10 minute read 3 Jan. 2022
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The journey to procurement digitization

By EY Canada

Multidisciplinary professional services organization

10 minute read 3 Jan. 2022

Authored by: Obehi Omobhude, Mariana Loera Solorzano, Cara Sharko, Jason Zannet, Marco Garces, and Biju George

Digital enablers can help transform the procurement function of organizations to stay competitive in changing business climates.

In brief:

  • Adopting digital enablers in procurement processes can help organizations manage risks, unlock efficiencies and improve the bottom line in today’s climate.
  • The implementation of cloud-based platforms, intelligent automation, blockchain and data analytics tools unlock value-creation opportunities for organizations.
  • Assessing an organization’s current procurement function is crucial to determine untapped potential and allow for the development of a digitization roadmap.

Procurement is taking on an increasingly important role in today’s business climate. It’s seen as a key contributor to building resilience in corporate strategy, risk optimization, fostering innovation and financial stewardship.

Procurement’s increasing prominence has also increased visibility into the challenges organizations face in limiting the growth of their capabilities. These challenges include:

  1. Inaccurate, incomplete or missing data, which can lead to poor supplier risk management and pricing decisions
  2. Inefficient or outdated procurement processes, which can result in increased effort and cost across the “source to pay” (S2P) lifecycle
  3. Lack of cross-functional integration, which can cause a lack of stakeholder buy-in for procurement decisions
  4. Competitors adopting digital enablers for procurement, increasing visibility across their supply chain, which could lead to an organization losing market share

With an increasingly competitive and unpredictable business climate, organizations need to understand current complexities in the procurement ecosystem and adopt enablers that reduce risks, unlock efficiencies and ultimately improve their bottom line.

It’s well established that organizations can mitigate these risk factors and challenges by adopting digital enablers, which include cloud-based platforms, intelligent automation, blockchain, as well as data and analytics.

How digital enablers can enhance your procurement function

Cloud-based platforms and trading networks

There is a compelling case for implementing a cloud-based S2P solution:

  • Procurement is on the cusp of fast, hard-to-predict change, requiring an adaptive platform.
  • Consumer-like experience improves requisitioner control and satisfaction.
  • Pace of innovation is accelerating and is largely only available in the cloud.
  • Buyer/supplier networks are extending beyond procurement

Cloud-based platforms — external servers that are used to compute power and storage — can be applied to develop trading networks, which are cloud-based procurement and invoicing applications focused on procurement optimization. These trading networks can connect buyers and sellers, enhance supplier management and enable more efficient spend management across purchase orders and accounts payable records.


The table below outlines how cloud-based platforms can positively impact an organization’s procurement capabilities.

Table 1. Value of cloud-based platforms and trading networks to an organization’s procurement capability

By implementing an optimized cloud-based platform, companies have realized significant benefits across their spend — including reductions in indirect spending and realized savings due to increased spend coverage — and across their procurement processes — including sourcing efficiency improvements, procurement cycle time improvement, reduction in processing time, safety and regulatory compliance in procurement.

A leading financial institution providing insurance and financial products around the world initiated an enterprise-wide global deployment of an e-procurement solution.
Benefits included automation of over 80% of their procure-to-pay (P2P) processes, increasing compliance to processes by 80% and a footprint of more than 35 countries able to capitalize on the combined purchasing power.

Intelligent automation

Intelligent automation (IA) can be used to automate high-volume, complex and/or multi-step data handling actions, in addition to capturing and interpreting existing applications and triggering responses with other systems. For example, chatbots — rules-based service powered by artificial intelligence — can converse in human terms and inject key information, intelligence and online services as the organization requires.

Table 2. Value of intelligent automation to an organization’s procurement capability

A leading telecommunications provider wanted to increase active usage of their enterprise collaboration ecosystem across their large employee base (>50,000 employees) around simplifying procurement access. They deployed a customized chatbot on the company’s messaging platform, which was able to retrieve and distribute information more efficiently to employees. In addition, the chatbot’s conversational user interface provided a much-improved employee experience, which led to increased employee engagement across the company’s ecosystem.

