Over the last decade, the unstoppable march of globalization, market competition and rising prices have created a need for suppliers to be trained more effectively. When you add the shifting availability of raw materials to the equation, you have a department which should be embracing change in order to tackle some of these contemporary challenges.
In the US, the average cost of procured materials is around 54% of the value of shipments for manufacturers. We’re also seeing the cost of services increase, as some businesses try to lessen their dependence on physical goods and make a move towards virtual and cloud-based services. The point is: more time is being invested in sourcing and procurement. So to remain competitive in today’s market, companies are turning to eProcurement.
After getting to know the industry, get to know the best eProcurement vendors with the Procurement Management Product Guide
Strategic Sourcing and eProcurement
The departments responsible for sourcing and managing commodities, be they goods or services, are dealing with more complex purchasing processes. While a keen head for spend management is certainly not a new thing for them, it’s important to support your procurement team as internal priorities shift.
For instance, a steady increase in requested reductions is encouraging procurement teams to take a more creative approach to the sourcing of goods. It’s becoming harder to strategically manage the supply base and minimize waste at the same time, but this is essential if you want your business to remain competitive.
The Tricky Pursuit of Risk and Reward
Best-in-class eProcurement software can be a big help with this, so it’s worth taking a look at areas of possible automation. Programs like Verian Purchase Manager and Coupa Procurement are highly rated and provide a range of sophisticated automation and scheduling tools.
Ultimately, the aim of your strategic sourcing and eProcurement strategy should be to find a viable way to satisfy the demands of both internal and external buyers. You need to do this in a way that accounts for not just current economic conditions, but also big market challenges like digital disruption.
This is no easy feat because it’s tricky to bring the function and philosophy of integrated supply management chains together so that they can strengthen your position. Strategic sourcing is defined by things like the ability to exploit supplier competencies in a way that boosts sales.
It means leveraging spending in a way that contributes to and reinforces your competitive edge. The overarching objective of procurement is to fulfill operational needs by guaranteeing the consistent movement of materials, goods and services. However, this isn’t the end of the story. Procurement departments also have to accommodate for common market risks.
The Benefits of a Balanced Perspective
Strategic sourcing and eProcurement must be carried out in the most efficient manner in order to squeeze the maximum value out of your resources. Therefore, spending management and risk avoidance are vital parts of the process. The problem is that, traditionally, businesses have been used to responding reactively, rather than proactively eliminating vulnerabilities.
To shrink market risk and maximize purchasing power, procurement heads are advised to evaluate and categorize services, goods and materials in terms of their value for the business. It’s a good idea to account for the practical difficulty involved in acquiring them, because this relates directly to the degree of investment, whether it be financial, HR or time-based.
You’ve got to be constantly viewing this level of investment alongside the likely rewards. It can help you apply a more strategic perspective and pinpoint areas of unnecessary waste. Such an approach also promises to streamline your cost management systems and boost the power of your negotiation tactics.
When it comes to non-critical purchases, the goal is to secure the lowest possible price from a broad array of potential suppliers. The benefit of this is that you can afford to use multiple suppliers or switch between two or three because the cost of doing so is minimal. Generally, the vendors of non-critical goods are aware that their own competitive advantage lies with quick, cost-efficient transactions rather than physical value.
Most offer low prices and are flexible when it comes to procurement channels. It means that buyers can utilize competitive bidding, price lists, price indices and catalogs to optimize purchasing routines. It’s not unusual for there to be little direct contact because the emphasis for both parties is speed. This is not the case for every type of purchase, which is why categorization is a good way to understand and approach different types of procurement.
The pursuit of strategic goods involves significantly more risk. Often, this is because quantities are limited or there is only a handful of suitable vendors. Nevertheless, they’re considered critical because they play an indispensable role in your operation. As you don’t have the same amount of leverage here, it’s important to embrace negotiation and work closely with trusted suppliers. Look for top class CRM software for help and support.
Strategic procurement is much more likely to result in long-term relationships because it’s beneficial for both parties. When the buying and purchasing involve lengthy arbitration, nobody wants to hop between different organizations. It costs money and time to switch, so there’s more to be gained in collaboration and mutual compromise. In fact, these are the relationships in which you can really push for innovation.
Just look at Mobil and Ford, who entered into a broad-based strategic partnership to support the development of cutting-edge technologies. This is an enviable position for many businesses. Certainly for a buyer, it can be a chance to monopolize the market and be the only brand with access to a sought after product or service. Wherever possible, try to interact with vendors early on in the product development phase, particularly if you want a deal like this.
Finding the Value in Strategic Sourcing
Modern markets continue to demand a great deal from strategic sourcing and procurement professionals. It’s no longer enough just to look at the basic cost of a transaction. You’ve got to account for the total cost of procurement and its expected value. The first step is taking the time to assess and fully understand a purchase and its relationship to your business.
Key Features of eProcurement Software
Errors in procurement can interrupt other business pursuits and cause delays. Switching to eProcurement software also provides a streamlined platform connected to all departments within your business. These programs take advantage of integration and automation to give everyone access to tools designed to speed up the procurement process and minimize mistakes.
Look for these features in eProcurement software to get the most out of the platform you choose.
The software you use to automate procurement must work with the other systems already in place within your company’s network. The more integrated the systems, the easier it is for administration and departments to communicate. Real-time delivery of order and sales data prevents the mistakes currently costing your business valuable time and money.
