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4 Reasons Procurement Digitalization Provides a Competitive Edge

Jan. 21, 2022
Procurement digitalization can bring notable advantages to the companies that invest in it. Here are some of the possible benefits.

Moving towards more procurement digitalization takes time, effort and dedication. Such a transition cannot happen overnight, but committing to a digital strategy can have numerous significant payoffs. Here are some of them.

Meet Preferences

Including more digital elements in a procurement strategy makes it easier for the relevant parties to adapt to the preferences of people they serve. Amazon published a 2021 B2B procurement survey that included some compelling reasons to pursue digitalization without delay.

One notable takeaway was that 38% of buyers made at least half of their 2020 purchases online. Additionally, over the past year, 56% of small- and medium-sized businesses reported more fully digitizing their purchasing processes compared to 42% of enterprise commercial companies.

The research also revealed that 83% of buyers and 67% of sellers ranked online product comparison features as their highest-ranked resources to guide decisions. Those website aspects are certainly not the only components of an effective digitalization strategy. However, they can play a notable role in increasing convenience and satisfaction.

Other conclusions from the research showed that the top seller priority, mentioned by 62% of respondents, was to provide positive customer experiences. From the buyer side of things, their biggest goal, chosen by 40% of those polled, was to increase efficiency. Digital procurement efforts can help achieve both those things and many others.

Support Profits

Many procurement specialists recently got used to interacting with their suppliers solely online. Now, many don’t want to return to their old ways of scheduling phone calls or referring to physical sales materials.

According to a 2021 survey of B2B buyers, 87% would pay more to deal with suppliers that offered excellent e-commerce experience. That finding suggests that incorporating a user-friendly website into procurement digitalization plans could help a seller’s profits.

On the other hand, the same research indicated 90% of buyers would go to competitors if their suppliers’ digital channels fell short of meeting their needs. Ensuring that a website offers up-to-date product information is a good starting point.

Nearly half of buyers polled (48%) found it challenging to locate current product or service information through a seller’s website. Only 19% reported that difficulty in 2020. That significant jump suggests many sellers may have tried to establish a larger online presence too quickly and overlooked some of the basics.

Procurement specialists should consider how other digitalization strategies could boost profits, too. If going digital means transitioning away from physical paperwork, it could drastically reduce errors and labor associated with data processing, which helps the bottom line.

Pursue Automation

When decision-makers approve investments in procurement digitalization, they’re also often unlocking opportunities to automate processes. Statistics indicate that 85% of quality issues occur due to material or process flaws. That’s why many warehouse managers use smart sensors that show issues and allow for prompt resolution. Procurement specialists can do something similar by pinpointing existing bottlenecks and investigating how automation might solve or substantially improve them.

In one case study, representatives from a global oil and gas company wanted to increase its procurement automation rate from an already-high starting point of 75%. Some related aims were to tweak the procurement operating model and redistribute the associated activities to reduce the number of employees required to handle them.

Some of the steps taken were to consolidate supplier spend where catalogs already existed and raise certain approval thresholds. The combined actions ultimately elevated the procurement automation rate to 86%.

Another instance involved a global automotive parts manufacturer using artificial intelligence (AI) to evaluate contract awards and supply possibilities when sourcing metals. Automating the bid-optimization process shortened the contract-awarding timeframe and resulted in $1.5 million in implemented savings.

These examples show that making automation a key part of procurement digitalization efforts can result in many benefits throughout the organization. However, people should remain mindful that they should start by thinking about what they want to achieve with procurement automation. Then, it’s easier to set goals and choose metrics that confirm whether progress has happened on the expected timeline

Save Money and Time

Procurement digitalization can also save money for companies. It is a major effort to streamline processes and improve bottlenecks, but once users determine the best ways to do that, they’ll soon see the resulting savings.

In one case, employees at a global chemical company noticed that the organization spent 50,000 hours per year achieving the required invoice accuracy and reducing the time devoted to dealing with exceptions. However, investing in procurement digitalization saved a massive amount of money and brought other impressive benefits. Firstly, the company’s efforts to modernize its processes resulted in $24 million in cost savings. Also, the organization reduced its purchasing process from 20 minutes to three.

Another positive outcome occurred when the requisition-to-purchase-order cycle time reduced from eight days to four. That faster turnaround time helped the organization become more efficient. Productivity has also gone up since 40% of the company’s invoices are now electronic. In total, the company put 80,000 hours back into the organization by improving its procure-to-pay processes.

Getting these gains required a concentrated effort with numerous new technologies. The company prioritized data-driven performance in its processes, systems and tools. It also engaged several relevant parties, such as suppliers and IT department members, to explore the best ways to turn procurement into a touchless, more accurate process. There’s no universally ideal way to make progress like this company has. However, it’s vital to see where room for improvement exists, then use those areas as starting points.

Seeking participation and feedback from people at all parts of the procurement process is also essential. Some of them may bring up areas of concern that the company’s leaders didn’t consider.

Procurement Digitalization Can Help a Business Grow

Succeeding with procurement digitalization requires thoughtfulness and dedication from everyone involved. Even if people run into some unexpected challenges, working through them and staying focused could bring the advantages mentioned here and others. A company is then well-equipped for growth and future competitiveness.

Business leaders can also consider more gradual investments in procurement technologies. Not all companies have the resources to put towards several upgrades at once. However, even choosing a few areas to target with tech could provide the positive outcomes that encourage leaders to increase the resources devoted to the upgrades.

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About the Author

Emily Newton

Emily Newton has eight years of creating logistics and supply chain articles under her belt. She loves helping people stay informed about industry trends. Her work in Supply Chain Connect, Global Trade Magazine and Parcel, showcases her ability to identify newsworthy stories. When Emily isn't writing, she enjoys building lego sets with her husband.