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Digital Solutions Help Move the Procurement Needle
By Joseph Santamaria, VP of Technology & CIO and Robert Friend, VP of Procurement, PSEG
Information technology is a critical component of any business. Virtually, business processes in every industry are digitizing. New business models supported by information and transactional platforms are emerging, and deep insights into customers and operations are creating new value streams every day.
Procurement Services are no exception.
Over the last few years, Information Technology has enabled new transactional capabilities; expanded collaboration in the supply chain; accelerated cycle times; provided deep, real time insights; and strengthened controls in the value chain. Eventually, these benefits will drive a) improved purchasing price and terms resulting in bottom-line value and lower enterprise risk, b) reduced process costs by accelerating transactional ‘tempo’ and eliminating rework areas, and c) improved controls.
New transactional capabilities
Electronic catalogs, be it punch-out or in-house, represent one of the largest value drivers in the usage of technology for Procurement. Compliance and maverick spend benefits of allowing users to quickly find what they need, buy only approved material and services from preferred suppliers at pre-negotiated prices tend to be around the 3 percent of catalog spend, resulting in tens of millions of dollars for a Fortune 500.
Procure-to-Pay solutions help to automate, streamline and improve controls throughout the entire process. Managing the documentation generated by buyers and suppliers to generate purchase orders, quotes, invoices, required supplier certifications, terms and conditions can only be reliably accomplished with technology and the deployment of a document control system native to the procurement solution or integrated with it. Having consistent documentation with suppliers will eliminate rework stemming from mismatches (pricing, quantity), resulting in real savings and improved supplier and employee satisfaction.
Productivity gains allow Sourcing professionals to focus their valuable time on upstream value-added activities, such as developing strategic solutions that best meet the needs of their stakeholders, mitigating risk, maintaining assurance of supply, developing and managing strategic supplier relationships, and streamlining the downstream transactional activities.
After having invested in improving internal processes, businesses need to focus now on achieving the same degree of insight, automation and service quality in the external components of the value chain.
Early in the Procurement cycle, paperless and electronic Request for Quotation, Requests for Proposals and Invitations to Bid (RFQs, RFPs, IFBs) – as well as processing quotes and bids into contracts, requisitions and purchase orders – can be electronically managed without duplicate data entry and preserving the end-to-end transactional integrity throughout the contract lifecycle. This degree of automation lowers total transactional cost and enables sourcing activities for low-cost items that otherwise would be prohibitive. An example would be a “three bids and a buy” program in which network certified suppliers are issued a bid and the buy awarded to the most favorable offer in a fully automated process.
Supplier networks also allow for full transparency of information and moving controls up-front in the transactional cycle, hence avoiding costly rework downstream. As an example, suppliers submit invoices via the electronic network, and pricing is system validated before being accepted. If pricing does not match, the invoice is rejected. Similar rules can be defined with virtually any control point (quantities received, submission dates, discounts.
Activity automation and digitization allows real-time controls, policy enforcement and traceability of documents and activities. The use of workflows and electronic versioning for document review and approval enable shorter sourcing cycles while improving the quality of outcomes.
Up-front controls in the network, elimination of maverick and reduction of “off-contract” spend permit real-time invoice validation. This prevents the submission (let alone payment) of duplicate invoices and price mismatches between contract and invoice.
As regulation or corporate policy dictates allocation of spend to certain business segments (veterans, Women Owned Business), an electronic and reliable supplier registration coupled with insightful analytics will allow for proactive management of policy attainment and modeling of various ‘what-if’ scenarios to ensure compliance does not compromise savings and value attainment.
Improved controls will not only result in lower enterprise risk through compliance, but also hard savings that are required of the Procurement organization.
In order for a Procurement organization to be successful, it is critical that it can effectively and efficiently profile and analyze the company’s spend. Procurement information that resides in ERP Systems are not stored or organized in a way that is easily evaluated and reflects the categories and sub-categories that a company purchases. Spend Analytic solutions help to take the information from an ERP System and transform it into useful information in accordance with a Taxonomy of Categories and Subcategories (e.g. Information Technology - Hardware > Laptops, Desk Tops, Servers.). This allows Procurement to understand who (internal users) spends how much, how often, on what and with whom (suppliers). Moreover, this information provides the bedrock for the development of effective Category Management strategies. These solutions put this information at the fingertips of Sourcing professionals, enabling them to leverage and consolidate their often highly fragmented spend.
Supplier Performance Management
Suppliers play a key role in the success of every company. Everyone in the company that works with suppliers plays an important role in supplier management. There are now integrated technology solutions that help to capture supplier performance information for KPIs (Key Performance Indicators) on things like Safety, On Time Delivery, Order Fulfillment Accuracy, Customer Satisfaction Survey results, etc. They then, put this information into online Supplier Scorecards and Dashboard, allowing internal stakeholders and Procurement to effectively monitor supplier performance across the enterprise and utilize that information for supplier feedback and Continuous Improvement initiatives.
Evolving digital technologies are playing an increasing role in support of effective procurement strategies. e-Procurement solutions need to be carefully assessed to ensure a good fit with the organization and validate vendor functional claims, there is little doubt that, coupled with an effective procurement strategy, they are instrumental to reduce costs, enhance quality and service levels and advance the strategic focus of the Procurement organization.