Businesses constantly seek ways to improve operations, cut costs, and gain a competitive advantage. For many small-to-midsize businesses (SMBs), automating procurement is a potentially excellent approach for achieving all three. While competent procurement can keep the gears of a business turning smoothly, automated procurement can generate next-level success.
The challenge, however, is that sophisticated procurement is usually the domain of large-scale businesses, not SMBs. In many large, leading enterprises, chief procurement officers and their dedicated teams leverage cutting-edge technologies and best practices to drive efficiency, mitigate risks, and optimize spending. In the meantime, at growing businesses, procurement often falls under the purview of finance, operations, or even the business owners themselves. It’s no wonder, therefore, that smaller organizations view procurement as little more than purchasing—in other words, purely tactical and transactional, like shopping. If they viewed it, instead, as a strategic endeavor providing vital support for business goals, the business case for automated procurement would be powerful.
This article explores the concept of procurement automation, its benefits, and the top technology trends shaping the future of procurement.
What Is Procurement Automation?
Procurement ensures that organizations have the right inputs to deliver valuable products and services to their customers. It involves activities such as identifying requirements, selecting suppliers, negotiating contracts, creating purchase requisitions and purchase orders (POs), receiving and verifying goods, and approving supplier payments. The overarching goal of the procurement lifecycle is to obtain the right items and services for the best possible price and terms while maintaining a steady supply and minimal risk.
Procurement automation uses software to make this process more efficient and standardize it. It digitalizes and centralizes procurement data and automates repetitive manual tasks, such as creating and approving purchase requisitions, sending POs to suppliers, and matching invoices to orders and receipts. Automated workflows route documents and information to the right people at the right time, reducing delays and errors. The software also provides visibility into spending, tracks supplier performance, and monitors risks. As a result, organizations can save time, control costs, improve efficiency, and enhance collaboration with suppliers. Procurement automation tools range from simple standalone applications to comprehensive suites integrated with enterprise resource planning (ERP)systems.
Key Takeaways
- Procurement automation can improve the entire procurement process, from identifying needs to making supplier payments.
- It does so by digitizing data, automating repetitive tasks, and increasing transparency.
- Procurement tasks that are repetitive and susceptible to human error are ideal candidates for automation
- Procurement automation tools should align with a business’s pain points, be easy to use (to encourage user adoption), and scalable.
- Emerging technologies, such as artificial intelligence, blockchain, and the Internet of Things (IoT), are transforming procurement by enabling advanced analytics, better risk management, smart contracts, and real-time visibility.
Procurement Automation Explained
Automation is particularly powerful when applied to procurement because procurement is a holistic function that encompasses the entire process of acquiring goods and services, from identifying needs and sourcing suppliers to managing contracts and ensuring timely delivery. It is also a key component of the broader supply chain management process, which begins with procurement and extends to cover the end-to-end activities involved in converting procured inputs into finished products and delivering them to customers.
The following story about the hypothetical King Cakes Bakery, a growing bakery specializing in artisanal breads and pastries, illustrates how automation enhances the procurement process, reducing manual tasks, improving communication, and providing real-time visibility. It also highlights several benefits of procurement automation, including speed, accuracy, and better recordkeeping.
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King Cakes’s manual procurement process: Whenever the baking team needed more of an ingredient, a team member called Sarah, the procurement manager. She routinely received phone calls requesting 200 pounds of organic flour. Sarah manually checked inventory to verify that the purchase was necessary. She then searched through her file cabinet and emails to find potential suppliers and requested quotes by composing separate emails to each supplier. After the quotes trickled in over the next few days, she set up a spreadsheet to compare them and selected the best offer. She drafted a PO and emailed it to the owner of King Cakes, Noelle, for approval. But Noelle was often busy managing the storefront and sometimes didn’t see the email immediately, causing a delay. Once approved, Sarah called the supplier to place the order and sent the PO by email. When the flour arrived, the warehouse staff dropped the receiving document on Sarah’s desk for her to file after manually updating the inventory records. At the end of the month, the supplier sent an invoice and Sarah matched it with the PO and receiving document before sending it on to the accounts payable clerk, who walked the documents to the baking manager for approval prior to cutting a check to the supplier.
