According to Deloitte’s Global Chief Procurement Officer Survey, 61 percent of procurement leaders delivered a better year-over-year savings performance in 2017, yet only one in four believe they’re contributing significant strategic value to their companies.
Aggressive changes in international trade relationships and newly announced tariffs on materials such as aluminum and steel have created a more costly and unpredictable situation for procurement leaders. North American companies spend more than $1.5 billion and waste 32.3 million man hours on procurement tools and processes every year. Taken together, these figures indicate that while procurement can still make marginal impact and reduce costs by focusing on traditional operational improvement initiatives, there’s a need for a strategic enabler. Procurement needs to become strategically aligned with other areas of the business.
From a financial perspective, there’s a clear need for procurement to function less as an isolated unit within an organization, and more as a collaborative player embedded within the business. Procurement plays a pivotal role in managing vendor relationships, balancing costs and delivering returns, but these responsibilities can slow down operations when the department operates separately and on a lag from the rest of the business. Fortunately for procurement leaders, there is new technology can help break down these silos and provide integration across departments.
The Throughput Time Problem
Any process time reduction by the procurement team is an opportunity to create additional savings opportunities, such as freed-up capacity to track down more cost-effective options or to review more bids per tender. When procurement functions as an independent operator, inherent problems arise related to throughput time that can negatively impact cash flow, sales, and customer satisfaction. R&D and product development teams decide what to make and pass along specifications, but in a traditional operating model, it can feel like procurement is always a step behind. By the time the procurement team has sorted out which suppliers to use for which components, and completed the requisite negotiations, production may already be behind schedule, and time to market is hindered.
Product Development and Procurement Partnership
Businesses with procurement and product development in separate silos are beginning to rethink their collaborative process in order to align the two functions and reduce any developmental latency. Better collaboration and communication yield improved efficiency and superior products, and procurement and product development must drive that initiative cohesively. When procurement is clued into R&D’s needs, sourcing time speeds up. Given greater context, the procurement team can ensure that they’re sourcing the most appropriate technology for the job, which will in turn make the development team run more efficiently, and drive improved customer satisfaction and profitability for the business.
Creating Process Transparency
Procurement has the potential to become the organizational nexus of shared information that drives forward-facing supply chain activities, such as decisions based on international trade strategy, or regulatory codes that change the location of inbound supply activities.
However, the issue of improving business collaboration is as much a technological problem as it is a structural problem. It’s valuable to physically seat procurement players alongside business counterparts, but without an objective understanding of how a procurement process is functioning in reality, collaborators are working in the dark.
Taking a step beyond traditional key performance indicators, both procurement and business players can benefit enormously from the capability to immediately identify bottlenecks that are driving up cycle times, negatively impacting cash flow, and damaging customer satisfaction.
For example, process mining, a new type of big data analytics, creates instant transparency into purchasing processes by pulling the “digital footprints” left by I.T. systems and visually recreating processes. With the help of process mining technology, decision makers are increasingly aware of every deviation from defined procedures. Only once the relevant stakeholders are working from the same playbook and have the same understanding of procurement processes can real collaboration truly begin.
Playing the Hero
By getting an innovative product to market faster, a business can improve cash flow, increase sales volume, and drive customer satisfaction. Procurement has an opportunity to play the hero by becoming a facilitator between its business counterparts and external suppliers in real time, to reduce time to market. Organizations have an opportunity to turn procurement into a source of savings by strategically sourcing and implementing procurement systems. Transformative solutions such as process mining provide boundless organizational benefits, no matter the department. However, business and procurement players must first play by the same rules, and survey the same data in a collaborative environment in order to cut costs and further improve operational efficiency.
With the right analytical solutions, procurement can be the hero that companies trying to keep up in an area of digital transformation need, by achieving success through better pricing, faster order fulfillment and automated processing.
Alexander Rinke is co-founder and co-CEO of Celonis.