Blockchain

Blockchain is a distributed ledger that receives, validates and permanently stores transactions. It has structural features that can be used to optimize the procurement process. Blockchain technology can be used to safely share information, such as the origin and authenticity of goods. This allows for multiple parties — whose entries are verified and therefore trusted — to form a public, visible record so all stakeholders have access to key data around goods and services.

Blockchain technology can also be used to develop smart contracts for the P2P process. In the below figure, we visualize how multiple parties can use blockchain-enabled smart contracts to administer the transaction and exchange of goods and services.

Figure 1. P2P process with smart contracts

In the above figure, multiple smart contracts are used to facilitate the business relationships between key parties, with all required information being contained in the blockchain. Smart contracts enable efficiency and agility wherever products, information or payments change hands.

Table 3. Value of blockchain to an organization’s procurement capability

A leading consumer packaged goods company is working to reduce compliance issues in their procurement function by implementing blockchain to manage their contract manufacturer supply chain. The blockchain-enabled solution led to significant reduction of value leakages across the contract manufacturing and supplier network, elimination of the price verification process, transaction visibility across the entire network and full adherence to contract pricing for raw materials and packaging.

Data analytics and visualization

Data analytics can be used to automate and improve data cleansing, transformation and classification operations. Data visualization tools such as Power BI or Tableau can then be used to visualize data, which can unlock key benefits such as purchasing savings opportunities, compliance with organizational policies and contracts, an increasingly robust sourcing process, data-driven communications to stakeholders and increased negotiation power with suppliers.

Table 4. Value of big data and analytics to an organization’s procurement capability

An integrated oil and gas company experienced issues with free text orders (FTOs) — orders purchased without referencing material master agreements or rate sheets. The majority of material and services spend were FTOs (approximately 80%), which led to increased efforts to create specific POs and obtain approvals for the FTOs — approximately five times more rework on FTOs and twice as many approvals required — and caused delays in receiving goods. The company used process mining to optimize their process execution. The analytical activity included proactive monitoring of FTOs, creation of alerts and action items for key stakeholders, and flagging of process variations. This resulted in reduced procurement costs and accounts payable processing time

Next steps to digitize your organization’s procurement function

Organizations can digitize their procurement function by first assessing the current state of their procurement processes — including risk factors and challenges to the current state, identifying the ideal target state and then developing a roadmap to achieve the target.

The following steps can be used to develop a plan for procurement digitization:

1)  Strategy review
Identify key business drivers and the impacts of digital disruption; review business strategy; correspond with key stakeholders to capture executives’ perspectives.

2)  Assessment
Match trend and threats to existing strategy; analyze internal customer satisfaction and complaints; engage in digital enablement/maturity assessment; conduct people and culture change readiness assessments.

3)  Target state
Define and quantify target KPIs; align target state with organizational units; conduct workshops to develop a solution, including preferences and constraints; engage in a high-level redesign of procurement processes and define integration between processes.

4)  Gap analysis
Identify gaps between current and target state; prioritize improvement needs; define and develop target state model.

5)  Roadmap and business case
Develop a roadmap based on prioritized improvement areas to reach the target state; validate roadmap for business case calculation; calculate cost/benefit; conduct ROI analysis; develop a change management framework.

Organizations can use these digital enablers to transform their procurement function and stay competitive in a rapidly changing business climate. For more information on these digital enablers visit ey.com/en_ca/consulting/supply-chain-operations.

Summary

The digitization of the procurement process through the implementation of cloud-based platforms, intelligent automation, blockchain and data analytics tools can help organizations to be better prepared for today’s business climate. Assessing one’s current procurement functions and developing a roadmap for digital enablement is key to unlock long value-creation opportunities for organizations that wish to remain competitive in the market.

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By EY Canada

Multidisciplinary professional services organization