Traditional procurement processes can be characterised by manual and resource-intensive activities. Even where some automation is in place, there can be unacceptable levels of manual transactions and activity to address exceptions, ad-hoc purchases or specific project requirements.
Plus, many companies still use very traditional tools, such as emails, spreadsheets and phone calls to engage with their suppliers. This activity, not just constrained within the Procurement function itself, makes for an often confused and costly engagement with suppliers.
This paper asks the question why? when there are automation tools specifically to address ad-hoc, project and more complex purchases that can be integrated within current processes and automation tools. Exploring some of the issues associated with these traditional procurement processes and the alternative use of procurement automation to address this.
The Full Traditional Approach
A traditional procurement process is characterised by manual events, including many small, repetitive tasks. These tasks could be anything from approvals, writing RFxs contracts, negotiations and discussions of bids. Typical phone calls between a buyer and a seller can take an average of six minutes per call for basic interactions.
Traditional processes are also characterised by many email exchanges, sometimes with attached order forms or order forms pasted into the email. Changes to requirements often sent through by follow up emails.
On receipt of goods, any issues are similarly addressed with emails exchanged within the organisation and with the supplier. Plus, acceptance of goods processes are often overlooked and invoices remain unpaid until some manual follow up actions are taken by the supplier or finance function.
Typically, with a traditional process, documents are printed out by multiple parties and filed away for a specific functional team’s requirements. Or used to obtain signatures for approval purposes.
Managing approvals, invoices and bills this way is both wasteful and costly and of course prone to errors and loss of paperwork. Plus, there have to be sufficient people to manage the processes, with business expansion resulting in a direct correlation to an increase in headcount.
Samuel Greengard the author of “The Route to Better Procurement” states that “traditional procurement could be costly due to the presence of many ledgers associated with many suppliers.” Whether these ledgers are in paper or email folders the issue remains the same: the cost of a traditional approach will escalate out of control as an organisation grows.
Understandably, procurement is a difficult process to manually control across an organisation. This is underlined by the fact that many groups with different users are involved, with individual departments responsible for each element of the overall process. This makes visibility blurred, leading to a greater loss of control. This is usually exacerbated by miscommunication between individuals and the many suppliers involved.
Spend control, In such an environment, is typically triggered at intervals to try to get “spend under control”. Possibly using consultants to explore where all the money is going!
Trying to manage cost in such a reactive way just makes things worse. Why wait until things are out of control before addressing your spend. Also, why use consultants to sort out your poorly maintained documentation and processes: why not provide the consultant with the data and tools they need to be more efficient with their time.
There is also the trap of “spend under management”: if I can achieve over 60% of my spend under the management of Procurement surely that is my job done. Other, more difficult and complex spend areas, I can leave to other department heads and their budget control. This is very traditional thinking over what can be achieved.
The Part Traditional Approach
So, you have invested in a Procurement automation system that handles suppliers and provides a mechanism for users to raise requests. It allows you, as Procurement, to manage the Direct Spend of your organisation and provide a service to users to handle their non-Direct procurement requests.
Your system has a process to follow that reflects what you need as Procurement.
This approach partly automates and manages to some extent the transactional activity. However, much of the interaction with suppliers will occur outside of this process. Plus, there will be a tendency to work around restrictive processes that do not reflect the specific needs of users and departments throughout the organisation.
Process flows of these Procurement automation systems typically follow a rigid path and there can be no flexibility on the process steps that have to be used. Whether the user needs some paper or a forklift truck the process is the same.
A critical issue is a need for users to interact with potential suppliers. Often the user is the expert and knows exactly what they require. However, if the automation process will not allow for this interaction, they will fall back on traditional contact routes to suppliers. Bypassing any system that could provide an audit trail of transactional activity.
The answer, of course, is not to change this system. Replacing one dinosaur with another will not help. The key is to address the users need not just the need of the Procurement and Finance departments.
Flexible Spend Management Process Automation
A key component to overcome these challenges is automation integrated into your current business systems. Linking buyers and sellers into one single platform. Plus, importantly, providing a flexible mechanism for users to make purchases, without involving Procurement in the day to day transactional activity.
If you already have a Strategic Procurement platform, then augmenting this with an effective Spend Management solution could be the answer to reducing cost and time wastage.
A flexible Spend Management platform removes any repetitive lengthy operations associated with approval, contracting, negotiation, and discussion and replaces them with more automated processes and use of standard forms.
A Spend Management platform improves visibility. Bringing all users, procurement professionals and supplier transactions onto one platform. Suppliers, delivery and financial information is then stored in one consolidated system.
Additionally, integration to your key systems, such as payment systems and warehousing software, is achieved. Ensuring that the loop is closed from supplier selection right the way through to invoice payment on all purchase activity.
Dashboards provide users, and Procurement, with holistic information relating to any. Resulting visibility and control over every transaction locally, nationally and globally.
Note: using a cloud-based Spend Management solution enables access anywhere and at any time. Ensuring that significant efficiency gains can be realised across a geographically dispersed organisation.
What is your next step?
Read more on how Claritum's Spend Management Solution might help to solve your problems
Take a look at some Case Studies to see how others are using the solution
Contact Claritum to see how you could move your Procurement processes forward