Today’s guest post comes from Priyanka Potdukhe, Public Relations Manager for Zycus, Inc.
Procurement has evolved over the past few years. The challenges faced by procurement some 10 years ago were different from those they are facing today. Globalization and the subsequent easing of trade relations resulted in increased opportunity for procurement organizations to involve more suppliers from around the globe, making the process more complex. As a result, procurement, which was once merely transactional, has evolved into a more strategic function.
As procurement’s role grew, procurement leaders are trying to stretch the limits of their organizations to take full advantage of the relationship with suppliers and internal stakeholders. In fact, a recent study conducted by Ardent Partners, “The State of Strategic Sourcing: Connecting the Dots,” found that top pressures facing procurement leaders in 2014 and beyond are ‘find cost savings’ (51 percent) and ‘improve overall effectiveness and influence’ (40 percent).
No doubt, strategic sourcing is driven by the need to quickly identify, evaluate, negotiate, implement, and adjust the optimal mix of goods and services that best support the evolving objectives of the enterprise.
In this context, let us analyze how best-in-class procurement organizations use process automation technologies, like spend analysis, e-sourcing, contract management and supplier performance management, to perform better than their peers in the industry.
Top five strategies of best-in-class procurement
- Standardization of procurement processes
With a holistic approach to sourcing, best-in-class organizations view standardization as the best strategy to consistent execution of sourcing processes, as it helps them clearly define the benefits for each stakeholder in the enterprise. Standardized processes and policies provide sourcing leaders with parameters within which they can execute their programs and help meet the expectations of project holders. With standardization, however, process deviation is also possible based on project category, stakeholders and potential value, among others.
- Supplier Performance Management
Suppliers being at the center of the procurement chain, maintaining supplier relationships is integral to deriving more value from the process. With an effective supplier performance management approach, organizations can proactively address the spend by tracking the performance of suppliers and collaborating with them to innovate and create more cost saving opportunities. The demand for supplier management solutions is clearly visible. As Ardent Partners reveals, 22.1 percent of organizations already use this strategy for procurement, while 54.4 percent plan to adopt it in the coming months.
- Automated Spend Analysis
Fully automated spend analysis helps procurement to view enterprise spend and better understand the process for taking action as required. Automated spend analysis has already gained widespread market adoption, as 40 percent of procurement organizations have already implemented it, and nearly 32 percent are planning to implement it in the near future, as shared by Ardent Partners. Automated spend analysis helps the team collate, aggregate and present all expenditures with the suppliers and directs sourcing teams to identify sourcing opportunities which they may not find otherwise. With appropriate visibility into spend, these organizations are able to make procurement a strategic business function, since visibility into spend remains the foundation of best performance in procurement.
- Strategic eSourcing
The next strategy in connecting the dots in procurement is eSourcing. Strategic eSourcing streamlines the supplier negotiations process to minimize the cost and complexity of the bidding process. Price discovery, process efficiency and improving stakeholder visibility are some of the other benefits of eSourcing applications. eSourcing has become one of the most matured sourcing tools available in the market today, with about 50 percent of organizations already using the tool and over 30 percent planning to adopt it in the near future. These trends indicate the market will soon witness greater sophistication in the use of advanced features and functionalities of these technologies to drive the best value from procurement processes.
- Automated Contract Management
Automated contract management helps connect the dots in procurement by bringing value to organizations which are not able to link the results of the sourcing projects immediately into the contract. Contract management can standardize contract language, track and measure compliance to contractual payments and service levels, and streamline the process to understand supplier performance and risks across the entire portfolio of contracts. All of these capabilities have made contract management an important strategic element in sourcing. Contract management, which had a slow adoption rate in the beginning, has grown remarkably over the past few years. Nearly 26 percent of organizations have adopted the technology, with over 47 percent getting ready for their adoption within a few months or so.
Process automation tools play a significant role in procurement, as evidenced by the growing adoption of these technologies. The Ardent Partners survey says that best-in-class organizations, which have implemented these technologies, are able to bring 77 percent of spend under management and source almost 90 percent of the addressable spend. These organizations are also found to achieve superior compliance rates (76.6 percent). Once organizations are able to address these critical issues, they can focus on improving sourcing quality, a strategic move that will bring agility to the entire process and help them achieve their business goals.