Because of the extended manual procurement process, all too often Noelle’s baking team was unable to fulfill demand for her highest-margin baked goods whenever demand spiked. Noelle decides the company should automate procurement.
- King Cakes’s automated procurement process: Now, the baking team at King Cakes Bakery creates a purchase requisition for organic flour in the bakery’s online procurement system, which automatically checks inventory. The system sends requests for quotes to preapproved suppliers, which respond through a portal. The procurement software compares the quotes, using predefined price, quality, and delivery-time criteria, and recommends one. Sarah reviews the recommendation and generates a PO in one click; Noelle receives a mobile notification and approves the PO on her phone. The system sends the PO to the supplier and tracks the status of the order. When the flour arrives, the warehouse staff scans a barcode with receiving information and the system updates the inventory records. The supplier submits the invoice electronically and the system matches it with the purchase requisition, PO, and receiving document. If everything aligns, the invoice is automatically sent to accounts payable for payment.
Why Should the Procurement Process Be Automated?
As illustrated in the King Cakes example, procurement is an essential function that can become bogged down by inefficiencies and inaccuracies if done manually. Fortunately, some organizations have found that they can automate more than 80% of the procure-to-pay process.
Automation increases efficiency, accuracy, and expense control. And it is easily scalable. By digitalizing the procurement workflow, automated systems can handle repetitive tasks, such as creating POs and processing invoices, much faster and more accurately than manual methods can. This frees procurement staff to focus on more strategic initiatives, including supplier relationship management and contract negotiation, ultimately driving greater value for the organization. Automation also creates a central repository for procurement data, which strengthens collaboration by keeping everyone on the same page.
Automated systems also help foster better relationships with vendors and keep business operations properly supplied. And they improve decision-making, partly because stakeholders have greater trust in their data and partly because procurement automation provides greater visibility into expense data, enabling organizations to track and analyze purchasing patterns and identify savings opportunities.
Automation also enhances internal controls and security by systematically enforcing spending policies and approval workflows, as well as creating audit trails that reduce the risk of fraud and increase compliance with company guidelines and regulations. Better financial control helps ward off potential legal and reputational risks.
Which Procurement Processes Are Optimal for Automation?
When it comes to procurement automation, not all processes are created equal. Some areas of the procurement workflow are particularly well-suited for automation, offering significant potential for efficiency gains, cost savings, and improved decision-making. By focusing on these processes, organizations can maximize the impact of their automation efforts and drive meaningful improvements in their procurement function.
- Supplier management: This involves overseeing the relationships, performance, and risks associated with an organization’s suppliers. Automation can simplify onboarding new vendors, keep supplier information centralized and accessible, and monitor how well each supplier is performing. Technology, such as supplier portals, self-service onboarding, and performance dashboards, reduces manual effort, improves data accuracy, and provides better visibility into supplier relationships.
- Supplier sourcing and bidding: Automating the process of identifying, evaluating, and selecting suppliers can help organizations cast a wider net for potential vendors, standardize the evaluation criteria, and facilitate the bidding and negotiation process. E-sourcing platforms, request-for-proposal tools and auction software can help procurement teams find the best suppliers, secure competitive prices, and reduce the time and effort involved in the sourcing process.
- Purchase requisition and PO creation: These documents are essential to procurement because they capture the details of what needs to be purchased, from whom, and at what price. Automating their creation and approval significantly reduces manual effort, minimizes errors, and speeds up the purchasing process. Electronic forms, automated workflows, and integration with other systems, including inventory management and accounting, can accelerate the requisition and PO process while improving accuracy and compliance.
- Contract management: Automating the creation, execution, and oversight of contracts with suppliers can help organizations standardize those contracts, reduce legal risks, and improve compliance. Contract lifecycle management software can automate the creation, approval, and storage of contracts and send alerts regarding key milestones and renewal dates. Alerts help procurement teams stay on top of both contract obligations and opportunities.
