7 Principles of Procurement Automation

Source-to-Pay (S2P) ecosystem

The search of the optimal path to procurement automation

In the year 2021, there's no more argument of whether or not to automate procurement processes. As we're now witnessing the rise of Industry 4.0 – the intelligent manufacturing by data-powered cyber-physical systems - procurement would no longer support the business with manual operations and a transactional mentality. 

Our aim is to integrate procurement into the global digital ecosystem and establish the nerve center that manages value streams and enables our business's competitive advantages. The critical challenge is to choose the optimal path to procurement automation. 

Best-in-breed and single-suite procurement automation strategies


Some companies prefer going blanket shopping for any fancy app that claimed to be the "game-changer." This is called the best-in-breed strategy. 

Its flip side is that new and legacy platforms, apps, and plugins need to understand each other. For that, the amount of integration to the existing ERP and interlinked operational systems could be overwhelming. Suboptimal integration results in fragmented data exchange between different systems. Multi-vendor relationships represent the contract and performance management complexity. 

An alternative strategy is called a single-suite. It assumes the acquisition of an ecosystem rather than individual platforms. Benefits of uniformity, integration and single point of responsibility come together with the bouquet of bottleneck supplier risks. 

As per the recent Procurement Leaders report, the best-of-breed strategy takes over, with 59% of CPO respondents pursuing it. This shift is happening because "several developments have taken place on the vendor-side, particularly around approaches to integration." This crucial factor of successful digital transformation has been discussed extensively in this post.

Procurement Leaders' infographics on current and future system strategy (best-of-breed vs. single-suite)

Strategy drivers for procurement automation

The definition of procurement automation strategy must be based on relevant drivers, i.e.,
  • Business drivers
    • Corporate strategy
    • Organizational culture
    • Legal entity structure
    • Regulatory requirements
    • Present and anticipated market situation
    • Critical needs and projected benefits of procurement automation.
  • Technical drivers
    • Legacy systems availability, functionality, and performance
    • Technical capability to fulfill business requirements
    • Interoperability, flexibility, and interfaces of existing systems
    • Quality of data.
  • Resource drivers
    • Availability of resources to lead and support the program
    • Available skills and competencies
    • Local culture and language.
  • Change drivers
    • Degree of process change required.
    • The commonality of processes across business lines and entities  
    • Decision culture
    • Risk management culture.
The mix of different drivers will form a variety of scenarios for further evaluation. The end result of that is the implementation strategy.

Basic principles of procurement automation

  1. The strategy should be formulated given relevant business drivers before you go shopping. Associated risks and rewards should be considered, and a proper risk mitigation plan developed and implemented consistently.  
  2. The digital transformation will hit the wall without appropriate changes to underlying business processes. Since the leading e-procurement platforms have been built upon the best-practice processes, it is advisable to adjust yours accordingly. The change will affect the entire governance model - from the manual of authority to job descriptions.
  3. The source-to-pay (S2P) process should be seamlessly integrated, with the data freely flowing across all modules and available for analysis at any critical step of the process. Your ERP could serve as the S2P backbone. Otherwise, an external e-procurement platform should be certified by the ERP provider for the standardized integration. The same applies to third-party modules you would want to bolt onto your platform.
  4. Establish a network of change agents across all lines of business affected by the new solution. Secure executive support throughout the program. Involve diverse stakeholders in the User Acceptance Testing (UAT.) The digital transformation is not just the change of technology - it is the change of culture and relationships well beyond the walls of procurement.  
  5. You will need to upskill people to create a new breed of professionals capable of operating your digital procurement system – business analysts, solution architects, product owners, master data administrators, etc. Don't expect IT or a vendor to handle that. You should take charge of the operation, first-line support, and evolution of your systems.
  6. Do not underestimate TCO. You're not only buying the software and its implementation but also
  • IT integration, 
  • data cleansing and migration, 
  • change management and communication, 
  • post-cutover support onsite, 
  • maintenance – both systems and infrastructure,
  • training and documentation,  
  • internal resources (1st line support, Master Data Management, system administration.) 
      7. Never stop monitoring costs and benefits. Years down the road, you would still be asked questions about the program's purpose and practicability. Especially assuming the never-ending flow of operating costs.

Benefits of procurement automation


Provided you followed the strategy and assumed complete control of your e-procurement platform, you would be able to unlock the treasury of benefits: 
  • purposeful KPIs, 
  • educated category strategies, 
  • efficient vendor relationship management, 
  • lean inventories, 
  • respect of stakeholders, 
  • a valuable and measurable contribution to the overall success of the business.
As the cornerstone business concepts and practices are changing under the influence of COVID, your e-procurement platform would become a vehicle for the future operational model: resilient, omnipresent, and collaborative. 

As the raw data already flowing across your systems, you should be able to extract and process it for new insights – risk management, supply base optimization, supplier innovation, and more. 

But most importantly, procurement automation will become your path to true agility, as it would enable the shortest sustainable lead time between the business requirement formulation and value delivery. This is the essential recipe for prospering in the era of Industry 4.0.

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More information on this and other exciting topics could be found in "The Technology Procurement Handbook." It represents 23 years of experience, billions of dollars worth of successful sourcing projects, and 1000s of hours spent on research, analysis, and content creation for the most demanding professional readers.
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Comments

  1. Vishal MehtaSeptember 17, 2020 at 4:15 PM

    How about ERPs being certified as integration friendly by Procurement tech vendors, CRM vendors and other ecosystem offerings that sit on top of the ERP to generate value for the organisation

    ReplyDelete
    Replies
    1. Sergii DovgalenkoOctober 3, 2020 at 11:57 AM

      I assume this is what I was trying to say in this section:
      "Your ERP could serve as the S2P backbone, otherwise, an external e-procurement platform should be certified by the ERP provider for the standardized integration. The same applies to third-party modules you would want to bolt onto your platform."

      Delete

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