Business and Technology Insights

Procurement 4.0 - Characteristics of the New Age Procurement Function

 
November 29, 2019

Recently I met a couple of procurement gurus over lunch and the discussion steered towards how organizations are leveraging digital technologies and building deep expertise to win new customers and deliver growth at a faster pace as they usher themselves into the age of Business 4.0TM. This made us think about the future of procurement function, given the macroeconomic scenario and unprecedented disruptions that organizations are facing today.

As we dwelled deeper, we realized that the procurement function in the age of Business 4.0, let’s call it Procurement 4.0, can be classified into four key buckets (a) Invisible, (b) Intuitive, (c) Intelligent and (d) Collaborative.

Invisible Procurement: Traditionally procurement is known to be an administrative function and are considered the gatekeepers to record all purchase transactions. However, with consumerization and penetration of e-commerce at the grass-root level, buying things at the touch of a button is the in-thing. Employees are expecting a similar level of sophistication and are not willing to accept bureaucratic processes any more. Organizations are responding by decentralizing the processes.  There used to be times when without procurement's approval, no PO could be sent to the supplier and the process could take weeks to months. Now the trend is to maximize straight-through processing such as auto purchase orders for catalog-based requisitions upon approval.

Similarly, once the supplier sends an invoice, the application has the ability to perform a 2-way/3-way match and then send the invoice for payment. In case of mismatch within tolerance issue, it provides an auto charge-back and then issues the invoice for payment. This process of auto-matching and issuance of charge-backs completely eliminates the need for manual intervention.

Intuitive Procurement: One of the most time-consuming activities for any procurement team is providing guidance on a list of approved items that a user can purchase and updating status of requisition/PO/delivery/payments etc. The advancements in an integrated source to pay suite with focus on next-generation UI has led to increased user adoption. The requestors/users have access to all the required information with a few clicks thereby freeing up the time of procurement professionals for more strategic work.

Even today, the majority of suppliers continue to send invoices via traditional channels such as courier (paper), email or fax. The onus is on the invoice processor to key-in the data manually, which is a time-consuming process. With new-age source-to-pay solutions with an integrated OCR engine, the UI screens provide a side-by-side view of the OCRed text and invoice image thereby helping the invoice processor to seamlessly validate the data without filling it across multiple tabs, resulting in 80%-90% increase in productivity.

Intelligent Procurement: Every month the procurement team would be requested to share spend data with multiple slices and dices such as spend by business unit, category, supplier and so on to be presented to management. The new age source-to-pay suites come with embedded dashboards and reports which present all required information instantaneously.

Another use case of intelligent systems is where the system prompts category managers about a contract approaching its end date or when the contracted quantity falls below a certain threshold. These simple yet critical alerts help procurement to avoid leakages and be one step ahead.

Leveraging AI/ML technologies, it is easier than before to identify duplicate and fraudulent invoices and purchase transactions, do spend classification, automate ordering/replenishment of office supplies, provide supplier matching and recommendation, and so on.

Collaborative Procurement: A category manager would be aware of the market trends and nuances of the category they handle, however typically there is very limited sharing of knowledge across category managers especially when the team is geographically distributed. As an example, consider a scenario where a category manager negotiating air travel consults with the category manager responsible for handling fuel purchases to understand the price fluctuations and trends. With jet fuel being one of the primary drivers of air ticket costs, the knowledge of market trends would definitely help the category manager negotiate air travel contracts more effectively.

This collaborative approach is also essential for garnering feedback from buyers/end users to understand their experience with the product and supplier. Supplier performance monitoring and management fosters innovation and mitigates risk. Suppliers' ability to meet contractual SLAs, quality of products and services, ability to add value and other such feedback made available to buyers and category managers help them make informed decisions.

So how do you think procurement has evolved and what does future of source-to-pay solution hold for us? What are the other characteristics of the new age procurement? Do let us know your views.

Saikumar is a Pre-Sales & Solutions consultant, and in his current role responsible for helping enterprises navigate the digital transformation challenges particularly in the areas of Procurement and ERP. Sai has worked across geographies and has performed multiple roles such as business consulting, pre-sales and solutions, business development and program management. He holds a master’s degree in Business and Systems management from SPJIMR, along with a graduate degree in Information Technology.