- Invoice processing: Invoice processing involves receiving, verifying, and approving invoices from suppliers before issuing payments. Automating this process reduces or eliminates manual data entry, minimizes errors, and speeds up the approval workflow, all of which helps prevent late or missed payments. One industry study found that invoice processing automation helped SMBs reduce missed payments by almost 60%. Text recognition, electronic invoicing, and automated three-way matching of invoices with POs and delivery receipts are common technologies that support invoice processing.
- Payment processing: Payment processing is particularly sensitive because it requires precise disbursement and accurate recordkeeping. It is an especially good candidate for automation because it involves repetitive, rule-based tasks that can be handled with minimal human intervention, reducing errors and speeding up transaction times. Automation technologies, such as robotic process automation (RPA) and secure payment gateways, make the process more efficient by automatically verifying payment details, processing transactions, and updating financial records in real time.
- Inventory management and reordering: Procurement goes hand in hand with inventory management. Automating inventory management easily keep track of an organization’s stock levels helps keep the right supplies available when they’re needed and also reduces the risk of stockouts or overstocking. Automation tools, such as inventory tracking software, IoT sensors, and predictive analytics, can help procurement teams make data-driven decisions about when and how much to reorder. They minimize manual effort, improve inventory accuracy, and help avoid unnecessary strains on cash.
- Spend analysis and reporting: Spend analysis is the process of collecting, classifying, and analyzing procurement data to identify opportunities for cost savings and process improvements and to help make strategic sourcing decisions. Automating spend analysis, plus integrated reporting, can help organizations gain real-time visibility into their procurement spending, identify trends and patterns, and generate actionable insights. Automation tools, including AI-powered analytics and customizable dashboards, can help procurement teams make more sense of their data, track key performance indicators (KPIs), and communicate insights to stakeholders.
- Compliance and risk management: Even at the level of procuring goods and services for their own use, it is essential for organizations to adhere to internal policies, regulatory requirements, and ethical standards. Automating compliance and risk management processes can help organizations stay on top of their obligations, reduce the risk of noncompliance, and protect their reputations. Solutions incorporating supplier risk-assessment tools, automated policy checks, and real-time exception alerts can help procurement teams identify and avert risks to compliance.
- Approval workflow:Automating the organization’s steps and rules that govern how procurement documents, such as requisitions and invoices, are reviewed and approved, has several benefits. It reduces manual effort, supports more consistent compliance with internal policies, speeds cycle times, and minimizes errors. Automatic approval workflows do this by electronically routing documents to the right approvers, based on predefined rules; sending follow-up reminders and notifications; and providing a clear audit trail of all approval actions.
8 Steps to Implement Procurement Automation
A structured approach to implementing procurement automation is key to an organization’s success at it, as well as to its ability to realize the significant benefits automation can bring. It’s important to note that engaging and collaborating with all the stakeholders in the organization’s procurement automation project should be an element in each of the following steps.
1. Define Objectives
Determining objectives and defining them clearly helps organizations target the right areas for improvement and stay focused on them. Furthermore, setting measurable objectives allows organizations to track progress along the way. Though this may sound obvious, 22% of organizations skip this step and don’t have a clear objective for intelligent automation, according to a global study of almost 500 executives across various industries.
To set effective objectives, procurement teams should start by interviewing various stakeholders, including internal management, suppliers, and procurement staff, to develop a comprehensive understanding of the challenges and opportunities within the existing procurement process. This discovery process helps organizations prioritize their automation efforts based on the most pressing needs and the biggest potential for meaningful improvements. Common objectives for procurement automation include reducing manual and paper-based tasks, accelerating process cycle times, enhancing accuracy and compliance, and expanding sourcing capabilities. For example, an organization might set a goal to cut PO processing time in half or to expand its supplier base by using technology to improve supplier discovery and outreach.
2. Identify Key Processes for Automation
A thorough analysis of the entire procurement workflow, from identifying needs to post-payment evaluation, is essential in determining which tasks and processes are best suited for automation. Typically, the best candidates are those that are repetitive, time-consuming, and prone to human error. These tasks often involve manual approaches to data entry, file management, and routine communication, which can slow down the procurement process and introduce mistakes. Conversely, automating these tasks reduces cycle times, improves accuracy, and gives staff time to focus on higher-value activities.
