Procurement departments must be prepared for constant fire-fighting

In the highly dynamic and volatile market “Procurement departments must be prepared for constant fire-fighting”.

Heading towards the real-time economy, digitally integrating existing procurement processes is on the mid-term agenda of all major procurement organizations, estimates Procurement Expert Daniel Weise, Partner & Managing Director at Boston Consulting Group, Dusseldorf. How do the different regions and markets differ when you see the world from the procurement’s domain? Let’s hear Weise:

ABOUT THE CHARASTERISTICS OF DIFFERENT REGIONS AND MARKETS

The world has been highly dynamic and volatile over the last decade, and we have witnessed dramatically different developments in different regions and in different industries. The crisis mode seems to be going from one country to another almost overnight – just remember the financial crisis in Greece, the Ukraine/Russia conflict and the resulting sanctions, or the stalling growth of China. Therefore procurement departments must be prepared for constant fire-fighting.

The economic environment varies considerably by country and region. Procurement departments in the US and Europe are generally more mature, whilst in Asia Pacific they have been sometimes just recently established. Thus, for Asian procurement departments the topics of gaining spend transparency, automation, centralization and proper stakeholder engagement are the major themes. For the more mature procurement organizations in the US and Europe expansion into new activities, such as Supplier Collaboration, will become a main topic along with maintaining a strong savings pipeline and improving efficiency.

In the mature markets, companies are also finding ways to incent cross-functional collaboration between procurement and other departments. Projects to introduce e-invoicing are good examples of such collaboration – between procurement, finance, accounting and IT – but it does not stop there. Procurement can foster cross-departmental collaboration for instance in the development process of new products in technology companies: drive design improvements and design-to-value, also together with the suppliers, and provide should-cost analysis. In manufacturing, the focus can be on throughput time optimization together with strategic suppliers.

ABOUT ADAPTING TO THE REAL-TIME ECONOMY

In the procurement function itself, the main drivers for the development of the digital and real-time economy are mostly transactional order systems that are fully digitized. The category management related processes are based on isolated IT tools at best. This brings the opportunity to also automate sourcing-related processes in the area of category management. In the past, only parts of the sourcing related processes were IT supported, for example in Spend Management, eTendering/eAuctions, Contract Management, Supplier Relationship Management and Savings Tracking. Of course, paper-based, non-integrated process flows and a lack of standards lead to significantly increased documentation workload. Moving IT procurement processes to one platform or at least digitally integrating existing processes with well-defined interfaces is a mid-term priority for all major procurement organizations today.

The same is true for many processes within the wider corporation and in the interface with the customers, where procurement additionally plays a vital role in supporting its internal customers to bring digital solutions in-house. One practical example is the supplier interface into the company after implementation of a contract. Internal customers expect ordering systems that have customer friendly ‘Amazon-like’ user interfaces. The matching of invoices with orders should be automatic. Furthermore, eInvoicing is a growing theme in Accounting and Procurement, especially if one considers the high process cost of handling a paper invoice.

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READ MORE of Daniel Weise’s answers: Wanted: new talents and the cross-functional approach.