Digitalization is everywhere; this led me to a series of thoughts about how digital transformation has changed the life of every individual completely. The moment you think you want to do something, it’s almost there for you to proceed. Is this what people want? If yes, then Digitization concerns “People”, “Process” & “Technology”.
Being a Procurement Professional, I am excited to see how procurement has attained the status of Digital in the market and overview of digital Procurement, Sourcing, and Contract management.
This article will give an outline of how procurement has transformed digitally, its pitfalls, and the benefits in the process of transformation. Also, it states the important considerations while transforming procurement digitally mainly focusing on the initial phase, i.e Procure to Pay.
Digitalization challenged Industries with a slogan – “Transform or Die“, that was indeed deep. Back in the 1980s when ERP solutions were ruling the world, the term “Digital” was just a thought of changing signature on a piece of paper to an electronic one. But, the actual understanding of digital is converting analog data to digital data, which was introduced in the telecom industry in the early 1970s. So, what does digital transformation mean to the procurement community?
It is the use of digital tools to convert a traditional transactional and time-consuming approach to a strategic, dynamic, and value-based approach to drive the best value for procurement. The biggest success of digital transformation in the industry is because of continuous improvement to deliver process efficiency and excellence. We will explore more about how companies adapted to technology, what are the benefits and challenges in using the software are and much more.
How does Procurement transform digitally?
This question might look undemanding, but answering this might cost an arm and a leg. Cost-saving is not always a parameter to gauge an organization’s success. An even more important aspect is how an organization adapts to new technology in creating a value chain of new features, increases compliance, and productivity mitigates the unforeseen risk and improves process efficiency. That’s the real success for a company in the competitive market, but this transformation will not happen overnight.
Before we transform to any E-sourcing software, it is recommended to make sure that the following 3 factors are considered viz., People, Process, and Technology. Further, ask the following questions.
- Is it compatible with my current setup?
- Does it provide everything my organization wants?
- Is it better than my current solution/ system?
- Is it Agile?
- Is it user-friendly?
- Is it secure and compliant?
I haven’t included anything related to cost here. We will discuss ROI in detail.
People, Process and Technology
Just to be competitive, we cannot afford to choose software or stick to a process without deriving any value from it. It has to be discussed with people, understanding the current process flow, and assessing the right technology. By doing so, we can achieve the highest productivity and make the best use of the software. Basically, align your procurement objectives with your technology transformation.
Modules of Digital Procurement
The chief procurement officer is responsible for the entire technology enhancement in an organization. Well, an organization can shift to any digital platform in a phase-wise manner and yes, it is the most imperative decision to reap the benefit of technology. Understanding the implementation complexity and to capture business at the same time, tech companies have classified the overall procurement cycle to a stage-wise transformation and below is the stage or modules,
- Procure to Pay ( P2P )
- Source to Pay (S2P )
- Contract Management
- Spend Management
These can also be stated as upstream and downstream activities. Going further, we will primarily focus on Procure to Pay. This will include a roadmap of the Implementation, Challenges, and Benefits of this Module.
What is procuring to pay? It is a simple process involving activities right from raising a requisition to paying the supplier. Below is the schematic representation of the P2P cycle:
Procure to Pay Cycle
Roadmap of the Implementation
Once we have decided to transform digitally, prepare yourself that it’s going to take a minimum of a period to implement. (This may vary with the service provider that the company chooses). Now, below are some initial steps to perform to kick start the transformation,
- Develop an accurate and robust Business process mapping – This will lead the transformation from start to end.
- Define the number of users of the module – Will this be Enterprise-wide? Or is it for a specific team?
- Feature the cross-functional team for discussion– It will assist the implementation team for better visibility of the process.
- How to mitigate the risk? – Be aware of potential risks when we are transforming to a digital platform.
- How to build internal expertise?
- How does our organization achieve success?
“Basically, Our Roadmap Should Be Able To Provide A Clear Cut Definition Of How To Do, When To Do, Why To Do, And Most Importantly Who Is Going To Do It.”
Challenges in Implementing Procure to Pay
- Lack of data governance
- Change Management
- Addressing Non-PO Invoices
- Supplier Master Data and much more
Benefits in Implementing Procure to Pay
- A single place for tracking from requisition to payment.