For example, data entry tasks, such as inputting vendor information while processing invoices, are a prime candidate for automation. Similarly, file management tasks, such as organizing and storing procurement documents, are commonly automated using digital document management systems. These systems can automatically classify, index, and archive documents, making it easier for procurement teams to access the information they need and helping to ensure that important records are properly maintained.
Not all procurement processes are equally suitable for automation. Tasks that require strategic decision-making, critical thinking, and personal interaction, such as supplier negotiations, will likely continue to require the human touch from procurement staff. Organizations should carefully evaluate each process to determine whether automation would deliver benefits.
3. Establish Process Parameters
After identifying the procurement processes to automate, the next step is to set up clear rules and guidelines for how the automated processes should work. This means defining exactly what needs to happen at each stage of the process, what information is required for that step, and what should trigger the process to move forward. Establishing these process parameters helps ensure that automated processes will run smoothly, efficiently, and in line with the company’s goals and policies. Further, documenting and communicating the parameters to all relevant stakeholders can also facilitate subsequent user adoption and training.
For example, when automating the purchase requisition process, organizations should define parameters for creating, submitting, and approving requisitions. This may include specifying the required fields and data formats, setting approval thresholds based on the value or nature of the requisition, and establishing rules for routing requisitions to the appropriate approvers based on predefined criteria. Likewise, if automating invoice processing, organizations should establish parameters for capturing and validating invoice data, matching invoices to POs and delivery receipts, and triggering payment per predefined conditions. This may involve specifying acceptable formats for electronic invoices, defining tolerance levels for price and quantity variations, and setting up rules for handling exceptions and discrepancies.
4. Map Existing Processes
Creating a complete map of the existing procurement process, in detail, from start to finish, gives organizations a clear understanding of how the process currently operates and pinpoints areas for improvement. The map can also help to engage and align stakeholders around a common understanding of the process and serve as a baseline for designing the future automated process. For example, the map may reveal that certain steps are taking longer than necessary due to manual data entry or paper-based approvals, or that there are gaps in communication and collaboration among different stakeholders.
When mapping the existing process, it’s important to capture all relevant details, including:
- Key stakeholders involved in each step, such as requisitioners, approvers, buyers, and suppliers.
- The estimated time spent on each activity, including any waiting or idle time.
- Existing bottlenecks, delays, or inefficiencies that slow down the process or create risks.
- Current tools, systems, and data sources used to support each step of the process.
Tools like flowcharts, swim-lane diagrams, or process-mapping software can help break down a process into its constituent steps, showing the flow of activities, information, and documents as they cross different stakeholders and systems.
5. Evaluate Organizational Capabilities
Assess the organization’s current capabilities and readiness to implement procurement automation. Evaluate the existing technology infrastructure, data quality, staff skills, and resources to determine what changes and investments may be needed to support the automation initiative. Inspect the current state of the organization’s procurement technology stack, if any, including the existing systems, tools, and platforms, such as e-procurement solutions and spend analysis tools. Determine whether these systems are up to date, integrated, and capable of supporting the desired level of automation, or whether new investments or upgrades might be required.
Also assess the quality and availability of procurement data. Automation relies on accurate and complete data to drive workflows, decisions, and analytics. Assess the current state of the procurement data, including its accuracy, consistency and completeness, and identify any gaps or quality issues that must be addressed. This may require data cleansing, enrichment, and integration efforts to ensure that the right data is available to support the automated processes.
In addition to technology and data, organizations should also examine the skills of their procurement team and other stakeholders involved in the automation initiative. This includes gauging their current level of digital literacy, technical expertise, and readiness for change. It’s typical for organizations to need additional training or upskilling to prepare for new automated processes and even to seek external support from consultants or vendors.
6. Select the Appropriate Procurement Automation Tool
At this point, it’s time to select the appropriate automation system to match your organization’s unique requirements. Select the solution that best aligns with the organization’s goals and capabilities. Also consider the system’s scalability and flexibility, so that it can adapt and expand as procurement operations grow and evolve. Look for tools that offer modular and configurable features, perhaps beginning with core functionalities and adding more advanced capabilities over time. This will help avoid outgrowing the automation solution too quickly and provide a better long-term return on investment (ROI).