Ensure existing suppliers have access to the eProcurement platform so that you can preserve the continuity of your supply chain. True integration from supplier to company to vendor is one of the key eProcurement software requirements to consider.
Access to Supply Catalogs
Switching to eProcurement changes the way your company shops for supplies. Catalogs are now provided in digital formats, and the ability to access and browse a diverse selection should be available within your chosen software platform.
Thanks to electronic catalogs, businesses now have a broader market from which to order. The supplier network has expanded considerably, giving you more options for supply sourcing and opening doors to new production opportunities. You also have the chance to comparison shop more easily across suppliers and procure materials at favorable prices.
Today’s work environment isn’t the same as it was even a decade ago. You and your employees spend less time at the office and more of the work day on the go. Staff members sometimes need to put in orders from remote locations, and eProcurement software allows them to do so. By moving a previously segmented in-house process to a mobile-friendly cloud environment, eProcurement software gives you the freedom to manage the supply chain from any location.
Look for a program offering a reliable mobile app with an easy-to-use interface. It’s best to try out multiple demos until you find the right combination of power and ease so that you and your employees can begin using the software without the need for lengthy training.
Efficient Contract Management
Traditional procurement methods rely on each department doing its own purchasing and keeping track of spending. Even with clear instructions from management, employees don’t always stay within guidelines. Project costs can be underestimated, and spending habits can get out of hand without your knowledge until a job is well underway.
Use eProcurement software to view the details of every interaction between department heads and suppliers. You should be able to customize contracts and purchasing environments for each department so that the right details are available and nobody goes over budget. Administrative tools give you the power to follow all contracts through the entire procurement process and ensure everyone stays in compliance.
Purchase reporting is a critical feature of eProcurement software. Investigate the reporting options included in software platforms before making a final decision. Reports should show past orders, invoices, the amount paid and the details of the orders. With this information, you can easily keep track of spending across departments and see how much you’re saving by seeking out vendors offering materials at the best values.
With a powerful combination of eProcurement software features, your business can automate the most time-consuming parts of the procurement process and move forward without interruption. Looking for key requirements when setting up an eProcurement platform gives you the power and control to make the procurement process as efficient as possible. Faster procurement translates to faster production, giving customers a higher quality of service and preserving the relationships on which you’ve built your business.
The Future of IT Sourcing and eProcurement
It’s likely that over the next ten or twenty years, IT sourcing and eProcurement will become a very extensive part of most businesses. The hope is that these changes will increase transparency, support the need for better risk avoidance, and guide companies through some of the biggest challenges. Let’s take a look at some of these challenges and how they might shape the future of IT sourcing and procurement.
The expectation is that procurement will begin to move away from its narrow emphasis on compliance and start to take on a more comprehensive perspective. This broader approach will need to accommodate total risk exposure, risk transfer pricing, and investment in demonstrable risk mitigation.
In order to achieve these objectives, procurement departments are going to have to rethink their strategies for supplier risk management. It will be necessary to adopt new metrics as a way to streamline major sourcing and supply decisions. This will help to minimize waste and ensure that maximum value is extracted from every purchase.
It’s important not to underestimate the impact of a rapidly changing market. Right now, millennials are a purchasing powerhouse. They rule the roost and are set to gain even more of economic dominance. So, procurement functions will have to develop supply chains which satisfy them.
The best way to do this is to think beyond basic cost cutting measures. The reality is that younger buyers are less fixated on price. Compared to previous generations, they are much more likely to prioritize sustainability and CSR over knockdown deals. In time, this could see businesses swapping traditional linear supply chains for circular ones.
The influence of once sidelined economies will come to shape and define IT sourcing and procurement in the years to come. In fact, these emerging markets will transform the supply and demand trends that we have come to depend upon. The hot spots to watch are, unsurprisingly, China and South America, both of which are developing at a rapid rate.
Brazil, in particular, seems set to become a much more dominant market force. Procurement experts are predicting that big businesses will start to construct expertise in this region, as well as in countries like Russia and India. There may be a need for ‘on location’ procurement managers spread across a number of emerging nations.
It is a good idea for businesses to invest in their procurement departments right now, rather than waiting until the corporate landscape has already changed. In the future, procurement chiefs will require dynamic skill sets. They will need to support their companies as they adjust to meet a demanding and fickle global supply base.
In fact, the line between accounting and procurement is likely to become less distinct. If you want to get a head start, think about closing the gap between the two departments by teaching procurement agents key financial skills. The benefit of such crossover training is that they’ll be able to play a bigger role in the monitoring of internal and external costs.
If there is one thing which no business can escape, it is the glare of social media. We are living in an age of unprecedented exposure. It has become normal – expected even – for procurement strategies to be out in the open. While there are advantages to this change, it also comes with some major risks.
You’ve got to be willing to build procurement teams with a keen social awareness so that operational models are seen to fit with the brand message. The aim should be to train your employees so that they are capable of interacting just as successfully with customers and regulators, as they do suppliers. Social media management software is the key to success.
The Road to Procurement Success
The lesson here is that there’s no need to wait for the procurement landscape to change before you start investing in its future. In fact, businesses that are committed to internal development right now will enjoy a bigger competitive advantage in the years to come.
Over time, procurement managers will become so much more than buyers. They’re going to involve themselves fully in IT sourcing and become masters of the purchasing and supply chain, all the way across the board.