The Procurement Transformation: Adding Value Where It Counts
Procurement is undergoing a complete transformation, taking center stage as a significant influencer of strategic business decisions to generate improvements in transportation logistics, indirect, packaging and direct materials, and corporate services. Indeed, a 2015 study from Ardent Partners indicates that procurement manages more than 60% of total enterprise spend, and for every new dollar that is placed under the management of procurement, companies save on average between 6% and 12% during the first contract cycle. If positioned as a strategic business function, procurement has the ability to positively transform operations across the supply chain and support overall business strategy in ways that drive value well beyond savings.
So what is the key to successfully undergoing the “procurement transformation,” adding value where it counts and improving efficiencies throughout the supply chain to increase ROI and overall business performance?
Particularly in complex industries like manufacturing, the procurement mindset must expand beyond the traditional focus on maverick spending and cost avoidance, or creating savings through the squeezing of suppliers. Today, procurement professionals are embarking on a more interactive, dynamic and data-rich approach to managing spend throughout their enterprise, focusing on supplier relationships within the wider business system, including sourcing and management of the supply chain.
The Financial Impact of Procurement
Many companies mistakenly underestimate the impact that procurement can have on the bottom line. Modern procurement tools that emphasize a wider set of financial and non-financial measures allow supply chain managers to take larger strides toward value creation and increased ROI. Specifically, source-to-settle (S2S) processes empower this procurement transformation and enable companies to strategically and effectively manage the supply chain.
According to the Ardent Partners study, best-in-class enterprises use procurement automation more frequently and effectively across the S2S process. In each area the study addresses, the frequency of best-in-class usage exceeded 20% and averaged 40% across the spectrum. The study further indicates that advanced procurement technology, when well deployed and used proficiently, offers a “multiplier effect” on a procurement team’s efforts and increases value.
Simply put, a company’s procurement team should be able to accomplish more than simply acquiring widgets. It must support the demand of materials that will affect the supply chain, process success and overall brand value, all the way down to the end consumer.
S2S in Manufacturing
Of course, S2S needs in the manufacturing industry are unique and complex. Manufacturing firms are constantly facing new global challenges, including the forces and opportunities of globalization, increased risk and the impact of government regulation on decision making, not to mention the strain on global natural resources. Companies are adapting to these complexities and difficulties by increasingly placing more pressure on their procurement and supply chain teams to proactively monitor supplier networks to reduce potential disruptions.
Typically, manufacturing organizations work with multiple suppliers across an intricate global supply chain. These relationships and overall business procedures depend on maintaining transparent and secure processes, prompting more companies to turn to S2S automation to streamline operations and reduce risk.
Global manufacturing organizations also face specific challenges in supplier management and supplier payment compliance, with most requiring a detailed vetting process and strict internal and government guidelines to ensure high quality suppliers. Supplier management is critical as it forms the foundation of a best-in-class spend management strategy. To meet the increasing need for S2S solutions among manufacturing companies, procurement software providers are providing tailored offerings specifically for the industry, enabling companies to handle industry-specific activities along with more general processes.
Key Elements for Future Supply Chain Maximization
For a modern approach to S2S to serve as a revenue driver, it’s important that manufacturing firms find the right partner to help them on the journey through a process that is open, streamlined and insight-filled. Many companies take a phased approach to S2S projects, where different sub-process areas are attacked in concert, but at different moments in time. The most direct and effective path to S2S success begins with a plan that examines the entire process and incorporates and prioritizes the requirements of all S2S stakeholders.
What are the top considerations manufacturing firms should keep in mind when looking for the best integrated S2S offering that will drive enhanced supply chain performance?
Cloud-based self-service and collaboration: The benefits of a SaaS option are widely understood—accessible anytime, from any browser, even on-the-go. Buyers and other stakeholders can also interact efficiently and easily, and role-based security ensures that each person has access only to authorized information.
Automated workflow management: It sounds simple, but simple will not always solve your problems. To drive the complex decision trees needed by manufacturing firms, and rapid response capabilities to deliver the highest ROI, workflow must be at the heart of automation. Look for conditional branching, simultaneous parallel execution and trigger-based processes launched through integration with other systems.
Third-party data integration: While it has been common in the past to access financial health data such as Dun & Bradstreet while qualifying a new supplier, the new concepts of risk demand a much broader information set. Third-party sources should include news stories, commodity trend data, weather forecasts and geopolitical data.
Next-generation networks: Most companies can wholly agree that they dislike supplier networks, but those are the old versions. Today, supplier networks form the core of the supplier management universe and with a “many-to-many” approach provide greater variety and alternatives to manufacturing firms looking for the best supplier for their needs.
Predictive analytics: It’s no longer enough to look in the rearview mirror. In order to achieve competitive advantage, you need to anticipate markets and events. A predictive analytics capability allows companies to combine supplier, business and market data to proactively take advantage of new opportunities and avoid unexpected disruptions in the supply chain.
Improving Performance with a Modern Approach
Research has proven that a large portion of unclaimed spend management ROI is tied up in procurement, particularly within the supplier management process. For instance, we have seen that automated, network-driven supplier on-boarding can reduce:
- Cycle times by more than 80%.
- Supply chain disruptions due to supplier failures by 65%.
- Overall cost of managing suppliers by more than 70%.
These proven cost savings have flowed directly to the bottom line; however, cost isn’t the only area showing significant improvement. A modern, automated approach to supplier management can drive improvements across other business measures, with one company seeing a 5% increase in working capital due simply to improved supplier terms management.
In a pressure-filled and results-driven industry like manufacturing, procurement teams must shift their traditional methods to adapt to the constant changes, difficulties and expectations within their organization and industry at large. Ignoring the growing need for innovative supplier management methods and seamless S2S process adoption puts companies at risk and reduces the opportunity for the supply chain to perform at its best. Procurement is undergoing an exciting but quick transformation. It’s time to get on board.
Steve Wiehe is president, CEO and chairman of the board of SciQuest. Joining as CEO in 2001, he has grown SciQuest from a fledgling e-market exchange to a public provider of e-commerce management applications. He has received numerous awards for his leadership over the past 15 years at the helm of SciQuest, including the NC Ernst & Young Entrepreneur of the Year Award and NCTA’s Technology Executive of the Year. He currently sits on the board of directors of Council for Entrepreneurial Development (CED) and advisory boards of Windsor Circle, Team Works, and is a trustee of BEST NC.