Another important consideration is ease of use, as that can have a big impact on adoption across the organization. The easier it is for team members to use the tool, the more likely they will be to embrace automated processes. It’s essential to choose a solution that is intuitive and user-friendly to minimize the amount of training required.
Integration should be a central consideration when selecting a procurement automation tool. Procurement processes usually involve multiple systems and data sources, such as ERP systems, supplier portals, and inventory software. Procurement automation tools should seamlessly integrate with an organization’s existing technology to facilitate data synchronization. This will help avoid creating data silos and the need for manual workarounds while improving data accuracy, consistency, and timeliness across all systems.
Try to select a vendor that can become a true partner in your organization’s automation journey and that can provide necessary expertise. Look for vendors with proven track records of successful implementations in your industry and that offer robust support and training resources.
Be sure to involve key stakeholders from across your organization in the selection process. Think beyond the procurement team to include representatives from finance, IT, legal, and other relevant functions. Gathering their input and building consensus around the chosen solution usually creates better buy-in later, when it’s time to adopt the solution.
7. Configure Automation Solutions
At this point, the chosen automation vendor and internal IT team work together to map out how procurement tasks will be executed within the new system. The goal is to create workflows that not only are efficient and comply with relevant internal policies and regulations but also provide a good user experience. This alignment involves configuring system parameters, workflows, integrations, and user interfaces. This step tends to be IT-heavy, dealing with the “nuts and bolts” of the chosen technology. But it’s also important to continually gather feedback from key stakeholders and intended system users so that the automated solution is configured in a way that meets their expectations and supports their day-to-day procurement activities.
This step typically begins with defining the system architecture and integration points. That analysis includes determining how the automation solution will fit into the organization’s existing technology, such as an ERP system, supplier portal, or other procurement tools. It also involves defining the relevant data fields, data flows, and interfaces among different systems to help ensure seamless data exchange and synchronization.
Organizations also need to configure the user interface and experience based on how the procurement team and other stakeholders will interact with the system so it can be tailored to their specific needs and preferences. This entails designing the screens, dashboards, and reports that users will interact with to perform their procurement tasks and access relevant information.
Once the initial configuration is complete, organizations should conduct thorough testing and quality assurance evaluations to verify that the automated processes are working as intended. This may necessitate running simulations, test scenarios, and user acceptance testing to identify and resolve any errors, bottlenecks, or usability issues.
Best practices during the implementation process include:
- Ongoing communication among members of the procurement team and other stakeholders.
- Training and support to help users understand and adopt the automated workflows.
- A phased rollout, or a pilot trial with a small group of users, before full-scale deployment.
- Periodic review and iteration of workflows to keep them aligned with evolving business needs.
8. Establish KPIs for Performance Tracking
It’s important to select KPIs to measure and track your new and improved processes. Select KPIs that align with the overall procurement strategy and objectives, and set clear targets and benchmarks based on industry standards and historical performance. Develop a schedule for reporting KPIs to key stakeholders, such as procurement leaders, finance teams, and business partners. Dashboards make KPIs more accessible and actionable, and they help business managers see trends or outliers that may require attention.
Common procurement KPIs include:
- Cycle time. Measures the time it takes to complete key subsets of the procurement process, such as requisition-to-order or invoice-to-pay. Cycle time examines the efficiency and speed of the automated workflows.
- Cost savings. Tracks the amount of money saved through automated procurement processes. Savings can come from reducing unauthorized spending, better contract compliance, or capturing more early payment discounts.
- Spend under management. Monitors the percentage of total procurement spending that is managed through the automated system. The goal is to eventually capture and control all relevant spend categories.
- Supplier performance. Measures supplier metrics, such as on-time delivery, quality, and responsiveness, to appraise the effectiveness of the automated supplier management and collaboration processes.
- User adoption. Tracks the percentage of relevant procurement stakeholders who are actively using automated procurement workflows to identify any training or change management needs.
- Data accuracy. Monitors the quality and completeness of procurement data within the automated system to make sure the organization’s data can be relied upon for decision-making.
