How can Technology be used to Mitigate Rising Procurement Costs?
By Sunil Gupta, Director-Group Procurement, Walgreens Boots Alliance
Procurement is almost always viewed as a cost center. A Chief Procurement Officer (CPO) has to repeatedly justify the operating costs of the procurement team. However, despite proving on several occasions that procurement can drive efficiency and deliver value; organizations often oversee this attribute and fail to gain visibility in to their supply chain. There is no debating that tight control on spending is an enabler to long-term success of an organization. It is crucial to have the knowledge of what is being bought, by whom and from whom. But is it really possible to navigate vast amount of complex procurement data to drive this intelligence without investing in technology? Not really. Technology, when invested in wisely, can open the doors to endless opportunities for procurement particularly. There are several solutions available today that can support procurement life cycle – contracts to procurement activities to spend analysis.
A contract management system (CMS) can simplify contract lifecycle activities. It helps from drafting terms and templates to being a communication and version control tool for contract negotiations. It also acts as a repository of contracts where all the electronic documents can be stored in one centralized location with controlled access to authorized users in the organization. These solutions have the capability to alert users for upcoming contract expirations, keep a tally of rebate dollars due and create a searchable database. The tool makes it really easy for procurement professionals to create a pipeline of activities by simply looking at what contracts they have coming up for renewals and which ones haven’t been negotiated for quite a while. They can also search the database if they want to find contracts with a specific clause. For example: 30 days term for convenience or Net 60 days payment terms. Finally, some CMS also enables supplier performance management by storing and managing key performance indicators (KPIs) and service level agreements (SLAs) at a click of a button. It can ensure the organization receives what the vendor has contracted for.
“Technology, when invested in wisely, can open the doors to endless opportunities for procurement particularly”
Integrating an e-procurement tool with CMS can drastically reduce the order processing time as well as make contract pricing information available at requestors’ finger tips. The result – you have users buying from approved vendors at agreed upon prices. It helps reduce maverick spend and fraud risk by restricting transactions to certain approved vendors only. An e-Procurement solution can also help create searchable database of transactions, generate audit trails, automate approval processes, and speed up communication. E-Cataloging for self-serve usage, approval of purchase requisitions via email and real-time view of purchase order status as well as delivery helps end-users to adopt new technology fairly easily. Cutting out manual paper-based purchasing forms can relieve lot of frustration for end users. Similarly sourcing activities such as conducting auctions, issuing request for proposals (RFP), consolidating vendor responses and awarding business have been made easier as well with technology. Many e-Procurement solutions drive collaboration within the organization as well as externally by enabling interaction with the procurement team. An RFP project team can now contribute to construction of the RFP or a bid document, answer vendor questions, and review and compare vendor responses all in one location seamlessly. It makes it very efficient to go through a procurement process to objectively select a vendor without creating a lot of hassle.
Lastly analyzing spend to drive intelligence is core to procurement. Spend analytics tools have the ability to pull data from various disparate systems to create a powerful spend management tool. This tool can apply several complex algorithms to understand spending patterns. It can practically read any form of procurement data, cleanse it, apply the desired taxonomy and drive spend categorization to create views and intelligence that can be an eye-opener for any organization. It also helps identify true buying volume and enables spend leverage for better prices and contract terms. These tools come with pre-built reports that display pie-charts and bar-graph visuals that are great for executive presentations. Club this tool with a CMS and e-procurement solution and you can drive better efficiency and increase control over spend exponentially.
Tying the three (CMS, e-Procurement and Spend Analytics) together meticulously completes the procurement value stream wheel.
• Contract Management System – Prices and contract terms are uploaded in a CMS. These are converted in to e-Catalogs or made available in a market-place like environment for end-users.
• E-Procurement – Procurement transactions take place electronically in this tool. Users look up goods and services they want to buy from e-catalogs or a list of approved vendors with contracts in CMS.
• Spend Analytics – Slicing and dicing of e-Procurement data takes place in Spend Analytics tool. It helps us understand spending patterns. This procurement intelligence helps buyers leverage their volume and drive better prices and improved contracted terms.
It takes a really skillful team to fit these three pieces of technology together but once done it can help organizations find the pot of gold, not just once but on an ongoing basis.