Rethinking Procurement Processes

Rethinking and restructuring procurement processes are the most challenging and complex hurdle firm’s face in implementing a strategy to respond to the digital transformation imperative

Except for startups, nearly every aspect of procurement is an amalgamation of routines, policies, and vendors that piled up over time.

It’s difficult to know where to begin a transformational change that restructures hundreds or thousands of ad hoc solutions that addressed yesterday’s problems.

​Even more challenging, however, is that digitizing procurement processes require either reciprocal alignment with existing vendors or finding new partners up to the task.

The place to begin is a framework that captures the totality of an aspect of business that affects every customer, employee, vendor, and financial statements.

Our experience helping clients has taught us that a framework for procurement transformation begins with three broad categories:

  1. strategy
  2. technology
  3. rationalization

Strategy captures operational models and policy, technology encompasses all the digitization tools available, and rationalization is the rethinking of concepts and categories that currently limit digitization efforts. 

Procurement ​Systems Rationalization

Research on procurement practices over the past twenty years keeps uncovering the same problem: most companies have only partially digitized. 

Ever more documents are shared using common digital mediums (i.e., cloud platforms) but somewhere along the line the digital ball gets dropped: someone has to wait for a sheet of paper to arrive, get a sign-off, and sent back out.

Rationalization is the process of restructuring procurement processes, procedures, and even thinking to eliminate these inefficiencies.

​Rationalizing supplier segmentation enables firms to respond to market changes by either keeping, changing or choosing the vendor that best fits their business model.

We have identified four areas where procurement can be better 'rationalized' to facilitate digital transformation strategies: 

  1. categories
  2. supplier segmentation
  3. performance review
  4. data 

Business sectors and firms themselves are too unique for any universal category rationalization scheme to work.

It instead demands an inward-looking review of how current procurement processes deal with different purchases.

For instance, does an employee need to follow a different procedure or go to a different person to request a replacement for their work computer and office chair? Where the answer is 'yes,' but should probably be' no,' a single procurement category has been inefficiently split into two.

Supplier segmentation is the outward-facing side of in-house purchasing categorization.

Using the same example, purchasing both work computers and office furniture from the same vendor would make little sense unless a firm has adopted a 'unitary supplier' model of procurement.

The opposite might also be true: a single vendor might be able to offer competitive prices and comparable speed where multiple vendors are currently used.

Suppliers can be further segmented based on differential performance vectors like speed, cost, and reliability.

Rationalizing supplier segmentation enables firms to respond to market changes by either keeping, changing or choosing the vendor that best fits their business model.

Rationalizing supplier segmentation and purchasing categories will prove difficult if performance benchmarks and metrics are measuring the wrong things.

For instance, firms often compare their performance to sectoral peers on a purely quantitative level without taking into account qualitative contextual differences.

Elsewhere, vendor performance metrics emphasize cost and speed, where quality or reliability is more important. Questions like a suppliers willingness or ability to coordinate in your digital transformation strategy are impossible to capture numerically.

Finally, the firm's data must be 'cleansed' when these other rationalization questions are decided.

This involves converting old files into new standardized formats, storing similar documents together, making it searchable, adding new metadata where needed, and ensuring employees and management can find what they need quickly and easily.

​Perhaps even more critical, 'cleansed' data is compatible with all of the enterprise software or platforms it passes through along a newly rationalized procurement process. 

Procurement Transformation​Technologies

Dashboards

There's an emerging consensus among procurement transformation experts that the best practice in enterprise software and platform choice begins from the top down.

This is meant literally, not metaphorically, because the most digitally mature firms have procurement 'dashboard' systems.

A good procurement dashboard has two components providers purchasers the tools needed to quickly make procurement decisions while also providing up-to-date, relevant data to make their decisions. 

Procurement transformation starts 'at the top' because dashboard front-ends and back-ends will often look different depending on a firm's needs.

The front-end, or user interface (UI), is supplied by the 'rationalized' data discussed previously.

The process of thinking through which metrics and data should be displayed should guide decisions down to the data-entry level of the procurement transformation process. 

Who sees which data, and why, is a powerful tool to help decide how suppliers should be segmented and purchases categorized before it reaches the user making a decision.

Thinking through the types of control (and at what granularity) dashboard users could have at the click of a mouse, or single touch is often the catalyst to transformational thinking.

It's the first time many digitalization skeptics appreciate both what's possible and how their current processes need to be transformed for the dashboard to work. Data incompatibility and analog processes can cripple dashboard effectiveness.

Likewise, deciding what a dashboard should be able to do and what it should show guides downstream enterprise software decisions.

Software or enterprise platforms that can't be integrated with the dashboard, either by feeding relevant data or executing its commands, needs to be replaced. 

The dashboard is similarly a lens bringing wasteful human intervention overcoming software or data incompatibility into view. 

​Policy

Picking the ‘best’ technologies and comprehensive rationalizations of systems is only effective if procurement policies change in tandem.

There is no “one size fits all” approach to what form these changes should take. Depending on the context, for instance, procurement might need more centralization or decentralization.

Digital transformation strategies offer executives the ability to delegate more granular procurement decisions to more employees.

Dashboard systems can pair greater responsibility with accountability in the form of performance metrics and history. Providing these tools would look like centralization for firms where ‘shadow procurement’ is rampant.

Digitally maturing companies must also make difficult decisions about their vendors.

Procurement transformation often requires digitally mature vendors who can ensure software and process compatibility.

Some firms have chosen to switch to a single supplier, or Unified Procurement Strategy (UPM) because the vendor offers an ‘all-in-one’ enterprise software platform to access their massive product catalog.

Whether UPM fits with your business, and digital transformation strategy is a policy question. 

​Don't Get Left Behind

​Schedule a free consultation with Visichain to ensure your supply chain and procurement operations continue to evolve and remain competitive in today's dynamic ​environment.

Richard McGirr

Do you need to create value and deliver change in your enterprise?With Visichain as your partner, you can leverage over 1 million hours of supply chain transformation experience from some of the largest companies in the world.Visichain drives visibility, productivity, and efficiency throughout your entire supply chain.Supply chain visibility at scale is essential to your business. Starting with the production of products all the way through free on board receiving, your business needs real-time data to help you minimize risk, drive efficiency, and make better decisions.Visichain designs, develops, and implements powerful yet easy to use software. Powerful solutions crafted to help your executives and supply chain managers leverage multiple data systems to partner with sourcing suppliers in real time.When you're ready to kick your procurement transformation strategy into high gear, send me a message through LinkedIn.