Digitalization: Integration of digital technologies into everyday life by the digitization of everything that can be digitized. (via Business Dictionary)
With definitions like the one above, it’s no wonder so many organizations struggle on the journey towards digital procurement. The problem is, it’s not just one thing we’re trying to wrap our brains around: we need to comprehend digital, digitization, AND digitalization. Seriously?
In this article, I’ll explain the difference between the three; touch on some of the benefits and challenges of taking procurement digital; and address the biggest question most organizations have on this topic: WHY ALL THE FUSS?
First, the definitions:
- Digital data (or content) can be captured in binary code, which makes it possible for it to be stored, retrieved and shared via computers. Basically, if you have something in “soft” copy, it’s technically digital.
- Digitization is the process of converting data from analog form into digital form (think typing your handwritten notes into an email or scanning a sheet of notes as an image that can be uploaded).
- Digitalization is the process of using digital technology to change the way businesses operate. It’s a pervasive shift in mindset and approach, and may significantly alter individual companies or industries.
From procurement’s perspective, the best way to assess whether or not you’re working in a fully digital environment is to look at the procure to pay (P2P) process in the broadest sense, searching for places where anything happens in hard copy. If you find any examples of that, the process isn’t digital from end to end.
The “easy” places to take procurement digital include recording product/service specifications, creating RFxs and storing supplier proposals and documentation/communications involving suppliers. But there are also some areas where companies are likely to struggle to achieve full digital procurement status:
Contract Signature: While eSignature platforms have come a long way in terms of functionality and security, not all legal departments are on board with considering a contract to be fully executed without a traditional signature – something that must be captured in hard copy. This is especially important to point out as “smart contracts” are being touted as one of the early applications of blockchain within procurement. Part of the benefit would be to use blockchain to validate the identity of the signatories. If legal teams can’t warm up to more traditional eSignature technology (like DocuSign, PandaDoc, EverSign, SignRequest, etc.) it’ll likely be a long time before they’re ready to put their trust in blockchain-enabled contract signatures.
Payments: Yes, to be fully digital even payments to suppliers need to travel in “soft copy” – meaning no paper checks. Electronic funds transfers (EFTs) may take a number of forms, such as wire transfers or direct deposits. With same-day ACH being rolled out this past July, electronic payments can travel even faster from buyer to supplier; still not in real time, but progress all the same.
“Three-Way Match” Documents: Near the end of the P2P process sits the “holy grail” of the three-way match: purchase orders (POs), invoices and order receipts/packing slips. To be fully digital, procurement must prevent these from needing to be managed in hard copy. The real challenge is that it means suppliers need to be on board with the digital initiative as well. In fact, far from being so far downstream that they’re hardly given a thought by procurement during the supplier evaluation process, each supplier’s ability to conduct business digitally should be a key question that has bearing on the award decision.
There’s digital, and Then There’s Digital
Technically, you can digitize a contract by taking a picture of each page with your smartphone and uploading them to a company shared drive, but this defeats the entire purpose of digitalization. Going digital should change the way a company works – largely through the accessibility of information from a virtual, centralized location. Unless someone takes the time to fully index the photos of the contract, it’ll be nearly impossible to locate when it’s needed.
A better option is having the full text of the contract and its metadata in digital form. The metadata would include a record of the redlining process, the signature timeline and all additions and amendments made to the agreement over its lifetime. And, of course, having the contract in a system designed for such a purpose rather than saved to a shared drive is better as well.
Why All the Fuss About Digital Procurement?
Centralizing all information, from the identification of a business need through payment and the management of supplier relationships, is a powerful accomplishment. It can change the value created and risk mitigated by procurement every single day, and have an impact far into the future. But just like taking a picture of a contract doesn’t realize the full benefits of digitalization, running a legacy process through a computer program leaves significant value on the table. Procurement needs to reimagine their talent, processes and data/document management frameworks to take full advantage of digital technology.