How to Solve Procurement and Spend Analysis Gaps

Posted: 01/11/2022 - 09:00
Five key priorities for digital transformation and how to enable it for success.

As you prepare to embark on your 2022 plans, it's important that your organization's digital transformation initiatives are properly supported. Tyler Higgins, Managing Director at AAerte, lists five key priorities for both system selection and how to enable it for success.

The boom of technology implementation and its effectiveness were quickly tested by the challenges of the pandemic. While some challenges were solved successfully – collaboration via video conferences – the pandemic has stressed the structure and effectiveness of other areas.

Procurement organizations have been thrust into the middle of numerous pandemic-created challenges – PPE, supply chain shortages, new technology systems, etc. – but the tools for their success have proven to be limited. Organizations have invested in deploying new ERP systems and analytics tools, but procurement is routinely stuck making decisions using limited data, with lack of visibility into line-item details or limited knowledge of the contract lifecycle.

But, with minimal investment and a renewed focus, that can change, and procurement can be positioned as a value-added function. The solution lies in actionable analytics, which changes the way procurement uses data and enabes the organization to be successful.  

Digitizing Procurement – Comply, Clean and Classify Supplier Spend

According to an IBIS world market report, the Global Procurement Software Market had an estimated value of $4.7 billion in 2020 and is expected to triple in size by 2027. The factors driving the market growth are the increasing need for the automation of the procurement process and the rapid adoption of e-procurement technology.

What isn’t captured is solving the challenges faced by specific procurement users every day. A new procurement tool may solve the process, but it can also create new bottlenecks in category management and vendor management.

On the positive side, implementing automation and e-procurement technologies will enhance overall process efficiency and provide the organization with improved data that’s needed to make data-driven insights and recommendations. A critical participant in the development of these systems is the everyday user to ensure that data is constructed in a usable way without being a burden on the front-end user.

According to procurement reports, only 66% of surveyed companies are automating spend analysis by using technology that compiles, classifies and cleans supplier spend information. Most companies are focused on the transaction and the financial system, but not necessarily enabling procurement users to be successful. A strong platform will need to enable data integrity, which is a central element in achieving transparency and actionable data.

Achieve Expected Efficiencies and Avoid Pitfalls

When companies fail to structure their system appropriately, it creates newfound headaches and stress on procurement: The expected efficiency is not achieved, the value output is not realized and user experience crashes.

A stop-gap solution is to leverage custom build power BI or related system dashboard tools that capture data from your legacy systems, enrich that data and realign it to make procurement decisions.

For those organizations with robust data lakes and strong master data management, vendors have deployed custom tools for companies of all sizes that allow them to be more productive and deliver more value.

In a time where procurement’s role is rapidly increasing and price pressures are expected to continue, having the right data and visibility is critical to turning procurement into a strategic advantage.

Once the tools exist, procurement still needs to use them. Ideally, spend transparency and analytics capabilities create a view that will go beyond just assessing costs by combining the first layer data with external data sources such as security assessment risk, legal risks and geographical risks from other parts of the organization.

Procurement is most enabled for success when robust data establishes a 360-degree view to make better decisions, while also highlighting various supplier exposures and supplier risks that are critical functions of a procurement department.

Most closely tied to this is ease of use. The most robust tools, at times, are the most challenging to use, which once again limits the efficiency and value created from them. The appropriate training and success enablements for procurement will position the true value to be realized from the technology investment.

Future View – Movement from Tactical to Strategic

Finally, as procurement departments embrace new technologies the organization’s structure will change. Success for people needs to be enabled with the structure of your team. Resources will move away from focusing on tedious transactional and administrative tasks – the system should take care of those – to integrating data and analytics into their category strategy, strategic sourcing and vendor management.

Category knowledge will still be important, but the ability to analyze and generate strategic insights to make decisions will become the department’s most important skill. Procurement’s structure is evolving from tactical support organization to project-driven strategic network. Procurement must no longer be a siloed department but integrated into the broader organization’s value chain.

As you prepare to embark on your 2022 plans, consider these five key priorities for both system selection and how to enable it for success.

  • Cost: Ensure that there is a significant return on investment, both tangible and intangible, by deployment of both the e-procurement solution as well as the necessary tools to enable your people to be successful.
  • Processes: Ensure that procurement processes are well defined, and your solutions support these processes without the need for significant customization and or manual interventions.
  • Single Source of Truth: Ability of the software to integrate seamlessly with other systems across the enterprise to avoid additional configurations and/or customizations to create a single source of truth that allows for robust decision-making.
  • Agility and Scalability: Flexibility to deal with new categories, commodities, suppliers, and new systems as they get added to the enterprise as well as roll outs to new business units and/or new acquisitions.
  • Training and Change Management: Ensure that there is robust training and change management programs in place to ensure that employees who use the e-procurement solution are conversant and there is complete adoption across the organization.

About The Author

Tyler Higgins's picture

Tyler Higgins brings 15 years of consulting expertise to AArete where he is a Managing Director and leads the global management firm’s Strategic Profitability Improvement group. Higgins specializes in developing and executing complex strategies and sophisticated solutions for complex business challenges. One primary focus of his has been the execution and delivery of strategic sourcing efforts across retail, financial services, higher education, manufacturing, and  transportation.

Higgins' range of expertise covers most supply markets and most up and coming procurement-related tools allowing him to deploy innovative solutions across these industries. Higgins has executed thousands of sourcing projects amounting to over $2B in financial value. Higgins has been routinely quoted and published by national news publications and leading industry publications as well as routinely published as an expert in a variety of supply markets. Higgins has a Bachelor of Science in Environmental Economics from UC Berkeley.