- Reduce errors
- Better Visibility of the Spend
- Control and tracking of shipments via the portal
- Supplier Consolidation
- Automated Catalogue buying
Above are just an example of the challenges and benefits in implementing the Procure to Pay software.
“Before We Get More Into Procure To Pay And E-Invoicing, Let Me Be Clear, Digital Procurement Is All About Identifying And Creating Value For The Organization With Better Customer Experience And Adaptability.”
Please refer to the below resource from Deloitte
The Player – Procure to Pay
Internet-based data center is the best selling in the Industry- In Short Saas platform is the most common look from organizations. Because the old traditional method of installing in a stand-alone system or maintaining it in the company server is no longer worth of.
Why companies select Saas Platform? Because of,
- Scalability and Accessibility
Apart from the above, it has a very low maintenance cost. (Include upgrades)So, the very first thing to know or to ask the supplier is “ Is this a Saas based”?
Today, most organizations have different in-house developed tools to capture their requirement.
The second question is “ Is your software open to integrate?” In tech language, Is API’s are open to performing the joint function?
Needless to say, always a Demo positively reeks of quality- This is so true, once a service provider set up a Demo, the organization will get to know the worth of the product and will decide to proceed or not.
Third most important thing is to request for a Demo.
Once, we have the above clarity, then proceed with analyzing the features of the procure to pay software. Below are some examples but not limited to,
- Does the software has Artificial Intelligence (AI) and Machine Learning (ML) functionalities? –This is the future and completes Procure to Pay will be automated in the near future.
- Mobile requisitioning?
- Guided buying support- Most of the service providers complicate the guided buying, but the organization requirement is simple, it should be like any e-commerce website.
- Is it completely customizable or only configurable?
- How does the Supplier get benefited? Don’t burden the suppliers by charging.
- Other factors like transparency, Productivity, Integration between Purchase and Finance team.
Return on Investment (ROI)
Return on Investment is a critical and imperative step to determine the cost savings for the company. In fact, service providers will come and strike us down with some huge numbers, but it’s our responsibility to ensure the ROI based on our organizational structure and workflow. Below are the basic and essentials areas to focus on, but limited to,
- Invoicing Cost- Labor/processing
- Infrastructure Cost
- Transaction Fee
- Supplier Onboarding Cost*
- Calculating Maverik Spend
- Average PO cost
Below is the calculating structure, which gives a basic understanding of how to calculate the ROI. You can download it.
So, “The Fifth Important Part Is To Analyse And Identify The Unique Features.”
Last but not the least, we have to get the below information and it is most important in making a significant decision, i.e Techno-Commercial aspects,
- Evaluation and Contracting
- Pricing Flexibility
- Integration and Deployment
- Ease of Deployment
- Service and Support
- Vendor response
- Quality of Technical support.
Based on all the above aspects, we will get a clear image of with whom we should proceed. Once we have clarity on this, as discussed, the organization should set up a road map discussion with the selected service provider.
Future of P2P
Going forward in the future, there are several trends that are going to impact the entire P2P process. Some are going to be challenging and others are great opportunities for streamlining and complete digitalizing the P2P to a whole new level. Some of the trends are:
- 100 % Digitalization in E-Invoice (Touchless Invoice)
- Expand the control for purchasing.
- Mobile P2P application. – Just approve on the go.
- Early pay discount strategy for suppliers.
Procure to Pay- The Industry 4.0
Where Manufacturing units are working to make a smart factory, Finance is looking for business decisions based on collecting real-time data by digital control and compliance. But, our hero procures to pay aims at RPA with intelligent workflows, digital 2-3 ways matching for touchless Invoicing. Components of P2P 4.0 are:
- Electronify all documents
- Workflow collaboration
- Global access with security
In a nutshell, the industry is looking for the best of a breed P2P system.
Digitalization is a journey and not a destination, is what I understand. Being at the forefront of the technology is important, but it’s imperative to be at the forefront of the customized made solutions, which is the market need. With more and more tech giants are investing in India, this will be a great opportunity and a platform for knowing how to work with the digital services provider.
This piece of work will definitely assist some young aspirants in the industry to know what and how a digital transformation takes place and the important criteria for deciding which product fits their purpose.