it is important to involve stakeholders from each team. You should also decide if you want to renew your agreement. These stakeholders are:
- CTO or CIO
- Procurement team
- Finance team
- Legal team
- Department leaders
- IT manager or SaaS manager
- End users for validation
4. Prioritize contract negotiations
You can purchase digital products in two ways. There are two ways to establish business relationships with other companies: click-through agreements and contract negotiations. Click-through agreements do not offer discounts, lower prices, or different payment plans. They also do not offer any guarantees or commitments about security.
If an organization wants to make sure a vendor is complying with requirements, they can negotiate a contract with the vendor’s sales representative. This also secures rebates and protects against data breaches and indemnity.
Improving procurement efficiency and effectiveness
Several reasons exist for why companies have been slow in their adoption of digital technologies for procurement purposes. Some people’s first experiences with digital solutions were not good. Some people question the ROI of certain investments, while others argue that the executive team doesn’t see why information technology should be such a high priority for procurement. The IT roadmap is often deprioritized as a result of procurement solutions.
The advantages of digital procurement for businesses have become more apparent as more companies use these technologies and monitor their effectiveness. And the pace of change is accelerating. The amount of money that investors are putting into the development of digital procurement tools is a key signal that they believe these tools will be very valuable. The total amount of money invested in digital procurement worldwide increased from $378 million in 2014 to $475 million in 2017. The increase in funding and lack of barriers to entry have led to an increase in the number of new technologies available.
Procurement executives should assess how these technologies support automated processes, frictionless collaboration with suppliers and other stakeholders, and smarter procurement based on richer data sets.
Automated and agile operations. AI and RPA are changing the way we do procurement activities like spend analysis and P2P. These tools improve efficiency, accelerate processes and reduce errors. IBM reduced the average time it took to resolve blocked invoices from 32 minutes to 90 seconds by using RPA. The number of blocked invoices that required manual intervention dropped by 95%. The new tools improved the quality, oversight, and traceability of the entire transaction.
The purpose of the effort was to automate every possible procurement process as part of a broader IBM initiative. To encourage employees to automate a process, the company sent them to a one-week “bot camp.” Bot camp is where nontechnical staff can learn how to create simple bots to automate work. A team member created a bot that reduced the time to create a savings report from three days to three hours, freeing up time for more strategic activities.
Frictionless collaboration. New technologies have led to the development of platforms that allow for collaboration, real-time data collection, predictive analytics and blockchain. Tools that allow procurement teams to share data easily and help internal and external stakeholders work together to develop solutions are very beneficial. Faster collaboration between companies and their suppliers leads to shorter cycles and better supplier performance. Some of the most successful companies are starting to use these technologies to help them solve problems quickly and generate more value for the business.
A global industrial company was struggling to decrease its procurement costs because its key managers disagreed about the data. Although Procurement said they had delivered most of the promised savings, they weren’t able to be seen in the business unit profit and loss statement. The business unit leader said that he had not bought as much as he had planned. While this was going on, the CFO made some changes to the budget that affected the goals. All three parties lacked access to important data that was essential to solving the problem. Without a clear way to track data, it was difficult to know how much money the company had saved.
To create a single, reliable source of data, the company set up a shared data platform that included records of contracts, opportunities for savings, and approved methods, as well as key performance indicators and analyses. This platform also allowed different groups within the company to sign off on agreed-upon information. The platform served as the one and only source of truth for all procurement data and allowed quick access to all business units and functions. This led to better decision making about budget processes and eliminated disagreements about how much money would be saved.
Smarter procurement. Companies that are doing well use digital tools for things like advanced category management, better sourcing strategies, and improved forecasting. The key components to success are larger data sets, better optimization tools, and the ability to manage demand and enforce rules. Procurement teams can reduce costs by using advanced category strategies to improve their purchasing and spending habits.
One global technology hardware manufacturer with more than $30 billion in sales had a problem with design engineers choosing parts independently for future products. The lack of collaboration led to the same parts being used in different products, which created unnecessary duplication and wasted time and money. Some people asked their colleagues for suggestions instead of asking the procurement team for a list of suppliers that have been checked for quality and price. Others chose products after searching online. The company was in a weak negotiating position because it was too late to consider an alternative part when they were ready to build the product.
Enabling the company’s broader digital vision
While digital solutions have made procurement processes more efficient and effective in the past, they have also created a new range of strategic opportunities. A digital procurement strategy is essential for a company’s digital roadmap. Procurement executives can help a company’s digital vision by accelerating innovation throughout the organization.
Suppliers that are new and ways of working that are new are disrupting spending categories that are entire. A procurement team that is familiar with digital technologies can help a company work more quickly with innovative suppliers, adopt new methods of working, and drive change. Digital procurement teams can help companies improve their operating model, partnerships, talent, and culture before their rivals do.
Procuring solutions, not products
CPOs should focus on solutions instead of products when talking with business unit leaders in order to start changing the nature of their conversations. As procurement begins to take on a more active role within businesses, different departments will start coming to them with more questions. In the future, it will become normal for teams to need rapid market intelligence and better product tracking in their supply chains. This will allow procurement teams to offer more innovative solutions.
An industry consortium that includes ship builder Maersk is piloting a project to test the potential for using 3D printing as an alternative to storing thousands of spare parts on ships and in offshore facilities. 3D printing could help to reduce the amount of space that is needed to store parts, and also help to save on both cost and CO2 emissions. This would provide sailor with the ability to see what the most recent designs for ship systems are in real-time. The need for companies to manage a large inventory of replacement parts for ongoing maintenance, repair and overhaul has been a traditional requirement. The company’s procurement team is leading the consortium that includes all of the company’s major suppliers.
The category of marketing spending has been changed a lot by technology. Sales representatives used to purchase market reports to get information about customers and to predict how much demand there would be for a product in the future. procurement teams are using innovative solutions, like harnessing artificial intelligence and predictive analytics, to build a dynamic in-house research capability that tracks customer demand in real time and speeds up product innovation.
Procurement executives who act today to increase innovation will increase the strategic nature of their work and help their company compete better. As people inside and outside the company realize that this is an advantage, it is likely to become common practice, changing the way procurement works.
Agile way of working
As companies are under more pressure to release new products quickly, agile procurement teams can help by negotiating partnerships with suppliers of innovative technologies. These teams have extensive knowledge about upcoming technologies, which can help reduce development time. Procurement heads will need to work closely with business unit leaders and a larger number of smaller vendors, which could include start-ups and sharing-economy platforms, for test-and-learn or innovation-based relationships.
In order to be successful, procurement teams will need to create contracts that are more flexible and can handle a greater amount of risk. Companies who want to establish collaborative supplier relationships use performance-based contracts to achieve a specific goal, like the new manufacturing technique described earlier. An additional option is a contract that contains a series of development goals that follow each other chronologically with sprints that have more specific deadlines. Another possibility is a proof of concept or continuous releases. Additionally, large companies will need a new approach for dealing with promising companies that may not achieve the legal conditions for incorporation.
Talent of the future
The top businesses are hiring more personnel to help with the shift to a digital business model. In order to develop a keen understanding of digital tools, procurement teams will need to be experts in data science and analytics. Procurement executives are finding that it’s more effective to teach data scientists how to deploy their expertise into the procurement world, rather than to teach data science and analytics to procurement professionals.
Procurement executives are going to need to be better at managing stakeholders and working with agile teams that operate across different parts of the business. This will require more collaborative skills. Chief procurement officers in all industries are finding that it is becoming more and more important to be able to work in an agile way. This takes time to learn, but the investment is worth it.
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