As historically paperbound processes advance from automation to intelligence, procurement departments must address data and culture change.
Up to half of the purchase orders from the purchasing department at Chicago-based manufacturer JBT required a change before the product was received. Buyers had to comb through thousands of lines on a spreadsheet to update quantities or other parameters and send the supplier new information by phone, fax or email.
To tame the beast, Terri Decker, supply chain performance manager, turned to a tool that communicates order changes in real time with suppliers and confirms that the supplier knows about the revised order.
“If there are no more changes, we just wait for the product to come in,” she said.
The tool, SourceDay, is a supply chain collaboration tool that’s part of the emerging wave of procurement technology that companies are using to manage spend. One customer was able to save $35 million in revenue during the COVID-19 shutdowns by automating purchase-order management, SourceDay CEO Tom Kieley said.
The coronavirus pandemic also highlighted the need to manage risk in the supply chain and, in turn, the need for technology and visibility. Dun & Bradstreet found that 5 million companies, including 938 of the Fortune 1000, had tier 2 suppliers in the Wuhan region in China, where COVID-19 first appeared.
“It’s critical to understand your supplier’s supplier, but right now, it’s a very manual process to build a database that can then be tracked via automation,” said Bryan Fuller, executive director at CAPS Research.
Expect tech to be smarter
Procurement technology is advancing on an arc from automation to intelligence.
Historically, procurement has been a paperbound process built on requests for quotation and purchase orders that requires manual input, reviews and signatures. In the past 15 years or so, companies have adopted procurement technology to automate processes to reduce administrative costs and bring them into the digital age.
Turning transactional processes over to robotic process automation (RPA) is common today. Robots aren’t replacing humans, but rather software can automate repetitive, transactional tasks, such as paying vendor invoices or replenishing inventory levels based on triggers like the amount of product shipped.
When repetitive tasks are automated, the procurement staff can focus on high-impact decisions instead of managing purchase orders.
“Automation frees our buyers up to do other things to help improve our supply chain,” Decker said.
The next step is using prescriptive analytics to understand contracts and spending and make recommendations, Fuller said.
Beyond that, expect tech to get even smarter.
“Around the corner is artificial intelligence or predictive analytics to tell you what to order and when, based on signals it has learned, like weather or consumption patterns, and can fully execute orders on its own,” Fuller said.
For some companies, the future is already here. Jacob Gorm Larsen, head of digital procurement at Maersk, has run more than 10,000 e-auctions, online reverse auctions where the buyer posts a request and suppliers bid to win the contract. The process saves buyers from pursuing multiple quotes and helps determine the best market price.
The auction can include performance requirements, so it’s not only focused on price. Some auctions use RPA to invite suppliers to participate without a buyer’s input.