What is Smart Procurement?
Smart procurement refers to the use of technology to make manual, labor-intensive procurement processes more efficient. Smart procurement tools may use machine learning, artificial intelligence, IoT, and advanced data analytics to make procurement easier, more accurate, and more streamlined.
While it may sound futuristic, there are many examples of smart procurement tools that are already being used by today’s modern procurement teams. Here are some examples of smart procurement, how these tools can benefit your enterprise, and some tips for choosing and implementing smart procurement solutions for your team.
Smart procurement technology
There are many iterations of smart procurement technology. One of the most common forms of smart procurement is advanced data analytics — procurement analytics that makes use of spend data, vendor data, and market data to optimize purchasing.
Procurement analytics tools process historical data through advanced algorithms to surface key insights. These insights can be used to negotiate better pricing with suppliers, improve vendor segmentation, manage tail spend, gain cost savings, and maximize annual purchasing strategies.
These advanced analytics tools are often combined with machine learning and automation to make it easy for procurement teams to quickly access key insights. With procure-to-pay (P2P) systems, organizations can harness automation to improve their overall supply chain and cost management. P2P systems use automation to increase visibility and ease of purchasing throughout the transaction life-cycle, providing comprehensive insight into both cash-flow and financial responsibilities.
Spend analysis is just one area where smart procurement technology is helping organizations save time and money. Other smart tools include intelligent sourcing, procurement chatbots, digital assistants, and the internet of things (IoT). Procurement chatbots and digital assistants enable a self-service option for vendors and customers, saving time for the procurement team. And, with IoT tools, devices can track expensive pieces of equipment through the supply chain, verifying receipt, and triggering the next step of the purchasing lifecycle.
Benefits of smart procurement
Smart procurement is a broad category that encompasses a range of tools, from the more high-tech and futuristic (IoT) to those that are already widespread (automation and ML). As such, the benefits of smart procurement are relatively accessible to organizations of all sizes; but, not all companies will see the same ROI, depending on their level of commitment to the category.
Automation is one smart procurement solution that can bring a competitive advantage virtually overnight. One study found that organizations that use digital procurement tools decrease annual expenditure by around 5% to 10%.
In The State of Procurement 2020: Present and Future, Chad McDonald, Director of Procurement and Treasury at The Andersons Inc., reported that automation made a massive difference at his company:
“Automation [is] helping our organizations focus on things that are more strategic, rather than tactical. For example, we have eliminated approximately 80 percent of manual invoice processing for indirect payables because of these tools.”
Automation and other smart procurement solutions allow procurement teams to save time and focus on more high value-added tasks: supplier relationship management, improving supplier diversity, or other strategic goals, for instance.
Advanced procurement analytics also provide companies with actionable insights to better manage risk, reduce tail spend, and evaluate vendor performance. Fairmarkit’s reporting dashboards give procurement teams better reporting from improved data quality, improved negotiating power based on performance data, and an easy way to optimize budgets and resources.
[Read more: 6 benefits of automating procurement]
How to get started with smart procurement
Implementing a smart procurement tool starts with getting alignment from key stakeholders. Procurement teams should coordinate their goals with the overarching goal of the organization: how will this tool help the enterprise reach its objectives?
With leadership buy-in, the next step is to ensure the organization is ready for a smart solution. This means checking your data to make sure it’s high-quality, clean, and usable by any smart procurement tool. And, depending on the size of your organization, this can be a big task.
“Procurement functions generate more data than any one employee can track and manage,” wrote McKinsey. “At one midsize manufacturing company with approximately $2 billion in annual revenue, for example, procurement had data on more than 20,000 transactions for a single category, each with four to five statistically significant drivers of price.”
If you’re confident your data is usable, then find a smart procurement solution that integrates with your existing technology and automates the boring, repetitive tasks that suck up your procurement team’s time and energy. Fairmarkit, for instance, digitizes your requests and vendor communication to make the entire process more efficient, while also making it easy to measure compliance and report on KPIs. Our platform integrates into ERP and P2P systems to bring a layer of automation to any smart procurement technology you already have.
Naturally, training is also needed to ensure all stakeholders are coordinating procurement through one centralized process. Once everyone is aligned, your organization can start benefitting from smart procurement and building on your existing capabilities.
For more advice on smart procurement, check out Fairmarkit’s blog, The Source.