Choosing a Procurement Automation Tool
Perhaps the top consideration for selecting a procurement automation tool is that its functionality be in alignment with the organization’s specific pain points and requirements. This could mean inclusion of electronic sourcing, contract management, invoice processing, spend analytics, and other similar features. Equally important is the ability to customize and configure the solution to fit the company’s specific procurement processes and policies. Also look for tools that leverage advanced technologies, such as AI and RPA, to drive greater efficiency, insights, and innovation.
It’s also essential to consider factors beyond the technical capabilities of the software. For example, total cost of ownership and ROI are vital considerations. Weigh the upfront and ongoing costs of the tool, including implementation, training, maintenance, and support fees, as well as any additional hardware or software investments that might be required to be able to use it.
Investigate the quality of the vendor by requesting references, case studies, and demos. These can provide a real-world perspective on how the tool performs in practice. Also consider the vendor’s approach to change management and user adoption, as well as its ability to support a pilot or phased implementation.
Don’t forget to review the tool’s ability to support continuous improvement and collaboration with suppliers. Gauge the user-friendliness of the tool’s self-service portals and communication features to make sure they make it easy for suppliers to work with your organization.
Top Procurement Technology Trends
Remember the days when procurement meant sifting through paper catalogs, faxing orders, and waiting days or weeks for order confirmations? Current technology has made it possible to leave all of that behind—and a handful of advanced technology trends are pushing innovation further forward. From AI to advanced analytics, the world of procurement is undergoing a major facelift. Here is a closer look at some of the top procurement technology trends:
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Artificial Intelligence (AI)
AI refers to computer systems that can perform tasks that typically require human skills or intelligence, such as visual perception, speech recognition, decision-making, and language translation. Modern AI systems generally include training algorithms that learn from large datasets and improve their performance over time without being explicitly programmed to do so. AI can be applied to a wide range of processes in procurement automation, from spending analysis and supplier risk assessment to contract management and invoice processing.
For example, AI-powered spend analysis tools can automatically classify and categorize large volumes of spending data and can identify patterns and anomalies that help business managers find savings opportunities and exposures to risk. AI can also help businesses predict demand, optimize inventory levels, and provide objective information to assist the procurement team in finding the best suppliers based on historical performance data and market trends.
One notable example of generative AI in procurement is the use of chatbots and virtual assistants for communication and support. Procurement chatbots can handle a variety of tasks, such as answering supplier inquiries, providing guidance on procurement policies and procedures, and even conducting simple negotiations.
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Blockchain Technology
Blockchain is a decentralized, distributed ledger technology that records transactions across a network of computers, creating a secure and transparent system for storing and sharing data. In a blockchain network, each block contains a unique hash that links it to the previous one, creating an immutable, tamper-proof chain. This aligns well with procurement because it helps bolster the transparency, security, and traceability of transactions.
In procurement, blockchain technology can be used to create shared, transparent, and secure records of transactions, documents, and data from across the supply chain. By enabling multiple parties, such as buyers, suppliers, and logistics providers, to access and update the information in real time, blockchain can improve communication, reduce errors and disputes, and enhance trust and collaboration. Blockchain-based smart contracts can also automate the execution and enforcement of procurement agreements such as POs, invoices, and payments based on predefined rules and conditions.
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Robotic Process Automation (RPA)
RPA is a technology that uses so-called software robots to automate repetitive, rules-based tasks that are typically performed by humans. RPA software literally mimics human actions, such as clicking buttons, filling out forms, and extracting data from documents. It can be applied to simple tasks in which any necessary decisions can be simply defined by specific rules, with no higher-level thinking required.
In procurement automation, RPA can be applied to a wide range of tasks and processes, from data entry and validation to PO creation and invoice processing. For example, RPA software can automatically extract data from supplier catalogs, purchase requisitions, and invoices to populate the relevant fields in the procurement system forms. It can also validate data against predefined rules and thresholds, flag any discrepancies or errors, and trigger the appropriate workflows and approvals.
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Cloud-Based Solutions
Cloud-based solutions are hosted on remote servers and accessed via the internet, rather than being installed and run on local workstations and servers. Cloud-based solutions offer a range of benefits, such as scalability, flexibility, accessibility, and cost-effectiveness, making them increasingly popular for procurement automation and other business functions.
In procurement, cloud software can provide a centralized, secure, and always available platform for managing the entire procurement lifecycle, from sourcing and contract management to purchasing and invoice processing. By leveraging the cloud, procurement teams can access the latest software features and capabilities without the need for extensive IT infrastructure or maintenance. Cloud-based solutions also enable real-time collaboration and data sharing among procurement stakeholders, regardless of their location or the device they use. This can improve communication, transparency, and decision-making, while diminishing the risk of errors, delays, and duplicate efforts.
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Advanced Analytics and Big Data
Advanced analytics and big data are changing the way organizations approach procurement and supply chain management. Advanced analytics refers to the use of sophisticated techniques, such as predictive modeling and natural language processing, to extract insights that support data-driven decisions. Big data, on the other hand, refers to the large and complex sets of structured and unstructured data that organizations collect from various sources, such as transactional systems, social media, and networked devices.
For procurement automation, advanced analytics and big data can be used together to gain a deeper understanding of spending patterns, supplier performance, and market trends. This knowledge empowers organizations to enhance their sourcing strategies, reduce costs, and proactively manage risks. For example, applying advanced analytics to historical spending can uncover opportunities for consolidation, standardization, and strategic sourcing. Procurement teams can also use predictive analytics to improve demand forecasts and optimize inventory levels to prevent stockouts or overstocking.
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Internet of Things (IoT)
Who knew that smart devices, like an office coffee maker, could become key players in procurement? IoT refers to the growing network of connected devices, sensors, and objects that can collect, exchange, and analyze data over the internet. Whether they’re everyday objects like a coffee maker or they’re specialized devices built for certain companies, these products have small, built-in sensors that collect data about their surroundings, their condition, or how they are being used. The data is sent to a computer, where it can be analyzed to gain insights or trigger certain reactions.
In procurement, IoT can be used to improve visibility, efficiency, and responsiveness across the supply chain. By analyzing IoT data from various sources, procurement teams can plumb data from supplier performance, product quality, and customer behavior to use to make better-informed decisions. That IoT-enabled office coffee maker, for example, could monitor usage patterns, such as how often coffee is brewed and the quantity consumed. It can transmit that data to the procurement system, providing information on real-time inventory levels of coffee beans, filters, and related supplies. Based on usage trends, the system can automatically reorder supplies before they run out and even help forecast future demand and adjust order quantities to prevent overstocking and spoilage.
A larger-scale example comes from companies that have begun attaching small sensors to shipments, so they can monitor factors including temperature, humidity, and shock levels. This can help ensure that products arrive in good condition, which is especially important for procurement teams waiting to put arriving products into operation ASAP. The sensors can also track the exact location of a shipment and estimate its arrival time, so workers can plan accordingly. IoT can also be used to monitor the performance and maintenance needs of capital assets, such as equipment, trucks, and machines, helping procurement teams anticipate demand for parts and equipment—which protects both operations (by preventing downtime) and finances (by reducing repair costs and extending asset life).
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Supplier Risk Management Tools
Managing supplier risk is a crucial component of effective procurement—nothing derails a procurement system faster than an unpleasant surprise from an unreliable supplier. Supplier risk refers to the potential for disruptions, delays, quality issues, or financial losses arising from the failure of a supplier to meet its obligations. Supplier risk can stem from various factors, such as natural disasters, geopolitical events, cyberattacks, labor disputes, or bankruptcy. To mitigate supplier risk, procurement teams are increasingly turning to specialized tools and technologies that can help them identify, assess, and monitor risks in real time. These tools leverage advanced analytics, AI, and data visualization to provide procurement teams with a comprehensive view of their supplier network, along with actionable insights and recommendations for risk mitigation.
For example, supplier risk management tools can automatically collect and analyze data from a variety of sources, such as financial reports, news articles, social media, and government databases, to assess the financial health, performance history, and reputational standing of each supplier. The tools can then generate risk scores and alerts based on predefined thresholds and criteria, enabling procurement teams to proactively adjust their efforts to avoid potential complications.
Automate Your Procurement Process With NetSuite
NetSuite Procurement automates much of the end-to-end procurement process, eliminating manual tasks, accelerating cycle times, and reducing the risk of errors. It gives businesses a centralized, cloud-based environment for managing vendors, requests for quotes, purchase requisitions, POs, contracts, invoices, and payments. The sourcing management feature simplifies the entire sourcing process, from identifying vendors able to supply needed goods at the right time and price to managing communication when requesting quotes. Its spend analysis and reporting capabilities increase visibility and control, helping procurement teams keep operations moving smoothly and identifying opportunities for cost savings and improvements. It also aids collaboration not only within the organization, extending from operations to procurement, inventory, and finance, but also with suppliers. Additionally, NetSuite’s mobile procurement features let the team create, approve, and track requisitions and orders on the go, which boosts both agility and productivity.
Unlike standalone procurement platforms, NetSuite Procurement integrates seamlessly with other NetSuite ERP modules, such as those for financials, supply chain management, and CRM, creating a single, unified data repository that is available to all departments.
Procurement automation can simplify and expedite the many tasks that are part of procurement. It provides many benefits, such as eliminating repetitive and time-consuming manual tasks and improving accuracy, compliance, and transparency. These benefits translate into faster cycle times, smoother operations, cost savings, and enhanced internal and external collaboration. Automating the procurement process is an important first step in modernizing this function and keeping pace with emerging trends such as AI, blockchain, and IoT, which are rapidly becoming essential for organizations seeking to optimize procurement operations and build resilience and agility into their supply chains.
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Procurement Automation FAQs
Is procurement similar to sales?
Procurement and sales are separate and distinct functions within an organization. Procurement is about obtaining the goods and services a company needs to do business, and sales is about selling the company’s goods and services to others. But there are some similarities between them. Most obviously, they both involve exchanging goods and services, payments, and the transfer of ownership. They also both require negotiation, communication, and relationship management skills, along with a solid understanding of market dynamics, value propositions, and pricing. So while they serve distinct purposes and have very different goals and objectives, they share multiple similarities in terms of process and the skills needed to do the job.
What are the 7 stages of procurement?
The procurement process is often broken down into several stages, the exact number of which varies depending on the source or organization. A fairly common model includes seven stages.
- Identifying needs: Determine required goods or services, quantities, quality standards, and time frames.
- Supplier research: Identify potential suppliers, conduct market research, and create a list of qualified candidates.
- Requests for proposals: Prepare and send a request for proposal to selected suppliers that includes detailed specifications and requirements.
- Evaluation and negotiation: Analyze and compare supplier responses, then negotiate terms, prices, and conditions, and finally select the best supplier.
- Purchase order creation and approval: Create a formal purchase order, obtain necessary approvals, and send the approved PO to the supplier.
- Delivery and receipt: Monitor order fulfillment, receive and inspect goods or services, and report any discrepancies or quality concerns.
- Payment and recordkeeping: Process supplier invoices, reconcile invoices with POs and receipts, make payments according to agreed-upon terms, and maintain accurate records for audit and analysis.
What are the three P’s of procurement?
The three P’s of procurement are people, process, and paper (or paperwork). People refers to the individuals in the procurement process, including procurement professionals, suppliers, and internal stakeholders, who collaborate to ensure the timely and cost-effective acquisition of goods and services. Process encompasses the steps, procedures, and workflows that guide the procurement lifecycle, from identifying requirements and sourcing suppliers to placing orders and managing contracts. Paper represents the documentation and data associated with procurement transactions, such as purchase orders, invoices, and contracts, that are essential for recordkeeping, compliance, and analyses. In practice, “paper” is largely digitized in modern procurement processes.
What is P2P automation?
P2P stands for procure-to-pay. P2P automation is about using digital technology to automate a part of the end-to-end procurement process, namely, from requisition to invoice payment. It involves digitalizing and integrating tasks, such as purchase request creation, approval workflows, order placement, receipt and inspection, invoice matching, and payment processing. By automating these tasks, P2P automation reduces manual effort, improves accuracy and efficiency, and provides greater visibility and control over procurement spending.